The Connection between MBTA and Boston's Commercial Rents
Offering 213 different ridership lines, the Massachusetts Bay Transportation Authority serves the Greater Boston area. Out of its 213 lines, the MTBA dedicates 179 of those to bus riders and another 22 to light, heavy, and commuter rail passengers.
More than 1.2 million people each work day ride the MBTA to and from work. Many of those passengers are destined for the prime commercial real estate districts located throughout Boston and Cambridge. The rising number of people using MBTA services to go to and from work each day accounts for much of why commercial rents along MBTA stops continue to be some of the highest in the state and country.
New Businesses and the Property Development Boom
Boston is home to some of the oldest companies in the U.S. However, it also continues to attract new startups and businesses specializing in industries that are currently in demand with consumers across the globe.
Some of the newest companies to make their way to the city are focused on markets in healthcare, education, life sciences, financial services, and technology. They join stalwarts like IBM, Microsoft, and John Hancock Financial Services, among many others with esteemed reputations and long histories.
Unlike these long-established Boston companies, newcomers to the city's commercial market are using different tactics to attract and maintain employees. They are targeting people who already live in the city and rely on the MBTA for their primary transportation each day.
These employees have no need for street-side parking or parking garages. They come and go from work in the commercial districts each day on buses, trains, or subways.
Given whom they are targeting for recruitment and hiring, it makes sense that these new businesses prefer to set up shop along the MBTA stops rather than in other parts of the city. As the number of new companies come to Boston, the demand for available office space grows. Business owners new to Boston do not mind paying the higher rents for available commercial spaces if they can locate their companies alongside or as close to MBTA bus and subway stops.
Property developers seek to satisfy both new businesses coming into Boston and people who only use public transportation to go to and from work. They realize the lucrativeness of building properties that they can quickly fill with reputable and financially stable companies that will increase ridership on the MBTA and be eager to pay the rents demanded for these properties.
Current Commercial Real Estate Development in Boston
This increased demand for available commercial space has created a property development boom in Boston's prime neighborhoods. Since 2014 and the recovery of the real estate market, Boston has experienced unprecedented construction of new commercial buildings.
More than $9.3 billion in commercial property has been sold since 2014. In that same timeframe, developers have sold or exchanged more than 25 percent of the city's available commercial real estate.
Moreover, more than 4.9 million square feet of property is currently being developed and built in the city's premier districts and sub-markets. Out of that 4.9 square feet of office space, half has already been leased even before the buildings are finished.
Property developers say that this current boom is different than booms of the past. The steadiness of the industries in which the new businesses are located combined with the increasing ridership of the MBTA give hope to building owners and landlords that the climb in rents will continue to be a trend for years into the future.
Connecting the MBTA with Increasing Rents
The increasing rents of commercial properties along the MBTA's busiest lines exemplify the link between supply and demand. In fact, commercial rents are joined in their climb by the rents demanded for residential properties like houses and apartments.
Research has shown that residential properties for rent can go for as much as $400 per square foot. Commercial rental properties along the MBTA are not that expensive on a per square foot basis. Still, the average price for a commercial rental is $75 to $90 a square foot for an office space totaling 20,000 square feet or larger.
In particular, the commercial properties along the red and green MBTA lines are in the highest demand with both tenants and building owners. These lines go directly to the heart of some of Boston's primary business and financial sub-markets and districts.
Back Bay is a historical neighborhood in Boston that is currently home to businesses like upscale restaurants, specialty shops, and vintage homes. Its main roads are Newbury and Boylston Streets as well as Commonwealth Avenue.
It is also Boston's premier sub-market for both real estate developers and tenants. Some of the commercial buildings in this neighborhood include the Prudential Center and the John Hancock Tower.
Back Bay is a mere five minutes away from the Hynes Convention Center. The district sits right on the MBTA Green Line, making it ideal for commuters traveling to businesses like Jimmy Choo, Saks Fifth Avenue, Eataly, and many others.
As the city's top commercial real estate district, it offers some of the highest priced office space for rent. Pricing for vacancies average $66.69 per square foot in Back Bay. The price continues to hold steady despite a number of businesses transferring to other commercial districts like the Government Center or TD Crossing.
However, new development also continues to take place at a steady pace in Back Bay. In fact, the highest rents in this neighborhood can be directly attributed to the new buildings going up in the area, such as Boston Properties' 888 Boylston Tower, which is currently anchored by Natixis Global Assets.
Kendall Square is situated on MBTA's Red Line and sits alongside the Charles River in Cambridge. It is home to some of the most lucrative commercial property in the Greater Boston area if not the country. It attracts entrepreneurs from all walks of life including those who specialize in technology or creating cutting edge products and services.
