Eric Shabshelowitz

Boston Office Rents – March 2020 Update

Demand for Boston office space is still high, and we have seen rent rates continue to rise.  The chart below is based on available data, but in practice we generally are not seeing the large gap in rents between Kendall Square and Harvard Square from Back Bay and the Seaport District that the chart indicates.
 

Office Rent Rates

Source: CoStar

 

With companies' office needs changing, many tenants are seeking to do shorter term leases than the 3-5 year minimum commitments that landlords generally prefer.  Companies looking for a long-term lease may consider one of the neighborhoods that has not seen rents increase as quickly as others, since they can present opportunities to lock in at a lower rate than that area might see.  

As rent rates continue to rise and with interest rates at record lows, it is also a great time for businesses to evaluate options to buy their office space rather than leasing.  Those opportunities can be harder to find, but they are out there - contact us to help you with that search.

 

 

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How Much are Retail Rents in Boston - January 2020 Update

Most retail rents in Boston are quoted in terms of rent per square foot per year.  For example, leasing a 1,000 SF space for $60/SF would mean the annual rent is $60,000 - or $5,000 per month.  Most retail leases in Boston are triple net (or NNN), meaning that the tenant also pays all or a portion of the real estate taxes and common area maintenance (CAM) for the building.
 

Market Rent for Retail Space ($/SF)

Source: CoStar, January 24, 2020


Boston's Back Bay, driven mainly by Newbury and Boylston Streets, is still the priciest neighborhood in Boston.  The average numbers shown above are just that - "averages" - and we see deals close above these levels on Newbury and Boylston Streets.  Overall, neighborhoods/areas have mainly all followed a similar cycle.  As the chart shows, retail rents in most areas are expected to level off and remain steady for the next few years.  

The "best" retail location for a business is not necessarily in the neighborhood offering the lowest rent.  It's great if the rent is lower than in other neighborhoods, but your sales must still be strong enough to support the rent (generally speaking, rents are lower in areas where most businesses expect sales to be lower due to various factors, such as foot traffic and daytime population).  As part of your site selection process, it is important to consider your target consumer(s) and determine whether you will be able to effective reach/serve them at the locations you are considering.  This is something we are happy to help you evaluate and consider - feel free to contact us to discuss.

Are you searching for retail space for lease in Boston?  You can start your search here.

 

 

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First Look at Final 2019 Condo Sales Data

Happy New Year!  We are still digesting all of the data, but here is a quick look at how Boston’s condo market performed in 2019.  Looking at a sample of neighborhoods, average condo sales prices per square foot were slightly below 2018 levels in a number of them.  There are certainly areas that experienced growth - for instance, the average condo sale price per square foot in Jamaica Plain was up 2.5% in 2019.  At $536.38 per square foot, the average condo sale price in Jamaica Plain is still half as much as Beacon Hill ($1,212.32/SF), Back Bay ($1,247.61) and South End ($1,030.86).
 


Source: Based on data compiled by MLS Property Information Network, Inc.

 

The number of sale transactions was lower in many neighborhoods.  The number of condo sales in South Boston was down 14%, but South Boston still saw more sales than many other neighborhoods.
 


Source: Based on data compiled by MLS Property Information Network, Inc.

 

Check back with us!  We continuously review data to help identify trends and potential opportunities!

 

 

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Planning for a New Office in the New Year?

The end of the year is a time when many businesses start planning for the year to come. With 2020 almost upon us, here is a quick look at the market conditions in a number of Boston's most popular areas for office space. We organized them in the order that we typically receive questions from businesses that are curious about the Boston office market.
 

"How Much is the Rent?"

Office rent rates within and around Boston can vary quite significantly. Cambridge (particularly from Kendall Square through Harvard Square) and Back Bay continue to be the most expensive areas in Boston. The chart above shows the Financial District as one of the most expensive, but that is also somewhat misleading since it is by-far the largest area in terms of office inventory; there are some good deals that can be found in the Financial District and Midtown.
 

