What is on the horizon for commercial real estate in Massachusetts and New Hampshire?
The answer to this question – much like the general economy – is not fully clear. This is due to current uncertainties inside and outside of real estate. In a highly fluctuating economy, real estate is not just local. Construction costs, interest rates, and, yes, tariffs, can affect real estate values.
For example, it’s obvious that a 7% loan rate will cost a property owner more than a loan rate of 4.5%, which was an average commercial loan rate three years ago.
Example: A $1 million dollar loan with a 20-year amortization rate willl cost an owner $93,036 per year while with the lower interest rate, the cost to a borrower will be $75,918 per year. This reality also means a lower property value as a new buyer will expect to pay less for a lower return. The additional interest payments, in this case would be over $17,000 in terms of annual interest. In terms of a differential in cash flow, that interest rate could lower a building value on a cash flow basis by several hundred thousand dollars, noting that there are many other factors involved in defining commercial building values.
Property Demand
As an illustration of demand for industrial and warehouse space, FMP, a motor parts company has doubled their space in Lowell, signing a five year lease.
Factors affecting real estate values also have to do with demand for certain property types. Some of these trends are hard to anticipate. For example, quality industrial space is hard to find, and therefore, more expensive. The trend for Amazon and others to seek large warehousing properties throughout the region has placed a premium on even medium and smaller industrial properties. The cost of construction has also made older industrial properties more valuable and has provided incentives for owners to upgrade, expand, and in many cases, raise pricing.
A local example of these factors is Bell Tower’s successful relationship with Atlantic Salvage and the Corey Family, an auto salvage yard in Lowell that operated for 50+ years. Here, the owner, anticipating demand and dealing with restrictive, was able to work with Bell Tower to upgrade and lease to three separate industrial users at prime rents. It should be noted that a location on Middlesex Street and the owner’s willingness to reinvest in his property was a large part of this success. The lease deals were brokered by Fred Faust of Bell Tower.
Recently, this former auto parts complex was converted to three separate lease opportunities including metal fabrication, a paving company and a mobilization site for the new Rourke Bridge.
Other favorable local demand includes restaurants and food related business. In communities such as Lawrence and Lowell, many start ups are food oriented given cultural traditions and demand.
For example, on Essex Street in Lawrence, Gary Sidell and Vlad Saldana used a good deal of creativity and endurance – along with Lu’s owner Lyanh Harding- to complete a large expansion to the below pictured space. “With the cooperation and patience of the owner, we were able to leverage public and private funding,” commented Gary Sidell, Bell Tower Broker and the company’s President. By the way, when you visit, Gary personally recommends the Vietnamese pastries.
Newly opened, Lu’s Café and Bakery, Essex Street in Lawrence.
CoStar is a premium real estate listing service that maintains market statistics. Bell Tower CRE is a subscriber and holder of 10 “Silver Listings”, which provide elevated exposure for our clients.
The rental figures compiled by Co-Star in the Boston market show the challenges traditional real estate, mainly larger and more expensive properties have witnessed since the pandemic and beyond.
Boston Office Vacancy Rate: 14.6%
Suburban Vacancy Rate: 8.4%-16% (Subject to quality of the space)
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For the Merrimack Valley and Southern New Hampshire, fortunately, size and scale matter. The market presently values smaller, efficient spaces that are well located in urban and suburban communities. A family business might seek 1,000 to 1,500 square feet for a convenience store or restaurant. A professional, medical or counseling group may find it undesirable to work from home and seek visible and well maintained office space. This is in contrast to what we have observed in suburban office parks, where larger tenancies have been affected by traditionally higher pricing, generic space, older properties and lack of amenities. The Boston rental statistics bear out these assumptions.
Bell Tower represents many smaller communities where demand for retail, office, and non-profit uses continue to generate clients.
Demonstrating the viability of smaller office space, Bell Tower CRE has rented multiple rental spaces at 6 Boston Road in Chelmsford and 130 Parker Street in Lawrence.
Examples
These are the general trends that Bell Tower’s brokers and agents have observed in commercial markets over the past six months:
⬆ Small commercial or retail space.
⬇ Large or suburban Office complexes.
⬆ Industrial Properties.
⬆ Multi Family Properties.
➡ Larger mixed use Properties.
Opportunities
In every market there are opportunities. Principals may be buying, selling, or repositioning their properties. Knowledge and ears to the ground are important success factors in real estate. At Bell Tower, our five agents and faciliators observe market trends and property status, literally, by the hour. Our job is to constantly be aware of property demand, turnover, new listings and would be projects. Often we see properties about to come on the market or investors are reaching out with particular requests and criteria. We witness critical incentives that a community government body may be providing, which often can make a bottom line difference. Much as you may engage a financial advisor, part of our job is to look out for clients and to give them a head’s up on an opportunity, caution them about a concern, or advise on opportunities. That is why it’s important to go beyond a day to day listing and to establish a relationship with a knowledgeable engaged commercial broker. Consultations are offered without cost, with the idea of establishing mutually beneficial business relationships.
Feel free to call Bell Tower Commercial Real Estate Group – Gary Sidell, President, or Fred Faust, Principal Broker – to discuss your real estate needs – large or small. Contact us.
