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Boston Area Retail Market Report for Q4 2016

The Boston retail market did not experience much change in market conditions in the fourth quarter 2016. The vacancy rate went from 3.2% in the previous quarter to 3.1% in the current quarter. Net absorption was positive 407,154 square feet, and vacant sublease space increased by 20,934 square feet. Quoted rental rates decreased from third quarter 2016 levels, ending at $18.07 per square foot per year. A total of 26 retail buildings with 324,034 square feet of retail space were delivered to the market in the quarter, with 2,473,590 square feet still under construction at the end of the quarter.

Absorption

Retail net absorption was slightly positive in Boston fourth quarter 2016, with positive 407,154 square feet absorbed in the quarter. In third quarter 2016, net absorption was positive 840,295 square feet, while in second quarter 2016, absorption came in at positive 1,519,123 square feet. In first quarter 2016, positive 145,156 square feet was absorbed in the market.

Vacancy

Boston’s retail vacancy rate decreased in the fourth quarter 2016, ending the quarter at 3.1%. Over the past four quarters, the market has seen an overall decrease in the vacancy rate, with the rate going from 3.7% in the first quarter 2016, to 3.4% at the end of the second quarter 2016, 3.2% at the end of the third quarter 2016, to 3.1% in the current quarter. The amount of vacant sublease space in the Boston market has trended down over the past four quarters. At the end of the first quarter 2016, there were 797,996 square feet of vacant sublease space. Currently, there are 495,120 square feet vacant in the market.

Rental rates

Average quoted asking rental rates in the Boston retail market are down over previous quarter levels, and down from their levels four quarters ago. Quoted rents ended the fourth quarter 2016 at $18.07 per square foot per year. That compares to $18.71 per square foot in the third quarter 2016, and $18.83 per square foot at the end of the first quarter 2016. This represents a 3.4% decrease in rental rates in the current quarter, and a 4.21% decrease from four quarters ago.

Deliveries and Construction

During the fourth quarter 2016, 26 buildings totaling 324,034 square feet were completed in the Boston retail market. Over the past four quarters, a total of 1,798,385 square feet of retail space has been built in Boston. In addition to the current quarter, 24 buildings with 219,258 square feet were completed in third quarter 2016, 24 buildings totaling 755,816 square feet completed in second quarter 2016, and 499,277 square feet in 37 buildings completed in first quarter 2016. There were 2,473,590 square feet of retail space under construction at the end of the fourth quarter 2016.

Some of the notable 2016 deliveries include: 92 Farmington Rd, a 200,000-square-foot facility that delivered in second quarter 2016 and is now 96% occupied, and 725 Gold St, a 188,000-square-foot building that delivered in first quarter 2016 and is now 100% occupied. Total retail inventory in the Boston market area amounted to 337,235,358 square feet in 27,739 buildings and 1939 centers as of the end of the fourth quarter 2016.

Sales Activity

Tallying retail building sales of 15,000 square feet or larger, Boston retail sales figures rose during the fourth quarter 2016 in terms of dollar volume compared to the second quarter of 2016. In the fourth quarter, 33 retail transactions closed with a total volume of $445,044,182. The 33 buildings totaled 2,307,013 square feet and the average price per square foot equated to $192.91 per square foot. That compares to 23 transactions totaling $171,666,389 in the second quarter 2016.

The total square footage in the second quarter was 1,184,383 square feet for an average price per square foot of $144.94. Total retail center sales activity in 2016 was down compared to 2015. In the first nine months of 2016, the market saw 73 retail sales transactions with a total volume of $780,815,237. The price per square foot averaged $182.54. In the same first nine months of 2015, the market posted 89 transactions with a total volume of $875,421,879. The price per square foot averaged $209.18.

Cap rates have been higher in 2016, averaging 7.34% compared to the same period in 2015 when they averaged 7.21%. One of the largest transactions that has occurred within the last four quarters in the Boston market is the sale of Shops at 287 Washington Street. This 115,660 square foot retail center sold for $43,000,000, or $371.78 per square foot. The property sold on 2/4/2016.

Information provided by CoStar.com