Boston Booms With Better Retail
Area has a number of new large-scale projects in the works.
Susan Fishman

Boston’s retail market is, by all accounts, a healthy one, and the outlook for 2007 is just as promising, thanks to strong, more suitable development, high average incomes and the market’s dense population. Boston’s development pipeline contains approximately $12 billion in projects, and the Mayor’s office envisions 46 million square feet being added over the next 20 years, according to Elizabeth Furnelli, Edens & Avant’s vice president of development for the Northeast.

“In 2006, you will probably see around 2 million square feet of additional retail in the market,” she notes. “Rents are trending up this year — they are forecasted to be up 3.5 percent — and employment is also projected to be up around 1.3 percent.”

According to The Finard Report for Eastern Massachusetts/Greater Boston, 2006, Eastern Massachusetts experienced a net reduction in vacant space of approximately 688,000 square feet during the past year (a decline of 5.9 percent), despite the significant amount of new construction in the area. The trend is a result of the fact that last year bankruptcies and store closings among retail chains throughout the U.S. fell to their lowest levels since 2000. According to the report, the substantial reduction in vacancy, in conjunction with considerable new construction, is perhaps the clearest indication of the current strength within the Eastern Massachusetts retail sector.

Growth in Boston’s job market will help support the retail sector, but new construction will lead to a slight uptick in vacancy, according to Marcus & Millichap’s National Retail Report for 2006. The additional retail space will exceed absorption, pushing up vacancy 20 basis points to 5.2 percent in 2006, according to the report.

“You may see a slight increase in vacancy of 20 basis points, but that is all going to be absorbed and expanded back into the market with redevelopment of those projects,” says Furnelli.

Strong retailer demand will permit owners to bump rents, and investors are focusing on suburban areas, as well as properties that provide value-add opportunities through redevelopment and repositioning.

“There’s quite a bit of new development happening and, while the lifestyle concept is not new, it finally seems to be getting some traction in New England,” notes Bob Sheehan, vice president of research for Finard & Company, LLC. “I’ve always contended that this market, unlike many around the country, has its share of political and cultural constraints to new development that other cities don’t necessarily face, which has had a positive effect in terms of retail in Eastern Massachusetts. The market has never really been overbuilt in terms of retail space.”

Developer Activity

New projects can be seen in development throughout and surrounding Boston, including lifestyle centers, mixed-use developments and hybrid projects with both big-box and lifestyle tenants. Route128 is a hot corridor right now for development. S.R. Weiner & Associates is planning a project in Dedham, Massachusetts, called Legacy Place, at the corporate headquarters of National Amusement, the parent company of Viacom. The project will include a new cinema deluxe, a new office building for Viacom, a Whole Foods market and about 500,000 square feet of other lifestyle tenants.

“There’s an immense amount of high-income population along Route 128 – communities that are underserved by retail,” says Dick Marks, partner with S. R. Weiner & Associates.

The company is proposing a similar project, anchored by Whole Foods, in Reading, Massachusetts, at the intersection of Routes128 and 93, where there is a retail hole between Burlington Mall and North Shore Mall, according to Marks. While new development seems to be the trend, there are a few holes in the market, Marks explains.

“There’s very strong demand for new product in places where there are holes in the market between established retail centers, such as North Shore Mall, Chestnut Hill Mall, Natick Mall and South Shore Mall. There’s also a demand for new product more convenient to customers in the middle of the market in places like Dedham, just on the Boston border. We’re proposing a 750,000-square-foot, mixed-use lifestyle project that really fits in the middle of a trade area that is partially served by South Shore Mall, Natick Mall and Chestnut Hill Mall. But there’s a huge population in the middle that is really underserved by better retail.”

S.R. Weiner is also the owner of Derby Street Shoppes, which features both fashion and lifestyle tenants. The project is located in Hingham, Massachusetts, in the South Shore submarket along the Route 3 corridor and is only eight miles from South Shore Plaza, one of the most successful malls in the Boston metro area.

