BOSTON's Uncommon Market
Leon, Hortense, Mortgage Banking
Several sectors of the Boston commercial and multifamily property markets are thriving today. But this key New England city boasts an economy that can be volatile, and its property markets ride the resulting ups and downs.
Metropolitan Boston's economy is full of contradictions. It has produced some of the largest declines in employment and wages in the country in sectors, related to the so-called old economy, while at the same time creating one or the highest concentrations of employment in the high-paying education and health sectors. * Boston, like San Francisco, has become a city of extremes. There is evidence that while certain classes of white-collar workers in Boston are getting wealthier, workers at the lower rung are fleeing an area in which they no longer can afford to live. * But this does not mean that Boston is a highwage worker paradise. "It has a high concentration in high-value-added industries, such as bio-technology, and financial and legal services, but these [industries] are very cyclical," says gus Faucher, director of macroeconomics at Moody's Economy.com, West Chester, Pennsylvania. * As of June 2006, employment in Massachusetts' education and health sector was up by 46,800 jobs, or 8.5 percent since March 2001, according to a September 2006 report by the Massachusetts Budget and Policy Center, Boston, entitled The State of Working Massachusetts 2006: As the Economy Moves Forward, Wages Fall Back. * For both manufacturing and information, the overall decline in employment since March 2001 was close to 25 percent, with manufacturing employment dropping by 98,000 jobs between March 2001 and June 2006 and information employment (e.g., conventional publishing, Internet publishing, film, telecommunications, data processing and Internet service providers) employment declining by 28,000 jobs. The Boston metropolitan statistical area (MSA) has 62 percent of the state's population and 68 percent of its total employment, says Faucher.
"Boston is financially sensitive," especially with respect to financial and technology companies, which tend to cut jobs in a downturn, says Stephen White, manager of the markets team for Property & Portfolio Research (PPR), Boston.
"This economy is volatile compared to some of the other metros we track. Job growth has picked up, but it took Boston a while to get going again," says White, referring to the recent recovery from the 2001 recession. "Going forward, we think there will be a slowdown with the rest of the country," he says.
Conditions in Boston's labor market are reflected in the relative strength and weaknesses of the various commercial real estate sectors, says Craig Thomas, director of research at Torto Wheaton Research, Boston. But the strength of the hospitality market may be related as much to the business climate in the country as to the business climate in Boston.
Hotel market buoyant
The hotel market is the healthiest commercial real estate sector in the United States, according to Thomas. In Boston, the hospitality market is doing well because of the city's strength as a convention magnet, and businesses today have a lot of cash to spend on travel, he says.
"Boston's [hospitality industry] came roaring back in 2004 through 2006, and 2007 is projected to be a solid growth year," says Dave McElroy, first vice president in the Boston office of El Segundo, California-based CB Richard Ellis Group Inc.
"Occupancy-wise, only two or three markets are doing better," says Bobby Bowers, senior vice president with Smith Travel Research, Hendersonville, Tennessee. Occupancy for the first 10 months of 2006 for the Boston MSA was 69.6 percent, an increase of 3.3 percent over the same period in 2005, compared with an average of 0.9 percent in the top 25 markets, says Bowers. And results for the Boston downtown/airport tract were even better: In the first 10 months of 2006 the occupancy rate was 79 percent-up 3. …