How tight is the competition for land in and around Boston? Dickinson Development Corp. recently spent $10 million for remediation of a 33-acre former landfill in Reading, Mass., to build the Crossings at Walkers Brook. The 460,000-square-foot first phase includes a Home Depot, a Jordan's Furniture and a Chili's restaurant.
“It's an expensive project, but it's a great location on Interstate 95, and there aren't a lot of 33-acre locations abutting an interchange in the Boston area,” says Ed Shaw, Dickinson vice president. The company is trying to build a second Home Depot on another landfill in nearby Acton.
Retailers and developers looking for sites in Beantown are working around land constraints. Options could include:
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Department store space that could be opened by mergers.
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Landfill and industrial wasteland.
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Building vertically to add space and rent.
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Retail space created by the Big Dig, the colossal, controversial engineering project that buried an elevated highway.
While it takes determination to find or create space in Boston, the city remains hot thanks to powerful demographics. Average household income for the greater metro area is above $83,000. Since October, the retail vacancy rate has dropped to 5.4 percent from 6.3 percent.
“This market is healthy and you don't see an overbuilding of retail space because it is difficult to grow here,” says Bob Sheehan, vice president of research for Finard & Co.
Thus, land costs and rents are some of the highest in the country. Pad site prices can average about $32 a square foot, which places Boston in the top seven most expensive markets in the country, according to Grubb & Ellis. And in the suburbs, prime corner land can cost as much as $800,000 a half-acre. However, retailers, especially big boxes looking to expand, are eager to enter the Boston region.
Inner Space?
Developers are watching what space may become available thanks to the Federated/May merger. Macy's and Filene's overlap at seven Boston-area locations, and if Federated decides to close those Filene's, 1.7 million square feet of prime real estate could come to the market.
The last time there was such an opportunity was Bradlees' bankruptcy in early 2001, which allowed big-box retailers Kohl's, Home Depot and Costco to move in. Target has expressed interest in the possibly taking the 389,000-square-foot Macy's store in the downtown Crossing area if it becomes available, according to a published report from Finard. Currently, Filene's and Macy's stand across from each other there. “That's an area of great concern for us, but it is also exciting, because there is a lot of opportunity down there,” says Kristen Keefe, retail sector manager for the Boston Redevelopment Authority.
Industrial wasteland represents another avenue. There are two projects on the city's parameter that will transform industrial space into modern transit urban developments: Assembly Square and NorthPoint.
Federal Realty Investment Trust recently purchased Assembly Square, a 330,000-square-foot enclosed mall, and an adjacent 220,000-square-foot retail/industrial complex in Somerville, Mass., for $64 million. The property is about 1.5 miles from the city's downtown, and the REIT is now spending an additional $38 million to redevelop the mall into a power center in time for Christmas, with such big-box tenants as TJ Maxx, Bed Bath & Beyond and Staples expected to come on board.
That's just the beginning. Federal has a 10-year master plan to build as much as 1.5 million square feet of office space, 1,500 residential units and 330,000 square feet of additional retail. It will bring in partners to develop the office and residential space. The REIT is also pushing for a transit stop. A recent feasibility study by the Massachusetts Bay Transportation Authority concluded that it would be inexpensive to locate a train stop there, although no plans have been made.
The barrier to entry is appealing to those firms ready to get creative and expand whatever they can get their hands on. “One of the things that attracted us to Assembly Square is that you had entitlements to build all this density, but it is surrounded by all this other urban density that makes for hard barriers to entry,” says Don Briggs, Federal's vice president of development. Federal also owns six grocery-anchored properties in the area. Other REITs, including Equity One, are attracted to the region for the same reason. Last year, Equity One purchased six grocery-anchored properties in the region for $119.8 million. The company now views Boston as one of its future growth areas as it seeks to exit low-density markets for those with high barriers to entry and opportunities for vertical mixed-use growth.
Also, because of the density, big-box retailers are willing to locate relatively close to each other's stores to jump on good development opportunities. “Staples, Home Depot [adjacent to Assembly Square] and Bed Bath & Beyond are all across the [Mystic] River in Medford about a mile north,” says Briggs.
About a mile south, Spaulding & Slye Colliers International plans a mixed-use transit-oriented development called NorthPoint on a major industrial property. In conjunction with Guilford Transportation Industries, which owns a 45-acre railroad storage yard straddling Boston, Cambridge and Somerville, Spaulding plans to build a $2 billion, 5.2-million-square-foot urban community with 150,000 square feet of retail over the next 15 years. The site is across the Charles River from downtown Boston and is close to several rail and subway stops. Plans also include moving a current subway stop closer to the development.
