Commercial & Industrial
This early recovery has seen one strong trend, a flight to quality. Regardless of property type, quality properties are doing better and the rest are still struggling to stay afloat.
In Massachusetts we continue to see this bifurcation of the sales and leasing market. Quality (Class A) assets are seeing a slightly increased demand with few properties available for sale. This lack of supply is propping up prices, even though demand is still low.
Class A properties have seen a slightly recovery in the leasing market. This recovery is localized; Boston & Worcester have seen increased demand, while Metro-West’s continues to see as much as 25% vacancy for office buildings.
Class B & C properties are not seeing this same increase in demand. These properties continue to see downward pressure on rental rates, as landlords slug it out to fill vacancies. Many landlords are stuck between an asset that has lost 30% of its value of the past 4-5 years, and the increasingly difficult leasing market. Many don’t want to sell a non performing investment until the market rebounds. Many landlord, and there lenders, are content to hang in there; for now.
Multi family is being widely reported as a very “hot” market. Certainly, Boston area properties are being gobbled up for lower and lower cap rates.
In Worcester, there is a lack of quality supply. If there were more property selling, I ‘m sure one would see the same trend of lower cap rates. Demand is fueled by the prospect of more renters caused by the recent home mortgage debacles.
Class B & C multifamily are not benefiting from the increase in renters. This market is seeing an increase in tenant defaults and evictions. These people are unable to make ends meet in this tough economy.
Vacancies and Credit Losses will affect properties ability to cash flow. As a result, the smart investor will not over spend on these assets. If you do, you will be chasing that sales price for years to come. Worcester is a very cyclical market without much of long term appreciation in value, unless you can time the market. Buy low and you’ll be ok. Over pay and you’ll spend a lot of time and energy, with little or no cash on cash return.
Updated Market Trends: Worcester