“Suburbanization” – a clear driver for spec development

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The suburbs are in a sustained cycle of real estate activity. The Class A occupancy rate of 86.4% has hit pre-recession peak levels. At NAIOP/SIOR’s recent Annual Market Forecast, JLL’s Alex Dauria said that supply simply isn’t keeping up with tenant demand for large blocks of space. He predicted that the suburbs could see spec construction by 2014.

Alex said that Boston is the biggest receiver in venture capital funding (second only to Silicon Valley), and the suburbs receives $1.7 billion, or 55% of the market’s funds. High-tech is responsible for many of the new jobs, outstripping general office-using employment in the region. The focus for high-tech jobs has shifted to software, and the battle for talent is fierce. “Good tech talent is hard to come by,” Alex said. “HubSpot increased its referral bonus to $30,000, and Google has created algorithms for selecting top candidates.”

Life sciences has grown significantly along Route 128. The sector now occupies eight million square feet of lab space in the suburbs. That’s equal to the lab supply of Cambridge. Life Sciences leads IPO activity in MA, as 10 of the 14 IPOs this year are biotech-related.

Alex’s provocative conclusion was this: with four to six tenants in the suburban market looking for 100,000 square feet or more, and only three or four blocks of space to consider which is Class A, spec development is imminent.

In his economic overview, keynote speaker Doug Poutasse of Bentall Kennedy shared Alex’s optimism.  “We’ve recovered 7% of the jobs lost at the trough, but now we’re adding at a better pace than 2005-2006,” he said. “This recovery isn’t slowing down.”

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Alex Dauria presenting at NAIOP/SIOR’s Annual Market Forecast

 

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