"Should My Company Rent or Buy Our Office Space?"

We do not get this question asked enough, but we do try to encourage businesses to consider whether buying is a viable option for businesses. Particularly when a business is looking for a long-term lease and/or they want to make substantial customizations to their workspace, owning rather than leasing can offer a substantial financial benefit. 
 

For a free consultation to evaluate your current office space and expected needs, please contact us.  

If you are ready to dive right in, you can start your search for office space for lease or your search for office space for sale.

 

 

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Buying a Condo as an Investment: How Many Bedrooms is Best?

For some real estate investors, residential condominiums are the preferred type of investment property.  Some benefits include that condos typically are less expensive than whole buildings and there are fewer management responsibilities because condo associations typically handle day-to-day operational issues like snow removal.

But, how many bedrooms is the ideal size to buy as an investment property?

As always, the answer is “it depends”.  Some investors take a philosophical approach – for instance, some investors prefer 3 bedroom apartments since there has been increasing willingness for co-living arrangements, particularly because it tends to be much cheaper for renters to live with roommates in Boston.  Others focus more on economics and might prefer the smallest possible units to try to maximize their rent per square foot.
 


Source: CoStar Multi-Family Market Report, Boston-MA, dated 11/12/2019



Source: CoStar Multi-Family Market Report, Boston-MA, dated 11/12/2019



Source: LINK Boston Quarterly Sales Summary, Third Quarter 2019, Citywide Report


The data shows that the ideal condo size for YOU will depend on your investment goals and criteria.  Larger apartments (2-3 bedrooms) have shown a lower vacancy rate than smaller apartments over the past few years.  Rents are higher for larger apartments as well, but of course purchase prices and expenses will be higher.

If you have questions about buying a condo as an investment, don’t hesitate to contact us.  We would be happy to share more specific market reports and data.  We also provide free consultations to real estate investors to review investment goals and when ready, help find the best opportunities for you!

 

 

Boston Bound Student? It's College Tour Season!

Guest Blogger: Nathan Hartseil of First Home Mortgage

Got a College Student in Boston?
Rent costs have you doing a double take?
What if you bought a condo instead?

Many folks are incredulous when I tell them that they are able to purchase a single unit (condo, townhouse, single family) residence for their child here in Boston at the same “market best” terms that they might get themselves – and that these loans are available with as little as 3.5% down, up to the generous local limit of $688,850 (as of this writing, October 2019).

Perhaps your student works, but doesn’t make enough to support the unit on their own?

Fannie Mae, Freddie Mac, and the Federal Housing Administration all allow a parent to “cosign” the mortgage – combining the income, assets, and qualifiers of both the student and the parent or family member on the mortgage application.

Perhaps your student is just starting out on their own, and you plan to visit often? Purchasing a “second” or “occasional” home in Boston, even without their help -  just 10% down assures that your student has a place to call home, and that you will always be able visit.

As long as your student (or parent, or disabled relative of any age) occupies the home as their primary residence for 1 full year, there are no restrictions (on the mortgage side) on roommates, future rentals, or any other customary uses…. A property that serves as a college home base can easily be converted to an income producing investment upon graduation.

What might this look like?

As of this publication, 30 year fixed rates are in the 3s-4s.  A 3-bedroom condo directly on the Green Line off student centric Commonwealth Avenue is currently available for $500,000.  Presuming a 760 credit score and a 5% down payment, Apr 4.05%:

Principal and interest: $2,268
Property Taxes: $268*
Condo Fees: $340
Mortgage Insurance: $100
Homeowner’s Insurance: $50-100

Total monthly expense: Around $3000

(*Boston also offers discounted taxes to primary residents, which will further reduce this expense by about $200, under the Property Tax Exemption Personal Exemption.)

With 2 paying roommates, your student’s expenses on monthly housing could be substantially reduced, while building equity to realize upon graduation.  If Boston’s popularity and average rents are any indication, holding the property as a rental could prove lucrative as well.

