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Boston Area Retail Market Report for Q4 2018

The Boston retail market did not experience much change in market conditions in the fourth quarter 2018. The vacancy rate went from 3.2% in the previous quarter to 3.3% in the current quarter. Net absorption was negative 274,480 square feet, and vacant sublease space increased by 297,632 square feet. Quoted rental rates decreased from third quarter 2018 levels, ending at $19.44 per square foot per year. A total of 11 retail buildings with 116,744 square feet of retail space were delivered to the market in the quarter, with 1,676,158 square feet still under construction at the end of the quarter.

Absorption

Retail net absorption was slightly negative in Boston fourth quarter 2018, with negative 274,480 square feet absorbed in the quarter. In third quarter 2018, net absorption was positive 455,931 square feet, while in second quarter 2018, absorption came in at negative 433,626 square feet. In first quarter 2018, negative 212,641 square feet was absorbed in the market. Tenants moving out of large blocks of space in 2018 include: Sears moving out of 311,300 square feet at 250 Granite Street;; and Nantucket Offshore moving out of 144,000 square feet at 657 Quarry Street; and Sam’s Club moving out of 136,000 square feet at 1 Tobias Boland Way.. Tenants moving into large blocks of space in 2018 include: BJ’s Wholesale Club moving into 109,369 square feet at 200 John E Devine Drive; Market Basket moving into 60,089 square feet at 1900 Main Street; and Funcity Trampoline Park moving into 58,610 square feet at 553 Mast Road.

Vacancy

Boston’s retail vacancy rate increased in the fourth quarter 2018, ending the quarter at 3.3%. Over the past four quarters, the market has seen an overall increase in the vacancy rate, with the rate going from 3.0% in the first quarter 2018, to 3.2% at the end of the second and third quarter 2018, to 3.3% in the current quarter. The amount of vacant sublease space in the Boston market has trended up over the past four quarters. At the end of the first quarter 2018, there were 139,872 square feet of vacant sublease space. Currently, there are 615,736 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 up from their levels four quarters ago. Quoted rents ended the fourth quarter 2018 at $19.44 per square foot per year. That compares to $19.59 per square foot in the third quarter 2018, and $19.01 per square foot at the end of the first quarter 2018. This represents a 0.8% decrease in rental rates in the current quarter, and a 2.21% increase from four quarters ago.

Inventory and Construction 

During the fourth quarter 2018, 11 buildings totaling 116,744 square feet were completed in the Boston retail market. Over the past four quarters, a total of 1,065,522 square feet of retail space has been built in Boston. In addition to the current quarter, 25 buildings with 468,657 square feet were completed in third quarter 2018, eight buildings totaling 207,616 square feet completed in second quarter 2018, and 272,505 square feet in 26 buildings completed in first quarter 2018. There were 1,676,158 square feet of retail space under construction at the end of the fourth quarter 2018. Some of the notable 2018 deliveries include: 1245 Worcester Street, a 197,000-square-foot facility that delivered in 2018 and is now 37% occupied, and 655 South Willow Street, a 191,519-square-foot building that delivered in third quarter 2018 and is now 55% occupied. Total retail inventory in the Boston market area amounted to 343,839,247 square feet in 28,923 buildings and 1954 centers as of the end of the fourth quarter 2018.

Sales Activity

Tallying retail building sales of 15,000 square feet or larger, Boston retail sales figures rose during the third quarter 2018 in terms of dollar volume compared to the second quarter of 2018. In the third quarter, 26 retail transactions closed with a total volume of $210,759,500. The 26 buildings totaled 1,435,895 square feet and the average price per square foot equated to $146.78 per square foot. That compares to 24 transactions totaling $171,450,500 in the second quarter 2018. The total square footage in the second quarter was 940,442 square feet for an average price per square foot of $182.31. Total retail center sales activity in 2018 was down compared to 2017. In the first nine months of 2018, the market saw 74 retail sales transactions with a total volume of $508,381,499. The price per square foot averaged $152.92. In the same first nine months of 2017, the market posted 83 transactions with a total volume of $799,255,841. The price per square foot averaged $187.55. Cap rates have been higher in 2018, averaging 7.68% compared to the same period in 2017 when they averaged 7.26%. One of the largest transactions that has occurred within the last four quarters in the Boston market is the sale of Davis Square in Somerville. This 46,276 square foot retail center sold for $39,000,000, or $842.77 per square foot. The property sold on 9/4/2018, at a 0.00% cap rate.”


Information provided by CoStar.com