“I think NorthPoint will define development in Cambridge,” says Mark Winters, an executive director with Cushman & Wakefield. While Assembly Square will have destination retailers, NorthPoint will feature amenity retail such as grocery stores, restaurants and health clubs, says Lisa Serafin, vice president at Spaulding & Slye Colliers. “To find 45 undeveloped acres like this is very extraordinary in Boston,” says Serafin. “I don't think you could just go out and buy this type of parcel.”
Building Up
Land constraints have made vertical development big in Boston. Copley Place, a vertical mixed-use development that opened in 1984, still retains its luster. A 45,000-square-foot Barneys New York will open at Copley by next March. It is the retailer's first flagship store in 11 years. “I think Boston has a reputation for not being so fashion forward, and the fact that Barneys is investing in such a huge project says differently,” says Keefe
Another vertical mixed-use project under way is the 470,000-square-foot Newbry which is being redesigned from the former Art Deco headquarters of New England Life Insurance. Developed by 501 Boylston Street Properties LLC, an affiliate of Beacon Capital Partners, the project will include office space and 150,000 square foot of retail.
Located in Boston's tony Back Bay, it will be the only building with frontage on both Newbury and Boylston streets. One of the top five streets in North America in terms of the cost of rent, Newbury Street is the “Rodeo Drive of Boston” with rents as high as $150 to $160 a square foot, says Paul Stanislas, vice president of the retail group for Grubb & Ellis. Boylston Street, which runs parallel to Newbury, has also become a hot address recently with such retailers as Restoration Hardware, Anthropologie and Crate & Barrel moving in.
“The Newbry is unique because of where it sits in the Back Bay, and to put together 150,000 square feet of retail on these two streets is unheard of,” says Andy LaGrega, a partner at Wilder Co., a project consultant.
Digging In
The recent completion of the $21 billion Big Dig project reclaimed 27 acres of land. While much is slated for park space, parcels are being set aside by the MTA for mixed-use development near 12 major thoroughfares.
The Authority is expected to make a decision soon on several mixed-use proposals slated for a reclaimed area known as the Bulfitch Triangle, with emphaseis on supermarkets. “The city has been adding more residential units and the needs of the neighborhood have changed,” says Keefe.
A dearth of supermarkets has long been a problem in the city with the population increasing and large sites hard to find. Those that do find space tend to prosper. Edens & Avant opened the city's South Bay Center with a Super Stop & Shop in 1993 and it was the first chain supermarket to open in central Boston in at least 20 years, according to the Boston Globe. Now, Edens & Avant is set to begin a $40 million, 109,000-square-foot expansion on an adjacent property with a new Stop & Shop mart. The old site has already been fully leased to Circuit City and Bed Bath & Beyond. “South Bay is our most prominent asset in the Northeast, and the new site gives us an opportunity to expand and improve it,” says Joseph Pierik, vice president of Edens & Avant.
Land made available from the Big Dig will also be home to the $550 million, 1.7-million-square-foot Waterside Place, which will include about 200 to 300 housing units, approximately 400 hotel rooms and 554,000 square feet of retail space. It's expected to open in 2009.
Formerly a parking lot, the site has been unavailable since 1990 while Big Dig construction created a series of tunnels under the land connecting the Massachusetts Turnpike with the airport.
Located in the South Boston Waterfront District, Waterside Place will be connected to the new Boston Convention and Exhibition Center. “The city is migrating over here,” says John Drew, president of the Drew Cos., developer of the project. “Waterside plays a critical element in creating the liveliness and entertainment features you need to tie together the office and residences.” A new Westin with 790 rooms, is set to open in 2006.
Waterside Place will be the city's largest retail project in more than a decade. “You can't have a lot of large projects here in Boston,” says Joe French, senior investment advisor for Sperry Van Ness. “It's a mature market.”
Market Profile/Boston
DEMOGRAPHIC OVERVIEW
- Average household income: $83,355
- Population (city): 577,496
- Population (metropolitan area): 4,455,761
- Percentage college grads (bachelors or higher): 21.5 percent
- Population breakdown: Male, 48.1 percent, Female, 51.9 percent
- Vacancy Rate (December 2004): 5.4 percent
- Vacancy Rate (October 2004): 6.3 percent
- Total retail supply (End fourth quarter): 172 million square feet (An increase of 0.9 percent since last year)
- Median Age: 36.1
- Boston unemployment rate: 4.1 percent
- Massachusetts unemployment rate: 4.5 percent
— Finard & Co., Grubb & Ellis, City of Boston, Bureau of Labor Statistics