According to JLL’s own Chief Economist Ryan Severino, who spoke last week at our 2018 forecasting event, the U.S. is currently experiencing a “goldilocks economy,” one that is “not too hot and not too cold.”
In Boston though, we might arguably be a little further on the “hot” end of the spectrum. As JLL New England Research Director Julia Georgules described, Boston’s resilient economy is stronger than ever. Since 1990, employment has grown by 24%, adding 530,000 new jobs. And the demand is coming from “new economy” companies. In fact, since 2010, tech demand is up 23%, while traditional industries like financial and legal services have seen small gains or declines in that same time frame.
With so many new entrants to the market seeking more space than ever before, we are not building enough space to keep up with that growth. As JLL Brokerage Managing Director Ben Heller added, “The real story is demand. In fact, the demand is hard to get our heads around. There aren’t that many spots for 300,000-square-foot tenants.”
And supply is not providing any relief to absorb this demand according to JLL Capital Markets Managing Director Frank Petz. Despite seeing many cranes in the sky, most are for residential projects, he added. And, of the limited supply that has been created—including 2018 deliveries like 121 Seaport Boulevard, Hub on Causeway and Congress Square—most are at or close to 100% pre-leased.
So, what does this all mean?
Taking into account many of the factors described above, specifically, historical rental and vacancy rates, employment growth and forecasts, development pipeline, preleasing activity and lease roll, our JLL Forecast Model predicts aggressive rent growth in the coming years including 4.5% in 2017, 6.3% in 2018 and 5.8% in 2019.
While this still pales in comparison to the 8.6% rent growth we saw in 2015, it is expected to drive values up 7.0%.
Because of these strong fundamentals, how emphatically people believe in Boston, and the fact that much of what has recently been sold has landed in the hands of long-term holders, the broker’s dilemma now is that “no one wants to sell,” according to Frank.
As Julia added, “Boston is in a really good place right now. Looking ahead, there is no question Boston will remain a player on the national and global stage.