The South Boston waterfront was long a bleak area separated from the rest of the city by the Fort Point Channel, its docks and warehouses recalling a faded shipping past. Now, rechristened the Seaport district, construction cranes dot the landscape as builders put up high-end condominiums, offices and hotels in one of the biggest neighborhood transformations in Boston history.
“The waterfront is an overnight success that’s taken nearly 30 years to come to fruition,” said Brian Kavoogian, president and founder of Charles River Realty Investors LLC, which has developed or acquired more than 20 million square feet (1.9 million square meters) of real estate in the Boston metropolitan area. “It finally reached a tipping point.”
Construction spending in Boston increased an estimated 37% in the year ended June 30 to $3.83 billion, the most since 2008, according to the mayor’s office. The market is hot enough that some developers are considering building offices without having landed anchor tenants.
Work is planned or already underway on the $620 million redevelopment of the original Filene’s department store property in Downtown Crossing, a $200 million office tower for State Street Corp. and the $800 million headquarters in the Seaport area for Vertex Pharmaceuticals Inc.—at 1.1 million square feet, the nation’s largest privately funded office-construction project.
“You have a city that has biotech and other thriving industries, and some big-name financial services,” said John Garth, managing director at Pembrook Capital Management LLC, a New York-based real estate investor looking to finance apartment construction in Boston. “It’s a huge draw for young people, and that creates lots of demand for rental apartments as well as new office space and other construction.”
The fourth-quarter office-vacancy rate in the Boston metro area was 10.9%, ranking it among the best-performing big markets in the country and less than the 15.4% nationwide average, according to brokerage CBRE Group Inc. Net absorption—the increase in occupied space—was 2.8% in 2012, compared with 1% nationwide. That’s helping to spur building while construction in much of the rest of the country stagnates, said Arthur Jones, senior managing economist at the Los Angeles-based company.
“The fundamentals in Boston are favoring the move into another construction cycle,” he said. “Vacancies are low, rents are improving and job growth is steady.”
Boston has attracted major office owners including Tishman Speyer Properties LP and Blackstone Group LP. The largest U.S. office real estate investment trust, Boston Properties Inc., is based in the city and owns marquee properties such as John Hancock Tower and Prudential Center.
Greater Boston is home to 50 universities and colleges, among them Harvard University and Massachusetts Institute of Technology, which provide a pipeline for graduates into the job market. In 2010, Boston had the biggest ratio of 20- to 34-year-olds among the 25 largest cities in the U.S., at 35%, according to a report from the mayor’s office.
Boston’s cumulative job growth, led by scientific and technical services, is projected to be 7.9% from 2011 to 2016, exceeding the state’s 7.4%, according to the report. The city is home to financial firms such as Fidelity Investments, the second-biggest U.S. mutual-fund company, and State Street, the third-largest custody bank. Neighboring Cambridge, which has also seen a spike in new development, hosts employers such as biotechnology company Biogen Idec Inc. and technology giants Amazon.com Inc., Google Inc. and Microsoft Corp., said Peter Meade, head of the Boston Redevelopment Authority.
“In the last 24 months, suburban tech firms have been looking to relocate into town,” said Andrew Hoar, president and co-managing partner at CBRE/New England, a joint venture partner with CBRE. “For many other markets it’s the other way around. The young graduates in this town don’t want to commute.”
The race to catch up with the city’s growth is evident in the Seaport area, where about 3 million square feet of buildings is under construction, according to the redevelopment authority. The waterfront neighborhood, for decades isolated by Fort Point Channel and an elevated stretch of Interstate 93, has become more accessible after the Central Artery/Tunnel Project rerouted the highway below ground. Known as the Big Dig, the 15-year-plus project was completed in 2007 after being plagued by delays and cost overruns.
“The opening up of areas like the waterfront is expanding opportunities to have developments occur in a way we have not seen in many years,” Joseph Fallon, founder and chief executive officer of Fallon Co., developer of the Vertex buildings, said in an interview at his office in the Seaport, behind him the expansive view of Boston Harbor—and cranes.
