Joe Sciolla
has been a commercial real estate
broker for over 30 years in Boston,
the last 15 years with CresaPartners.
His business practice focuses on
providing exclusive tenant representation
and corporate advisory services
to local as well as national companies.
Prior to joining Cresa he was managing
director of Cushman Wakefield’s
Boston office for eight years. He
is a graduate of Harvard University
has been involved in over $4 billion
worth of real estate transactions.
He is a member of the Boston Commercial
Brokers Association and is a guest
lecturer at the Northeastern University
School of Entrepreneurship.
About
CresaPartners
CresaPartners is
a Boston-based international corporate
real estate advisory firm that exclusively
represents tenants and specializes
in the delivery of fully integrated
real estate services including transaction
and project management, strategic
planning, workforce and location
planning, subleases and dispositions,
portfolio/lease administration,
capital markets, sustainability,
and industrial/supply chain and
facilities management. With more
than 55 offices, CresaPartners is
the largest tenant representation
firm in North America. Through its
alliance with Savills, one of the
world’s largest commercial real
estate service firms, CresaPartners
covers more than 255 locations in
40 countries.
Boston SF: What is the current
state of the commercial real estate market
nationwide and in Greater Boston in particular?
Joe Sciolla: Most major metro
areas in the United States have higher
unemployment rates than Boston and are
facing greater hurdles on the road toward
commercial real estate recovery. In contrast,
the Bay Area (especially Palo Alto and
parts of Silicon Valley and San Francisco)
and New York City are among the nation’s
hottest markets. Throughout the country,
the same macro forces are at work, presenting
obstacles toward a quicker recovery: the
global economy and bank crisis, debt crisis,
stock market volatility and fears of a
double-dip recession.
In Boston, moderate job growth, corporate
consolidations, downsizing and a cautious
mindset continue to be major trends. Vacancy
and rents are flat for the most part while
construction is slowly picking up. Demand
for office space in the Back Bay – and
Class A, high-rise tower space in particular
– remained strong. One dynamic we are
beginning to see are tenants from East
Cambridge migrating to less expensive
space in the lower floors of towers in
the Financial District.
According to our most recent market research,
the Boston office market experienced slightly
more velocity in the third quarter of
2011, and absorption remained positive
at 195,000 rentable square feet. Total
vacant (versus available) Class A space
decreased slightly to 15.8 percent and
will likely show a further decline when
the fourth-quarter numbers are in, tied
to a shortage of large, continuous blocks
of space (80,000 square feet and larger).
Overall average asking rents increased
slightly to $37.50 per square foot. Looking
ahead, we expect that rents will remain
flat through 2012 with the exception of
the Class A downtown high-rise portion
of tower space.
Boston SF: Are the urban and
suburban markets in lockstep or heading
in different directions? How about Class
A space versus older properties?
Joe Sciolla: While Boston is faring
better than the suburbs, East Cambridge
is the tightest and most expensive submarket.
Select towns along Route 128 and in the
Metrowest (Natick, Framingham, Waltham,
Burlington) are becoming tighter for Class
A space, though most submarkets still
have vacancy of at least 20 percent. Overall,
most markets are still hurting with significant
amounts of inventory, some of which is
obsolete and may never be filled.
An ongoing trend is a “flight to
quality” to superior Class A space.
Companies can generally still find good
value and better amenities if they explore
options in the marketplace.
Boston SF: What noteworthy
trends did you observe in the past 12
months?
Joe Sciolla: Most companies are
renewing and/or restructuring their leases
as opposed to relocating, which is generally
more expensive and disruptive. For the
most part, it has remained a tenant’s
market, though select landlords (especially
those with monopolies in mini business
parks) are trying to push the envelope.
Small to mid-sized deals (in the 12,000-square-foot
to 15,000-square-foot range) are the most
prevalent. A positive trend is that more
financing is becoming available, though
some banks are still at risk for default.
Overall, companies are doing more with
less, looking into workplace optimization
strategies, as advanced technology and
cultural evolution change the dynamics
of the workplace. This has created a need
to work with experienced project managers
who will help a company reconfigure its
space, build more efficient workstations,
help with shared space, etc.
Boston SF: What is your forecast
for the Greater Boston commercial real
estate market in 2012?
Joe Sciolla: It will continue
to be a tenant’s market throughout 2012,
with a full market recovery not expected
until jobs reach their pre-recession levels,
probably in three years. Some companies
in Boston and Cambridge may consider migrating
to the suburbs, where there are more options
and space is less expensive.
Boston will remain a popular hub for
the healthcare and education sectors and
leading-edge technology, new media, and
life sciences companies. However, Boston
is no longer home to many corporate headquarters,
and service industries such as the legal
community continue to shrink.
Boston SF: Given the current
state of the market and where it’s headed,
what opportunities exist for tenants of
commercial, industrial and office space?
Joe Sciolla: Tenants are still
in the driver’s seat and can exercise
their leverage in securing very favorable
terms, including free rent and generous
tenant-improvement allowances. In general,
early lease renewal is a win-win for tenants
as well as landlords, who would prefer
to maintain credit-worthy tenants. Companies
looking to upgrade their facilities should
explore alternative workplace strategies
and see if landlords will contribute to
the costs of such projects.
Companies can save significantly when
they consider upfront project management
and other ongoing corporate services such
as facilities management and workforce
and location planning (WLP can help
companies decide the age-old question:
Should I stay or should I go?).
Companies with a global portfolio should
make sure they partner with a real estate
service provider that has an international
affiliate.
Boston SF: Are there any pitfalls
that such commercial space-users must
be especially wary of today?
Joe Sciolla: Macro forces (cited
above) will add to ongoing market uncertainty,
as will the political climate. While tenants
with strong, long-term business plans
should consider “seizing the moment,”
corporate space users in general should
be cautious, resist the hype that may
coming from some bullish landlords, and
work with advisors and full-service firms
that put their interests first.
Boston SF: What is the one
thing that will have the greatest effect
on the commercial real estate market in
the months ahead?
Joe Sciolla: Jobs. Jobs. Jobs!