Boston Office Space Investing
Boston's hot real estate market has given investors a lot to cheer about. While much has been made about investing in single-family homes, fixing them up and flipping them for tidy profits--or renting them out for rental income--people often overlook another prime opportunity: investing in office space. In Boston, in particular, investing in office space is a lucrative endeavor. Many of the problems that plague other markets, including high vacancy rates, aren't an issue in Boston. In fact, vacancy rates for office space around the city are jaw-droppingly low. If you're interested in getting into office space investing in Boston, Boston City Properties can help.
In many markets, offices are found in buildings, office parks and even in restored older homes. In Boston, of course, they are mostly found in tall office buildings that house dozens of tenants. Depending on the neighborhood, you will find numerous mid-rise and high-rise buildings that house Class A, Class B and Class C space. Finding the perfect investment opportunity can be difficult in a fast-paced, highly competitive market like Boston's, but with the help of our team, you will zero in on prime opportunities in no time flat.
While there is no way to predict whether the current real estate boom will continue in Boston, the market is still on an upward trajectory. If anything, businesses are clamoring for more office space. This is great news for investors, as it typically means that they can command higher rents due to scarcity. Space in Class A properties is particularly scarce, so if you are able to invest in those kinds of properties, you will be in even better shape.
In case you are unclear about the differences in various office space classifications, Class A space is typically located in a prime location, it has a distinct market presence and the building and its amenities are truly state of the art. Class A space fetches the highest rents per square foot. Class B space is typically located in older buildings in less central locations. However, these buildings usually have stable tenants who are attracted by more affordable rent. Finally, Class C space is more utilitarian in nature, and it is the most affordable option.
About Boston Office SpaceThings are on fire at the moment in the world of Boston real estate. That is particularly evident in commercial real estate, and office space is especially in demand. Much of this has to do with strong employment gains that have continued around the metro area.
From 2014 to 2015, office space rents rose by about 7.6 percent to reach an average of $32.53 per square foot. Rental prices for Class B space in the Financial District rose by 12.4 percent during that period.
Investors are leaping at various opportunities. In 2014, there were more than $9.3 billion of commercial building deals in Boston. Millions of square feet of office space is also under construction to address the limited inventory that has been plaguing businesses that need Class A digs.
Vacancy rates for commercial real estate space around the city dropped to just 12.8 percent in 2015, which is the lowest vacancy rate since 2001. In 2015, more than 1.2 million square feet of space was leased. In the central business district, vacancy rates dropped to just 9.4 percent. Without question, however, the Seaport District was ground zero for offices and commercial space, with more than 984,000 square feet leased out in 2014 alone. There's no doubt about it: Now is the time to jump on investment opportunities for office space in the city of Boston.
Benefits of Investing in Office SpaceIf you've typically only invested in residential properties, you may be on the fence about moving over to office space. In fact, it may seem like too much of a risk to be worth trying. However, with the right help--and by educating yourself about what to expect--you can realize the most exciting benefits that this type of investing brings to the table. Those benefits are considerable indeed, and many investors find it easier to invest in a handful of great commercial properties instead of dozens of smaller residential properties.
A few of the top benefits of investing in office space include:
• Great Returns - If you were to ask just about anyone with even the slightest knowledge of property investing, they would agree: You get some great returns by investing in office space. These properties typically yield returns of five to 10 percent, where residential properties typically yield a fraction of that amount. What's more is that rental income for such properties tends to increase by about 5 to 6.5 percent per year, so you should see your income increase steadily as time goes by. In other markets, realizing these returns is less reliable due to vacancy issues, but you don't have to worry about that in Boston.
• Long Leases - Companies tend to prefer signing long leases. That is especially true in a market like Boston's, which is highly competitive. Tenants don't want to be out there looking for new space every year or so, so they generally are happy with signing much longer term leases. This is great for investors because it means that they get more stable tenants and that they can rely on that rental income for a period of several years instead of several months.
• Appreciation - While commercial real estate doesn't tend to appreciate as quickly or dramatically as residential real estate, it still appreciates. In Boston, it tends to do so more reliably and quickly than in many other markets. Therefore, as you collect rental income from tenants in your office buildings, you will also be building equity. You can therefore rest assured of having a good "escape plan" should you decide to sell the building in a few years. You are unlikely to end up "stuck" with a building that isn't giving you the returns that you need, and that is a major plus in the world of investing.
Breaking into office space investing can be pretty overwhelming. It's enough to make you reconsider doing it at all. Don't get discouraged. With access to the right help and the right resources, you can get the ball rolling without too much trouble. The team at Boston City Properties is here to help. At any given moment, our searchable online database is loaded with constantly updated listings for commercial properties for sale in neighborhoods throughout the city, so you can get the scoop about what's available at a moment's notice.
A few things to look for when searching for office space to invest in in Boston include:• Secure Tenants – One of the riskiest things about investing in commercial space is that there is often no predicting whether a building will stay sufficiently occupied. Vacancies have a profoundly negative impact on profitability, to say the least, so it pays to stick with locations that are known for attracting secure tenants. Most Class A properties are fairly safe bets. This is especially true about buildings in the central business district and in other hotbeds of commercial activity around the city. Before pulling the trigger, investigate the history of tenancy in the building. Do businesses tend to stay put, or is there a pretty high turnover rate?
