Boston's Real Estate Boom
Published in the Financial Times, July 25, 2007 by Rebecca Knight
Edward Bayone
Professor at the Brandeis International Business School |
Work begins on Boston's building renaissance
In a shabby parking lot in Boston's theatre district, work has begun on a 25-storey hotel that includes 100 luxury residential condominiums. Just a few blocks away, in the city's leather district, developers have broken ground on the 12-storey Two Financial Center office building at South Station. And earlier this month, construction started on an apartment complex in the Bulfinch Triangle near North Station.
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After years of stagnant growth, the city of Boston looks like one giant construction site. Indeed, the city is in the midst of a building boom not seen since the last big construction wave that took place in the late 1980s.
"The development that's taking place in Boston right now is unprecedented," said Susan Elsbree at the Boston Redevelopment Authority. "Cities are very hot. People want to live in cities. And from a corporate perspective, Boston is a quick flight to Europe which gives us a leg up on the West Coast."
Boston's building renaissance is happening across the city and is emanating from a broad base of sectors: from hospitals, universities and hotels to industrial companies filling the demand for office space.
Ms Elsbree attributes the boom in development to the $20bn investment that the city has made in public infrastructure over the past two decades. Boston's Big Dig, the highway project that replaced an elevated freeway downtown with a widened road and provided a third tunnel connecting the area with Logan International Airport, has made the city more accessible. Meanwhile, the harbour cleanup and the Rose Kennedy Greenway, a series of parks and public spaces in downtown Boston, have improved the city's image. "The confluence of these things is coming to fruition, and having an economic impact on our city," Ms Elsbree said.
Boston's economy took a hit after the technology bust. Office vacancies soared and in the course of several years the city lost a series of corporate headquarters including Fleet Bank, John Hancock Insurance Company and Gillette. Today, however, Boston - like a lot of other US cities - is enjoying an environment of low interest rates and favourable capital markets.
At the moment there are 75 development projects taking place in the city, worth $3.3bn. A further 100 projects worth $5.6bn have been granted permits, but will not begin construction until the autumn or early next year. A "project" is defined as any prospective building over 50,000 square feet. According to the BRA, office vacancy rates were 7 per cent in the first quarter of this year - half of what they were two years ago. Rents have risen dramatically, as well.
The city - home to Harvard and MIT among other universities - has a highly educated workforce. According to US census data, nearly 36 per cent of Boston residents have at least a bachelor's degree, compared with 24 per cent nationwide.
Ed Bayone, professor of real estate and finance at Brandeis International Business School in Waltham, Massachusetts, said the development was also powered by efforts to make Boston a more prominent city for businesses. "Boston was once a 12-hour city, today it's an 18-hour city, and there's a movement to make it a 24-hour city," he said. "That shift is fuelling hotel construction, retail development and high-end condo construction."
But some are sceptical the boom will continue. Michael Harrity, real estate investment professor at Babson College, in Wellesley, Massachusetts, said: "Boston is doing well, but growth in jobs is slow and our population growth is small."
Edward Bayone is the Earle W. Kazis Professor of the Practice of Finance and International Real Estate.
