If there’s certainty in uncertain times, it’s certainly real estate - by Thomas House

One supposes you might pick gold for this honor. After all, gold isn’t produced by geologic forces - it is other worldly stuff formed by collapsing neutron stars.

Unless another supernova happens nearby, there isn’t any more gold to be had upon earth than what’s already here. And if there is another supernova nearby, the gold in your vault won’t be worth anything because the earth would be a charred cinder.

And just when you thought economic realities couldn’t make things any more uncertain, events in the middle east suddenly appear ready to turn it all into a charred cinder anyway.

So what’s a developer to do?

Why, invest in real estate development, that’s what.

What kind kind?
Prominently in New England, tight vacancy points to multifamily housing. In its hottest market, greater Boston, occupancy grew to 96.4%. This will make rent a steady and resilient source of long-term growth due to this high level of absorption.

Unlike other areas of the country, New England is not overbuilt. Well-managed supply leverages a diverse regional economy that rewards high quality development with steady rental returns - and asset value.

Some of this absorption has spread to places well beyond Rte. 128 and I-495 to Worcester and Portland especially. A recent report also highlighted Leominster.

This is due, according to Boston.com, that an end has come to the post-Covid stalemate - buyers and sellers have decided it’s time to get on with life. Economic conditions have been accepted as the new normal, and the buy-sell cycle has re-established itself with sellers listing, buyers making bids.

A thaw has begun to unfreeze this market.

Better call the office
Over the last few years, office development slowed, with this market running on fumes after Covid wreaked its social and economic havoc. But now top-tier space is suddenly in short supply, and vacancy seems to have peaked.

Legal, professional, tech, and financial services will account for two-thirds of new demand, though exposure to the AI bubble could deflate expectations.

Non-prime (but still ‘Class A’) professional space outside of Boston is predicted to account for 60% of leasing activity.

And renewals accounted for forty percent of activity last year, a rate that is expected to continue.

Lower, commodity-grade tiers of the office market remain underperforming but have hit bottom as private capital has been taking advantage with conversion to residential or mixed use properties. This has the side benefit of relieving liquidity.

Attention shoppers
Retail is a different story. Except in upscale shopping districts, economic headwinds have made progress difficult, inhibiting new construction.

Even stores that seem to be weathering the storm appear both understaffed and seemingly devoid of foot traffic, though some of that is due to online purchases with local store pickup: a U-shaped path to the pickup counter, few people browsing the aisles.

We personally worry about stores that will become bad at being stores. Have you visited Kohl’s lately?

And when it comes to browsing, the inward-facing storefronts of the indoor mall have been replaced by the growth market of outward-facing drive-up storefronts.

Industrial devolution
Some of us in New England are surprised there might be a market for industrial real estate here. And truth be told, it has been handcuffed by speculative overbuilding. The market is largely build-to-suit, though if you are a build to suit developer, there are opportunities in the sub 100,000 s/f range.

Rental growth, which has doubled since COVID, shows signs of flattening except in E-commerce and high tech. There are over 50 data centers in New England, but the first hyperscale data center is proposed for Westfield - significantly beyond the Rte. 128/I-495 and southern New Hampshire zone that has traditionally demarcated the territory for the industry.

Once the home to heavy industrial manufacturing, New England has transformed into an intellectual and managerial theme park which invents or manages these businesses. 

Leave the lunch pail at home
Check back with us on December 31, when we might be able to fine tune this outlook.

Thomas House, AIA, is principal of THA Architects, LLC, Stratham, N.H.