While Boston continues to be one of the Top 10 commercial real estate markets in the country (as reported by the recent report “Emerging Trends in Real Estate® 2015,” co-published by PwC US and the Urban Land Institute) and maintains its focus for many investors, its outlying suburbs and Western Massachusetts are now becoming more and more attractive sub-markets.
We see commercial real estate investors still looking away from some of the traditionally more popular markets and returning more strongly to secondary markets in search of higher yields. They are expanding their focus to protect their capital because opportunities in the top core markets are now even harder to find and the best assets have become even more expensive.
Outside of Route 128 and into Massachusetts’ secondary markets, the continuing trends of improving job and wage growth should provide the foundation for value-added investment opportunities in all asset classes. With that in mind, we took a look at the Springfield, MA, market in September; this time we are turning our attention to a market closer to Boston — Worcester, MA.
Recent Worcester-area transactions for Class-B multifamily are currently going under contract and closing in the $80,000 – $90,000 per unit price range, with capitalization rates in the $8.0% – $8.5% range on current net operating income. Our most recent offering in Spencer, MA, located 10 miles from downtown Worcester, was put under contract during the first 45 days on the market, reflecting strong demand from multifamily investors.
Major development projects with the goal of turning Worcester into an 18-hour city attractive to urban residents are driving the Worcester market. Let’s take a look at several of these projects.
First, a private developer that builds housing has signed an agreement to create more than 300 apartments downtown at the CitySquare project area, another sign that the $563 million multi-phased private/public CRE project is moving strongly ahead. The next phase of this project also calls for a 150-room hotel with a restaurant and 12,000 square feet of retail space; this is scheduled to open in 2016.
Meanwhile, the Hanover Theatre for the Performing Arts is expanding Worcester’s theater district with the purchase of a vacant three-story building at 551 Main Street, adjacent to its downtown location. The cost was $1.1 million, and another estimated $3.5 million is needed in renovations and build out. The building will expand the theater’s office space and community outreach by adding function space and housing the theatre’s education and outreach programs. Retail space on the first floor will be leased to a restaurant.
In another major project, the long-vacant former Worcester County courthouse complex on Main Street now has several suitors interested in redeveloping the 4.28-acre site for uses ranging from an upscale boutique hotel to college classrooms. The former courthouse was an anchor in Lincoln Square for almost two centuries, and its revitalization is another crucial piece of the renaissance of the North Main area. The original 40,000-square-foot structure dates back to 1845, and a 214,000-square-foot annex was added in 1954.
The old courthouse is located near the former Worcester Vocational Technical High School, which was recently redeveloped into the Voke Lofts, and will likely generate additional interest from developers in the Worcester Auditorium and former Boys Club building nearby.
With offices in Massachusetts as well as New York and Connecticut, our investment sales teams at Northeast Private Client Group are well-positioned to support commercial real estate investors looking at opportunities in the Massachusetts market and across the region. If you’re a property owner or an investor in the mid-market segment and want to discuss the content of this blog or your investment goals for next year and how we can help you achieve them, please give us a call. We look forward to listening and sharing our knowledge with you.