Inspired by a recent Boston Globe article headlined “In Wellesley and the suburbs, the office market is thriving” (subscription may be required to read this), the Charles River Regional Chamber earlier this month held a panel discussion on the topic. While many of us have more interest in the residential market, the panel discussion highlighted how much of an impact the commercial real estate market has on us all.
Elizabeth Holmes, director of corporate services for commercial real estate firm R.W. Holmes Realty, shared a market overview of the high profile deals that have taken place and that could be in the works. Two thirds of office space in Wellesley has either been sold of late, or is on the market, she said, foreshadowing a drastically changing landscape.
“This is a staggering number and it’s been creating a transition and unique situation in Wellesley,” said Holmes, noting that two of the three Class A office parks in Wellesley have sold recently (93 Worcester St., for $111.5M, and 96-112 Worcester St. ,for $202M), and the other (Wellesley Office Park on William Street), is on the market. These properties have relatively high vacancy rates of more than a third, in large part due to big businesses leaving or downsizing, and presenting the property owners with new opportunities, such as conversion to lab space.
Class B space, which is generally less prominent and sizable than Class A space, has a much lower vacancy rate, as tenants have been more aggressive about getting employees back to the office. These Class B properties also boast lower square footage rates, more in the $36 area than $50+ for Class A property. Many of these Class B property tenants “do need the Wellesley address,” Holmes said. Still, tenants are looking for some of that more tired building inventory to get spruced up. Haynes Management owns a huge portion of this property and is in the process of selling it, promising a greater diversity of property management in town, Holmes said.
“How can you not look at some of the stuff on Washington Street and the acreage there and think wow, I could completely change the landscape of Wellesley if I had this acreage to convert into something else as long the town said it was OK,” Holmes said.
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One impact of these recent and future property sales will be higher rental rates as buyers invest in building upgrades, Holmes said. “[These buildings] are in need of the improvements. We are seeing a lot of tenants clamoring for that flight to quality… higher, better, more modern buildings are what everyone is looking for to get employees back to work,” she said. Shrinking inventory, as properties are converted to lab space or multifamily residences, will also contribute to rising rents, she said.
Conversions are leading to tenants getting kicked out to make way for labs, Holmes said. Fellow panelist Joel Kadis, co-CEO & partner at Linear Retail Properties, said this just happened with his firm in Burlington, as they were told the lease wouldn’t be extended and there was no flexibility on timing. Fortunately, Linear was able to get a good new headquarters property.
Tenants figuring they might have plenty of properties to choose from coming out of the pandemic have been”shocked” to find a paucity of desirable and affordable Class A options, Holmes said.
Panelist Scott Faber, senior VP of investments for Lincoln Property Co., said flexibility is the key for both property owners and tenants as the market is reshaped. Some outfits that planned to get people back into renewed space have decided to sit things out for a while longer, he said. Buildings with easy access to highways, for those looking for ideal commutes, are proving attractive.
From a broader perspective, Faber said the conversion of office space to new uses should keep the commercial real estate market here healthier than in some other areas nationally and locally, including downtown Boston’s financial district, which is suffering from high vacancies.
The panelists complimented Wellesley’s economic development efforts in recent years (and even back 10-plus years, per Kadis), both for helping make office space and downtown retail space attractive. These efforts have included more relaxed alcohol licensing, pilots such as the Cross and Central Street parklet, Wellesley Wonderful merchant activities, and coming soon, revamped streetscapes.
Making amenities such as restaurants available nearby office space that might be dealing with closed cafeterias and gyms coming out of the pandemic, is important, Holmes said.
Amy Frigulietti, assistant executive director for Wellesley, said the town has tried to look at thing holistically, guided in part by various planning documents such as its Unified Plan, Housing Production Plan, Sustainable Mobility Plan, and Climate Action Plan. This includes addressing the need for more affordable housing for those who might be working at retail establishments.
Kadis, whose firm owns about 40% of commercial properties on Central Street downtown (“and that wasn’t be accident”), says he appreciates the town being proactive. He didn’t freak out over the empty storefronts that have dotted the town in recent years, and celebrated the arrival of new restaurants to fill some of those spaces thanks in large part to new dining rules.
“COVID was not what worried me the most about retail, it was really online sales,” Kadis said. Online sales have led a transition in which in-person retailers that provide services and experiences are more likely to flourish, he said. He’s bullish on the replacement of CVS downtown with a new Black & Blue restaurant, a business he says never would have come to that space without the town’s more flexible dining and alcohol rules.
Kadis, whose father owned a drug store in Newtonville, pledged that Linear does its best to accommodate small, locally-owned businesses like the Toy Shop and Cheese Shop as well. “When we bought the block with the Cheese Shop the first thing my wife said was ‘Don’t you dare get rid of that cheese shop,'” he said, adding that Linear’s philosophy is to support a mix of tenants. Kadis says one thing that some underestimate about the Wellesley market is that not only are many residents wealthy, but that there are a lot of residents packed into a relatively small area, unlike say in Weston.
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