Ready to dive in to a search? Click here to get started. Or contact Cabot & Company to connect with an experienced agent to help guide you.

 

This is not a commitment to lend. Terms and conditions of programs, products and services are subject to change. All loans are subject to credit approval and property appraisal. Certain restrictions may apply on all programs. NOT ACCEPTING NEW YORK APPLICATIONS. First Home Mortgage Corporation of America, First Home Mortgage Services, Maryland First Home Mortgage Company, and First Home Mortgage Company of Maryland are d/b/a's of First Home Mortgage Corporation. First Home Mortgage Corporation is licensed in Connecticut, Delaware, District of Columbia, Florida, Georgia Residential Mortgage Licensee, Indiana, Kentucky, Maine, Maryland, Massachusetts Mortgage Lender and Broker (Lic. #MC71603), Michigan, Licensed by the New Hampshire Banking Department, Licensed by the New Jersey Department of Banking and Insurance, North Carolina, Pennsylvania, Rhode Island Licensed Lender and Broker, South Carolina, Tennessee, Virginia, West Virginia. Equal Housing Lender. First Home Mortgage Corporation.

 

What are Current Cap Rates for Boston Multifamily Investment Property?

One of the metrics used by real estate investors to evaluate investment opportunities is called the capitalization rate (or cap rate).  The formula is basically the net annual income divided by the purchase price.  Cap rates do not take mortgages into account – since different investors receive differing financing terms, the cap rate is a quick metric to evaluate an opportunity on a level playing field.

 

The chart above shows multifamily cap rate trends over the past 10 years, and includes forecasts for the next five.  Boston has maintained a lower cap rate than the national average and is projected to maintain that spread in the coming years.  A lower cap rate means that investors are willing to accept a lower return on their investment, so investors will pay more for multifamilies in Boston because they view it as a stronger investment.

This article is focused on multifamily investment property – cap rates for other property types (e.g. retail and office) are different, and each property type has its own set of risks and rewards to consider.  If you are interested in more market data or have questions about investment property in Boston, please reach out to us.

 

 

How to File for a Residential Exemption in Boston

If you own and live in your Boston property as your primary residence, you likely qualify for a residential exemption on your real estate taxes.  Through this exemption, the City releases you from paying part of your property taxes.  Last year, the residential exemption saved qualified homeowners up to $2,719.09 on their tax bill.

For Fiscal Year 2020, you have until April 1, 2020 to file the application.  For more information, including the application and other requirements, visit the City of Boston’s website here

There are a number of benefits to homeownership, and this exemption is one of them.  Be sure to take advantage!

 

 

 

A Look at Boston's Most Popular Areas for Office Space

When evaluating “Boston” office space, some of the most popular locations companies consider are: Back Bay, Seaport, Financial District and Kendall Square (which is actually in Cambridge, not Boston).*  How do these areas compare?

 

Market Rent Rate ($/SF)

Source: CoStar
 

Sitting between two of the best educational institutions in the world – Harvard and MIT – Kendall Square is highly sought after by companies looking to source from the highly educated workforce in the neighborhood.  Kendall Square continues to have the highest average office rental rate in the area. 


Vacancy Rate

Source: CoStar


The vacancy rate in the Kendall Square office market is also the lowest, which is understandable given the high demand for this space.  Projections show that the vacancy rate is expected to increase substantially in the next few years.  That is primarily due to the large amount of space currently being developed (see chart below) – it is expected that this supply will outpace demand.  While the rent chart forecasts steady to slightly lower rent rates for Kendall Square, it is foreseeable that rents will drop even more. For landlords, this means they should consider locking tenants into long term leases now at the current, higher rent rates; for tenants, this means they are motivated to sign shorter term leases and then negotiate more favorable lease/rent terms in a few years.