As the home to the Massachusetts Institute of Technology (MIT), Kendall Square is the perfect location for tech entrepreneurs to set up shop. It has also welcomed national and global companies like Google, AT&T, Amazon, Novartis, and dozens of others in recent years.
Restaurants of all sizes also continue to thrive in the Kendall Square district. This neighborhood in the Greater Boston area features establishments like Legal Sea Foods and the Cambridge Brewing Company.
Many of these eateries are located on Main and Vassar Streets. The Marriott Hotel also hosts a food plaza on its main floor for residents and tourists alike.
Kendall Square is in fact the highest value sub-market near the subway stop in Cambridge and Boston. Its businesses and commercial real estate developments are overseen in part by the Kendall Square Association. Current rents for commercial office space in this neighborhood averages $85 per square foot.
North Station stands in contrast to Back Bay and Kendall Square in that it is one of the more affordable areas in which to lease commercial real estate. The average price for office space here is around $45 per square foot. This affordability is not predicted to last for long, however, as new developments get underway.
For example, the $1.5 million project Hub on Causeway is predicted to substantially raise the commercial rents in North Station. This project is at TD Garden and Bullfinch Crossing. Among other developments, it calls for a reshaping of the Government Center parking garage.
The real estate developer behind Hub on Causeway recently observed that, in terms of commercial rents, the project will change the perception of both office space and product. It will physically bookend the market in North Station, effectively making the market in this district more competitive if not more lucrative.
In fact, North Station is already seeing newcomers to the area including WeWork. WeWork plans to build its fourth Boston location at 200 Portland Street in Bullfinch Triangle.
The North Station area is serviced by MBTA commuter rail, the subways orange and green lines, and a public and private MBTA bus route. MBTA also runs two ferries in and out of the North Station wharfs to Logan Airport.
Future of Boston Commercial Rents and Leasing
As mentioned, research suggests that the real estate property boom will last for years, perhaps even a decade or longer. The predicted stability and exponential growth of the market may prompt tenants to wonder what they can expect in return for the increased amount of rents that they will presumably pay for their office spaces.
Real estate insiders predict that building owners will make available increased amenities for tenants and take strides to keep renters happy. The amenities can range from reduced or free utilities to WiFi in the building and other perks. These extras will be included for the price of the rents that tenants will pay for premier real estate that will increase their own visibility and put them in line with their targeted employment base.
As properties in Kendall Square, Back Bay, North Station, and other districts continue to be developed, property developers can also expect fewer vacancies. The properties are expected to retain tenancies and experience a low number of good paying tenants giving up their stores and offices in favor of relocating to other parts of the city, state, or country.
Additionally, the quality of ownership of the buildings in these areas will likely be sophisticated and focused on the experience of tenants as well as visitors to the properties. People's every expectations and comforts may be met so that people will want to keep coming back to the buildings in these districts rather than shop or do business elsewhere.
Finally, as MBTA continues to bring more people to North Station, Back Bay, Kendall Square, and other prime commercial real estate districts, developers will focus on revitalizing old and decayed buildings. This prediction is already coming to fruition with the development currently underway at Hub at Causeway. Other developers are likely to follow suit in a bid to bring these areas up to the same level of quality, sophistication, and appeal for both visitors and potential tenants alike.
With that, it may benefit real estate developers today to pay attention to the lucrativeness and potential involved with creating or renovating buildings along the MBTA bus, subway, and rail lines. Trends are already showing that the newest companies coming to the Greater Boston area are focused on establishing themselves in areas that are serviced by the city's major public transportation services.
Trends likewise continue to show that developers who build in these areas can charge premium rents for office spaces that are in high demand today. In addition to residential landlords requiring upwards of $400 per square foot for their homes and apartments, commercial building owners and landlords are and presumably will continue to keep vacancies full even as rents for the properties climb upward to unprecedented levels.
A significant reason that rents are expected to keep climbing stems from the fact that the new economy businesses coming to town are focused on hiring people who already have access to transportation via the MBTA. This segment of the workforce has no need for parking garages or curbside parking because they may not even own vehicles. The MBTA takes them directly to and from work each day, making them a reliable and valid source of staffing in a city that has few spaces for safe and effective parking.
While Boston has long been a city that has fostered thriving commerce, the future is particularly enticing for people who are thinking about staking their claim in the Greater Boston economy. Neighborhoods like North Station, Back Bay, and Kendall Square are just a few of the prime districts undergoing rapid commercial property development. Developers and building owners alike are experiencing an unheard of boom in their ability to keep vacancies full and lease new properties even while rent prices continue to reach new heights.