Now we are 6 months into the new year and where are things going? Building running at full speed - by David O'Sullivan

July 28, 2017 - Spotlights
David O'Sullivan,
O'Sullivan Architects

The hot humid weather is upon us and many are enjoying their vacation. The summer is a time for leisure and relaxation for many but the real estate industry does not seem to be on vacation. True, is takes longer to get things done in the summer on the approval side, maybe less so on the construction side, yet the local building industry seems to be running at full speed. 

So now that we are 6 months into the new year, the new administration in Washington and into the heat of summer, where are things going? How do we stack up to the past? The National Association of Homebuilders builder’s confidence index has slipped some to 64 from last month’s 66. A number above 50 indicates more builders see conditions as favorable to their business. The index asks builders about market conditions for the sale of new homes at the present time and in the next six months. The number for the Northeast is at 48, up from 46 in June. Seems we are a little less optimistic here but heading in the opposite direction from national trend. Building permits in Massachusetts are up 27% from last year. Mortgage interest rates are edging up as well to about 4% for a 30 year mortgage.  So we are in a time of conflicting data but gut instinct makes me believe that we are all doing well currently and for at least the rest of the year. 

So what do we see happening on the design front with our clients? How do they feel about the future? We work in a variety of markets including automotive, banking, multifamily and mixed use developments, renovations and residential. All seem to have different opinions. 

The automotive industry is still in upgrade mode. Much of this is driven by the manufacturers who are pushing the dealers to modernize and improve their facilities and implement the latest marketing national standard. The service facilities seem to be places where dealers want to send money as the repair business becomes increasing high tech and efficiency is the way to higher profits and attract repeat customers. 

Banking is a market of constant change and shifting ideas. We work with a few regional banks where expansion of branches, increases in commercial lending and buying competitors is the name of the game. Some clients are adding branches to fill in holes in their service area while others are shifting more to mobile banking and closing branches where they have too high a concentration. 

The multifamily and mixed use segments are where we have seen the largest concentration of business. We are working in markets around Boston, the North Shore and some work just west of city. The main focus is inside or adjacent to Rte. 128 beltway. Our design clients are usually developing buildings from 15,000 to 80,000 s/f with residential and often commercial space at street level. All seem to have structured parking as a component of the development. Most involve a tear down of an existing structure and many sites need environmental cleanup. This has us involved with neighborhood groups, planning boards, zoning board, historic commissions and a wide variety of consultants. These infill developments have the most potential for continued success. The towns around Boston are looking to upgrade older buildings and provide new housing and commercial spaces to attract and retain both the millennials and the empty nesters. Places like Waltham, Watertown, Malden, Reading, Wakefield, Medford, Everett, and Woburn provide good locations for this type of development. All have older buildings which often are underutilized or need renovations and additions. Our clients who are developing in these areas see an expanding market which remains strong. Markets like South Boston, Cambridge, East Boston, Somerville and Allston/Brighton, are hard to find reasonable opportunities and many clients worry there are too many developments chasing the same market, that land prices are too high and costs to build in tight urban areas are even higher. 

The renovation market, both residential and smaller commercial, seem to be areas where we are working with end users. Specifically homeowners don’t want to move as it is impossible to find a replacement home and the business owners are looking to renovate and improve their existing spaces rather than having to find a new suitable building to run their business. This is a smaller market for our firm but many architects cater directly to the residential market and are very busy. It seems strong for the foreseeable future.

So in summary, the economics remain favorable, the market demand is still strong but may be slowing slightly. Development opportunities providing reasonable land costs, friendly development climates and reasonable construction cost are hampering future growth but not impacting our business yet.

David O’Sullivan, AIA, is the president of O’Sullivan Architects, Inc., Reading, Mass.

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