Under Construction

Source: CoStar


The amount of office space under construction in the Back Bay and Financial District has remained low. Back Bay is predicted to regain its position of having the lowest vacancy rate in 2021 – partly due to this lack of new construction, but also because many companies have a strong desire to be there.  

While the rent chart indicates the Back Bay, Financial District and Seaport will all follow a similar pattern in terms of rent growth/stabilization, based on the office space currently under construction and forecasted vacancy rates, it is likely that Back Bay office rent rates will increase at a greater pace.

Understanding Boston’s office market trends is critical for both landlords and tenants to understand in making leasing decisions.  Please let us know how we can help you complete an evaluation for your company.  Start your search for Boston office space here.
 

* Certainly, there are other areas and neighborhoods that should be considered as well.  If you are planning your Boston office move, please contact us and we can work with you on a complete assessment based on your requirements.

 

 

 

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Boston Landlords: 10 Tips for Renting an Apartment that is Still Vacant

September 1st has come and gone. Boston’s prime rental season is over and the number of renters out there has decreased sharply. However, all is not lost. Here are 10 tips to help get that apartment leased:

1.  Make Necessary Repairs.  If something is clearly broken (e.g. cracked windows, doors that do not close, etc.), many prospective renters will see that as a red flag. 

2.  Deep Cleaning.  Has the apartment been cleaned since the last tenant moved out? Prospective tenants this time of year generally have more options and are more likely to scrutinize unclean apartments.    If the apartment windows have not been cleaned (inside and out), that is a must-do to help maximize the natural light.

3.  Freshen Up the Paint and Floors.  Without furniture, scuff marks become focal points.  Not only will a fresh coat of paint help the apartment show better, but now is the best time to get that done since there are no tenants to work around. The same is true with the floors – refinishing hardwood floors and replacing carpet (with new carpet or hardwood flooring) can make a world of difference.

4.  Improve Curb Appeal.  Depending on the type of rental that you own, there may be limits to what you can do to improve the curb appeal.  However, for prospective renters, their evaluation of your apartment begins even before they step into the unit.  Put yourself in their shoes and walk-up to the building – how does the landscaping look, is the mail in boxes or scattered in the foyer, are the common areas clean, are the hallway lights working?

5.  Take New Pictures.  Nearly all renters’ searches begin online, so pictures will make the first impression. If you have been using the same pictures, take new pictures to give a fresh look.

6.  Consider Going Pet-Friendly.  For renters with pets, they will ONLY look at pet-friendly apartments.  If you have been advertising your apartment as not accepting pets, then there is a new audience of tenants that you could reach. However, careful consideration needs to be given here – for instance, some condo associations prohibit pets.

7.  Change the Lease End Date.  Consider entering a lease until June 1st, rather than doing a lease until September 1st. September 1st has tended to be the biggest turnover date in Boston, but June 1st is a popular lease turnover date too. Additionally, if you miss a tenant for June 1, then you still have several months of “prime” rental season to work with.

8.  Maximize Your Listing Exposure.  Working with a real estate broker can help maximize your exposure.  For instance, here at Cabot & Company we utilize a number of listing and advertising platforms in order to reach tenants.  Not only does the tenant typically pay the brokerage fee, but we provide a credit check and manage the lease signing and collection of upfront payments.

9.  Offer Incentives.  Agreeing to pay all or half of the broker’s fee can help alleviate a renter’s upfront moving costs.  If the renter needs to come up with the first month’s rent, last month’s rent, month security deposit and a broker fee, that can work out to a sizable amount. Foregoing the requirement for the last month’s rent and/or accepting a lower security deposit can also help.

10.  Consider a Rent Reduction.  This is the last tip, but probably the most important.  If you have already tried some/all of the tips above, then the market is saying that you are asking too much.  It is also important to consider the impact of missing an additional month’s rent as opposed to reducing your asking rent – generally, you find that the numbers work out that you are better off agreeing to a lower rent for a sooner move-in date than missing out on a few months of rent while chasing a higher rent.