William Low, NAI Pltkin

While Peter Linneman, chief economist of NAI Global, reports a major national increase in industrial and office space construction, Greater Springfield had very little new private construction in the first quarter of 2016. Contrarily, public projects in the works and getting started amount to nearly $300 million. With MGM starting construction of its $950 million casino and China Railways Corp. constructing a $60 million manufacturing plant, 2016 and 2017 may see the most private development in the areas history. That said, western Massachusetts is experiencing the lowest vacancy rates since the meltdown in 2008, this also follows a national trend. Residents of western Massachusetts may be displeased with the low construction rates in the area, but Linneman projects that the vacancy rates will increase with the development of new properties. So low construction rates in western Massachusetts may stabilize vacancy rates also. According to Costar’s Retail Report of this quarter, no construction activity has been reported in Hampshire County; however, Hampden County accounts for construction of 77,152 s/f of gross lease area.

With the purchase of the Plantation Inn off the Mass. Pike in Chicopee, Springfield Automotive Partners plans to add to the construction activity with a 35,000 s/f Mercedes-Benz building costing $11.8 million. Chicopee has approved five waivers that allow developers to have more leeway with the construction. At the same time, Chicopee has granted a five-year tax incentive agreement for the Mercedes dealership, which allows for a 50% tax break in the first three years of operation and a 25% tax break in the fourth and fifth years of operation. Despite the slowly improving economy, investments like the Mercedes-Benz dealership, are always a positive sign.

Industrial and office vacancy rates continue to trend downward which should help further stabilize lease rates. Specifically, according to Costar’s Industrial Report, Hampshire County faces vacancy rates of industrial and office spaces as low as 9.7 and 4.5% respectively. Quoted rental rates for office spaces in Hampshire County have responded favorably with thirty-cent increases in the first quarter. Hampden County rental rates for office space remain flat with a small drop from the last quarter in 2015. In Hampden County, office vacancy is higher than Hampshire County at 8.7%, but Hampden maintains the descending vacancy rates. Overall, vacancy rates continue to crawl back to healthy levels.

Other development projects in the area consist of the Stern Sq. rehabilitation efforts and the recent Friendly’s transaction. Sun Capital Partners, Inc. sold the Wilbraham Ice Cream Plant, Friendly’s Ice Cream business servicing supermarkets, and Friendly’s intellectual properties and trademarks to Dean Foods of Texas for $155 million. Ultimately, the sale results in Sun Capital Partners dedicating more time toward developing the 260 Friendly’s restaurants by selling the rights to produce and supply Friendly’s ice cream to supermarkets.

In Stern Sq., Springfield Business Improvement District continues its quest to revitalize the area into a safe, entertaining environment. With the help of the city, Mass Mutual, Develop Springfield, and Massachusetts Development, Chris Russell–executive director of the Springfield Business Improvement District–lays out the plan to improve lighting and security camera systems in the square. On January 18, Russell announced that Main St. will entertain the “Tuned by Tuna” car show this summer in addition to continuing the City Block Summer Concert Series. The resurgence of Stern Sq., the continued construction of Union Station, the prospect of the MGM casino, and the low vacancy rates are all healthy signs for business in Springfield and other cities in western Massachusetts.

William Low is senior vice president, NAI Plotkin, Springfield, Mass.