• Prime Location – It should go without saying that the best commercial properties to invest in are located where businesses want to be. You are much better off investing in a property that's in a bustling business district than one that's further afield. You will pay less for a place that's a bit off the beaten path, but the odds of generating reliable income from such a property are significantly reduced. Experienced real estate brokers can help you locate properties that are where companies want to be.
• Safe Area – Businesses don't want to be located in crime-ridden areas. Always do your due diligence before investing in a property in a part of the city that you're not familiar with. Even if an area seems safe, there's no real way to know without checking crime statistics and the like. It also helps to ask around a little. Stop by local businesses and ask them how safe the area is. Do some digging online too. You can often learn a lot about a neighborhood by doing a little searching on the internet.
• Structurally Sound – At the very least, the building that you are investing in should be structurally sound. The last thing that you want is to have to pour a ton of money into repairing it or in bringing it up to code. Don't settle with a structurally sound building, though. Look for one that is truly state of the art, as it is more likely to attract secure, high-paying tenants. Have the premises thoroughly inspected by an experienced inspection company. If issues are found, make sure that they are handled for you so that you aren't stuck paying for them.
• Flexible Space – Every business is different. The best investment properties have space that is flexible enough to accommodate businesses of all kinds. In other words, it's far better to have a huge floor of open space than one that's broken into small rooms and cubicles. Look for properties that make it easy to configure offices in a variety of ways. You can then advertise the space to all sorts of different businesses, so you will have many more options for keeping it fully occupied.
• Parking and Public Transportation – Put yourself in employees' shoes when scouting out commercial properties to invest in. Nobody wants to have to park blocks away from the place where they work or to walk several blocks from the nearest bus stop or subway station. With these points in mind, look for properties that include ample parking and that are reasonably close to public transportation. The best buildings have both, but parking is a big issue in many parts of the city. At the very least, choose a property that makes it easy for people to gain access to public transportation, or most businesses won't want to move in.
• Energy Efficiency – New buildings are being designed with energy efficiency in mind. It's amazing how much money can be saved through energy efficient building designs. You are more likely to attract a higher caliber of tenant when you can truthfully say that the building is energy efficient. Prospective tenants will appreciate this, as it will save them a lot of money. Many businesses are also committed to being environmentally friendly, so this is another great selling point for attracting their attention. It's good for you as a landlord too, as it helps to keep your costs down as well.
• Natural Light – The best office buildings have enormous windows that make the most of naturally available light. This helps in a few different ways. First, it simply makes the office seem a lot nicer. Buildings with very few windows, or very small windows, tend to feel dark and claustrophobic. With large windows and lots of light, everything seems a lot more open and nicer. At the same time, making the most of natural light allows you to use less energy, which is, as mentioned before, a big selling point when it comes to attracting high-paying tenants.
For the most part, investing in office space in a big city like Boston is a winning proposition. Like anything, though, it's not without its drawbacks. To make the most informed decision possible, it's crucial to familiarize yourself with these drawbacks and to decide if they are worth the risk to you. The team at Boston City Properties will work with you to consider all sides of the situation. We want you to find properties that will help you meet and exceed your objectives. A big part of that is being aware of what could go wrong, so here are a few things to keep in mind:
• High Upfront Costs – Compared with buying a residential property, buying commercial real estate typically means spending a lot of money upfront. You are usually required to make a down payment of at least 30 percent, and you can expect to have many other fees to cover at closing as well. This is why it is so important to get the best possible deal that you can. Otherwise, after paying all of those upfront costs and closing costs, it might take a really long time to gain real equity in the property. Also, those expenses can cut into your rental income, which can be very problematic in the early stages.
• Vacancy Rates – As mentioned before, vacancy rates for commercial real estate around most parts of Boston are at near-historic lows. Still, there is no way to predict how well a building will remain occupied over any given period of time. Even if a tenant is very stable in terms of signing a long lease and paying the rent on time, they could go out of business or go bankrupt at a moment's notice. You must be prepared to handle fluctuations in occupancy rates, or you will end up losing way more money than you make. This is another reason why it is so important to work with Boston City Properties, as we can connect you with experts who can crunch the numbers for you to ensure that you will generate the income that need.
Now that you understand the basics of investing in office space, you may be anxious to get started. Regardless of your goals, your first step should be connecting with Boston City Properties. Whether you're ready to buy a building right now or are just in the early stages of researching the situation, we are ready to help.
How can Boston City Properties help? For starters, you can sign up for free, immediate access to our searchable listings, which includes listings for commercial properties for sale in neighborhoods throughout the city. Do this right away to start getting a feel for current prices and the like. You can use the search feature to zero things down even more, which will save you even more time.
After identifying a few properties that pique your interest, contact us to be put in touch with experienced real estate agents and brokers in the area where you are looking. We will connect you with professionals who are experienced in handling commercial real estate transactions. They will work on your behalf to ensure that you have the smoothest, easiest time, including assisting you during negotiations. You are sure to find their help to be indispensable.
Finding great office space to invest in is a breeze with Boston City Properties. When you're ready to get started, give us a call. We will work with you to help you find properties that will generate the income that you need.