Worcester Business Journal Special Editions

December 19, 2016

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Worcester Business Journal • www.wbjournal.com • 2017 Economic Forecast 21 R E A L E S TAT E Hot market Central Massachusetts will continue to reap the benefits of increasing demand in real estate, although national trends could create issues W orcester officials and area developers have been working hard to build up development, and now the city is reaping the benefits. Whether it is in the form of increasing property val- ues or other developers seeing the value and moving into the area, the city is starting to see the benefit of the tens of millions of dollars that have been and are being invested in CitySquare. While 2016 was the year of development, 2017 promises to be a year of payoff. However, this could be somewhat muted by nation- al and statewide trends that indicate a slowing down of the recovering housing market. Worcester a growing value The city's real estate is at a pivotal point. It is still extremely affordable, and yet quickly accruing value. You don't have to take my word for it, Worcester's total property value this year experienced its largest jump in a decade, climbing by $1 billion, a 9.16-percent increase. This has paid off for the city with Fitch Ratings upgrading Worcester's municipal bond rating to AA, up from AA-. This marks the city's highest-ever rating and the pay off for years of redevelopment work. Heightened competition All this growth is good news for Worcester, and much of the region, means that investors need to start looking over their shoulders. Boston investors, struggling in an environment of staggeringly high real estate costs are looking west. While this is great for sellers, these investors will invariably lead to a more competitive market. Cooling residential market The last few years have been a perfect storm for those looking to make real estate investments. Low interest rates have meant as close to free money as you will ever see, while an improved market has meant that people who have been holding assets until they could get a solid price for them were more willing to sell. However, with an impending interest rate hike and slowing sales, the cool off is seemingly on for the resi- dential market, with the more robust commercial market likely to weather the changes better. Industrial demand heats up in MetroWest This spring, Scott Hughes sold two properties in the Natick Business Park within weeks of each other for $3.9 mil- lion a piece. These back-to-back sales are indicative of a MetroWest market for industrial properties that has seen rising rents and lower vacancy in the face of increased demand. Those properties were purchased as owner-occupied buildings, not invest- ment properties, with the owners rec- ognizing the value of not having to con- tinue to pay rent to someone else and taking advantage of continued low interest rates, said Hughes who is the president of New Dover Associates, Inc. of Framingham. "These are companies that know they have a finite amount of space needs, and they want to be in a given location, and they want to buy," he said. "In the past, it was investors and users, but as the prices go up, there are more users than investors in that park." Hughes said the Natick park is in higher demand because it also supports a thriving retail-facing business envi- ronment, but the industrial warehouse and flex market is heating up through- out the region. In the latest report from Transwestern covering the first quarter of 2016's Boston industrial market, the rents for manufacturing properties along Interstate 495 have increased by 7 percent since the last quarter, with the I-495 West leading the way with an average rate per square foot of $10.64 and a 5.9 percent vacancy rate. Warehouse space asking price was up 9.7 percent for the 495 region, accord- ing to Transwestern, which also report- ed that while overall warehouse vacancy for the region was at 9.9 percent, high- bay vacancy was down to 7.2 percent. There are multiple factors driving this added activity in the region, according to realtors. First, there is the ongoing pricing increase in Boston and the Route 128 corridor, as well as a push in Boston to put industrial property to residential or public space use. Yet, not everything in Massachusetts is about Boston, with the increase in rents in MetroWest reflecting an inter- est in being at a transportation hub for the state and in the burgeoning biotech market. "It's companies getting pushed west, and it's people operating companies out in this area who don't want to commute into Boston … I've been doing this for 14.5 years, and I've never seen it this good," said Bret O'Brien, who explained that Route 495 industrial properties demanding $7.50 a square foot a year Top real estate stories of 2016 BY SAM BONACCI Worcester Business Journal Digital Editor Construction is underway on the first portion of the 145 Front St. development that will give residents walking access to downtown as well as public transportation into Boston. Tom Rheault, a realtor who specializes in residential real estate, including triple deckers. The apartments at the 145 Front Street at City Square development will add a layer of luxury -- such as a view of Union Station from its sundeck -- to the city's affordable and market-rate housing stock. Continued on Page 22 P H O T O / N A T H A N F I S K E Scott Hughes, president of New Dover Associates, Inc. of Framingham, who sells industrial parks in MetroWest P H O T O / E D D C O T E W

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