Boston is also seeing great demand from better restaurants, such as P.F. Changs, Ruth’s Chris Steakhouse and Cheesecake Factory, especially in Dedham and Reading, says Marks.

“They all have a location or two in the Boston area, but they are looking for strong markets that have both great nighttime and daytime populations,” he says.

New England as a whole is a very hot market today in terms of retail development, says Andy LaGrega, one of the principals of The Wilder Companies.

“Municipalities have become more open to well-managed, new developments, whereas in the past, it’s been tough to develop in New England. We’re still under-retailed compared to most of the country. There’s been a real demand from retailers, and there’s been a real evolution in the product type of retail shopping centers from regional malls to open-air, lifestyle centers.”

A very successful format and brand for The Wilder Companies is The Loop concept, an open-air shopping center featuring a mix of popular anchor stores, specialty shops, restaurants, cafes, services and entertainment venues. The company is developing the biggest Loop yet — 575,000 square feet — in Northborough, Massachusetts. The center, which will be part of a 1 million square-foot mixed-use development, will feature a jogging and hiking trail, a park and 350 residential units by Avalon Bay.

The Wilder Companies recently finished a project in downtown Boston on Newbury Street, called The Newbry, in which the first three levels of the 600,000-square-foot office building were re-merchandised into 150,000 square feet of street retail. The company is also developing Gloucester Commons in Gloucester, Massachusetts. Located on Route 128 in an under-retailed area, the 200,000-square-foot open-air retail center is a joint venture with Sam Park & Company.

In terms of retail, downtown Boston is ready for a major re-emergence of activity on a national basis, according to Michael McNaughton, regional director with General Growth Properties.

“We’re very excited about the completion of The Big Dig [Boston’s central artery tunnel project] and what that brings in terms of transportation accessibility, specifically in a north/south direction, going through the city and into the city,” he says.

The completion of The Big Dig is especially exciting in what it can do for Faneuil Hall, McNaughton notes, which suffered through many years of connectivity issues to the waterfront.

“Now, with the next phase of the project being the completion of the Greenway that runs down the middle of the city, it’s going to re-open Boston to a more pedestrian-friendly and tourism-friendly city,” he says.

General Growth is currently working on Natick Mall with retail partners Nordstrom and Neiman Marcus, which will feature 220 condominiums, a full-scale, four-star hotel, luxury retailers and unique restaurants.

“We believe that this location is centrally focused to capture people from all areas who don’t want to go into the city and deal with $20- to $30-parking and a very fragmented luxury retail experience,” McNaughton says. “We’re hopeful that the Natick project will incorporate some first-in-market retail along with all the luxury amenities and experiences one would expect in a more urban environment.”

Downtown Boston will also soon feature the Downtown Crossing project, a 650,000-square-foot site that will most likely be a mixed-use project, including a residential component. There are also a number of seaport projects going on right now, including Fan Pier, which is just under 3 million square feet of mixed-use space, and Waterside Place, another large mixed-use development with hotel, residential and retail space.

“We’ve seen newer development projects popping up around Eastern Massachusetts over the last 2 to 3 years, and that trend seems to be continuing, confirms Sheehan.

Finard & Company is working on Wayside Commons, a 196,000-square-foot lifestyle center next door to the company’s corporate office in Burlington. The project will be home to the first retail store for L.L. Bean (as opposed to an outlet center). Co-anchors include Borders and the Capital Grille restaurant, as well as a number of new retailers to the Boston market.

Edens & Avant is in the process of finishing up its South Bay Shopping Center, which runs parallel to Route 93 in Boston. The company just bought additional acreage and has added 100,000 square feet to the center, which will be anchored by a new Stop & Shop, Circuit City and Bed Bath & Beyond, and will total 540,000 square feet.

