6 Hot Trends Boston CRE Pros Are Watching This Summer

As hundreds of commercial real estate professionals kicked off the summer at Bisnow's Boston Summer Cocktail event on Wednesday, several attendees shared the latest trends they are seeing in the market. 

These trends range from the life sciences sector to the industrial market to the region's sustainability initiatives and, of course, everyone continues to talk about interest rates and the lending market. 

Commercial real estate professionals at the event, held at Cisco Brewers outdoor beer garden in the Seaport, say they are closely watching the Federal Reserve's decisions about interest rates, which could have wide-ranging implications for all property sectors. And one banking professional said the volume of loans they are providing has dropped as transaction volume remains slow.  

1. Office-To-Lab Ratios Are Normalizing

Helena Kazijian, senior planner for Hopkinton-based general contractor The Richmond Group, said many pandemic-era trends have begun to return to normal, including in the life sciences sector. 

In the early days of the pandemic, life sciences tenants wanted more lab space in their buildings relative to offices, and they usually used the office space provided for hoteling rather than dedicated workspaces.

Kazijian said that trend is reversing, with more tenants open to larger office spaces.

"Now they're evening back out. It's kind of going back to more 60-40 lab to office," Kazijian said. "Everybody's getting kind of a dedicated desk and seat and whatnot. So you can see those trends kind of gone from the pandemic."

2. Businesses Are Being Priced Out Of Boston

Allison Lane, attorney at Orsi Arone Rothenberg Turner LLP, said that with the high costs in Boston and the Route 128 belt, smaller businesses looking to relocate are being forced to move farther away from the city. 

Lane added that some employers are attracted to these spaces farther from Boston to ease commute times for employees who might not live as close to the city.

"One of the biggest issues is the fact that, again, more and more businesses are priced out of Boston and the surrounding towns, particularly with commercial property," Lane said.

This concern has grown in recent months amid conversations around Mayor Michelle Wu's proposed property tax hike, which was approved by city council members on Wednesday and could displace smaller businesses, WGBH reported.

3. Interest Rates Are Still Top Of Mind

Lane also said many of her clients are worried about interest rates and the uncertainty that comes with them.

"The biggest trend I see for both lenders and borrowers in commercial financing is the great unknown about interest rates," Lane said. "So that is impacting businesses who either are looking to expand their business or acquire new properties."

She said property owners looking to sell and businesses looking to expand or move operations are stuck because high interest rates have created holding patterns. 

While some are still optimistic that interest rates could be cut in the fall, the sentiment around interest rate cuts has changed dramatically since the beginning of the year, and the uncertainty continues to loom.

4. Lending Continues To Be Tight

For lenders, activity has slowed considerably and financing is being done more cautiously. Matthew Pilavin, commercial real estate credit analyst at State Street, said the sector seeing the largest slowdown is office assets and the company isn't pursuing any new loans for that sector.

"I would definitely say that transaction volume is so down and then, as a result, the amount of loans that we're doing has definitely dropped off quite a bit, and we're taking much more conservative measures in terms of assessing different loan opportunities," Pilavin said.

After interest rate hikes spiked in the last two years, many banks hit pause on commercial real estate lending to avoid riskier bets. Because of this, CRE loan origination declined 25% at the end of 2023 compared to the same period in 2022, according to the Mortgage Bankers Association.

Without financing, projects across sectors have stalled because they can't pencil without the necessary capital.

5. Industrial Sector Is Attracting New Users 

Although the industrial sector has slowed from its pandemic-era highs, Arco New England President Jason Grant said the Northeast is seeing new users coming into the market from several different sectors, including manufacturing, cold storage, and food and beverage.

"We're seeing a lot of new end-user activity," Grant said. "Developer deals are a little bit harder to come by unless a tenant's associated with it, so having that tenant activity has been good."

The Greater Boston industrial market is still well positioned, with overall vacancy and availability rates in the first quarter below pre-pandemic levels at 5.8% and 7.9%, respectively, according to CBRE.

Although development deals have slowed considerably, there have been a handful of bigger spec projects proposed.

Tishman Speyer and its partner Mitsui Fudosan America acquired a 60-acre site in Peabody where it plans to create a 700K SF, four-building industrial park. In April, Maine businessman Peter Gerrity proposed a nearly 1M SF industrial park on a piece of land in Middleborough, the Boston Business Journal reported.

6. Sustainability Is Taking Charge Across The State

Boston and the state have adopted ambitious sustainability goals that have placed tremendous pressure on the development community. 

Boston's Building Emissions Reduction and Disclosure Ordinance 2.0, which has a first deadline in 2025, is set for nonresidential buildings that are 35K SF or larger and residential buildings with 35 or more units. These buildings must hit an "emissions intensity," which limits how much carbon a building can emit.

As deadlines for these goals creep closer and developers scramble to meet them, some in the space hope these development and design efforts are done in a way that is inclusive to all communities.

"There has to be the recognition that we are all affected by the climate change issues, and so everyone has to be represented in those discussions about sustainability," said Jimi Bademosi, program associate at the Hideo Sasaki Foundation.