Edens & Avant is planning the Shoppes at Page Pointe, a 193,000 square-foot development in Stoughton that will open in 2008. The project will have an elevated Target store with parking underneath, designed by Target’s unique store concept design team.

“It’s an example of what the retailers are doing now to fit on sites, thanks to the high barriers to entry that we have in this market,” Furnelli notes.

New England Development has also found the retail market still strong in Boston. The company is developing Westwood Station in Westwood, Massachusetts, along with Cabot, Cabot & Forbes and Commonfund. The town center will include 1.2 million square feet of retail, 1,000 residential units, 1.75 million square feet of office and two or more hotels. In addition to its direct access from two highways, the project incorporates a major train station with MBTA Commuter Rail and Amtrak service. Also in the Boston market, New England Development’s 875,000-square-foot development in Chestnut Hill, one of the most affluent suburbs in the country, will include luxury residences in addition to high-end retail.

Retailer Activity

Retail acquisitions and new store openings have also contributed to the evolving retail landscape in Boston.

New England Development is planning Westwood Station in Westwood, Massachusetts, along with Cabot, Cabot & Forbes and Commonfund. The town center will include 1.2 million square feet of retail, 1,000 residential units, 1.75 million square feet of office and two or more hotels.

Supermarkets are seeing more competition as a result of the Hannaford acquisition of Victory Supermarkets, according to The Finard Report. The company picked up 15 stores in the Eastern Massachusetts region, and is positioned to increase its penetration throughout metropolitan Boston. And a consortium of buyers that includes Supervalu Inc. reached an agreement to purchase Albertson’s, including its Shaw’s Supermarket division.

Though Home Depot continues to dominate the home improvement industry with 32 locations in Eastern Massachusetts, Lowe’s Home Improvement is gaining ground with six new stores. The company now operates thirteen in the region and its gain in square footage was the highest among all Eastern Massachusetts retailers.

Also of note is the Federated/May Company merger. There are several Macy’s and Filene’s locations where store overlaps occur that may change hands in 2006 and 2007, according to The Finard Report. Available locations are at the North Shore, South Shore and Burlington Malls and are potential strategic targets for Nordstrom, which already has a store at Natick Mall.

The Boston Horizon

Will the positive retail trend continue in Boston?  Boston developers believe it will. Based on the high barriers to entry, high average incomes and the dense population in the market, the retail market will continue to boom and be a very stable investment pool of opportunity, according to Furnelli.

“I know that many of the developers in the area are redeveloping, are looking to redevelop or repositioning what they have in the area.”

“We see next year being as strong as this year, with rents justifying construction costs,” adds Douglass Karp, senior vice president of New England Development. “The trend is for increased density at sites and for a mix of uses that includes retail, residential and office. There will be true lifestyle centers where people can live, work and shop — even with public transportation as an added bonus.”

Sheehan agrees.

“I don’t see any reason why the trend would change. I think the lifestyle/mixed-use developments are still rolling out,” he says.

“I think we’re all doing a good job of trying to find the so-called holes in the donut, in terms of the areas that are underserved in New England, away from the existing regional malls, where we can put together the critical mass of contemporary retailers,” notes LaGrega. “Moving forward, there will less and less holes in the doughnut, but in the meantime, better developers are finding those opportunities. I think you will see additional lifestyle-type centers starting up in the next couple of years throughout New England.”

General Growth is also optimistic and bullish on the Boston market.

“The future of Boston retail looks great with the city coming off many years of poor connectivity and construction work, specifically in the central business district,” says McNaughton. “We believe the most impactful changes in the Boston retail scene in the next 3 to 5 years will be the emergence of Natick Mall as one of the top five malls in the United States and will dramatically change the way Boston shops.”

Marks confirms that there will be a number of projects opening in 2007/2008.

“Retail vacancy rates are very low in the Boston area and by and large, retailers are clamoring to be in this market,” he says. “So I think the outlook is very rosy.”