Boston, Mass., is the business
capital of New England and ranks among the premier U.S. cities as a global
economic hub and a “gateway” city for foreign investment. At the heart of
Boston’s character is a legacy built on innovation and creativity, with a total
of seven top-50 schools anchored by MIT, Harvard, and world-renowned research
institutes and teaching hospitals. Massachusetts has approximately 114 colleges
and universities. The metropolitan Boston area is a knowledge driven economy.
From education to healthcare, life sciences, finance, and high tech, the area
has evolved into a diverse economic base that attracts exceptional talent,
businesses, and investment.
With a population of
approximately 4.7 million, the Boston MSA is the 10th most populated
MSA in the U.S. The broader Combined Statistical Area of Boston is the sixth
largest in the United States and includes Rhode Island and additional areas in
New Hampshire. The area maintains several hospitals of distinction, including
the 1,000-bed Massachusetts General Hospital, Brigham & Women’s, Beth
Israel Deaconess Medical Center, and Tufts Medical Center and Children’s
Hospital—one of the nation’s best pediatric hospitals. Combined, the hospitals
clustered in the Boston MSA employ a large portion of the workforce, which
creates a higher standard of living and is an influential economic and
Corporations with their
headquarters in the Boston MSA—several of which are Fortune 500 companies—include
Liberty Mutual Group, Massachusetts Mutual Life Insurance, Raytheon Co.,
Staples Inc., TJX Cos., EMC Corporation, State Street Corporation, Boston
Scientific, Genzyme Corp., Iron Mountain, Inc., Analog Devices, Boston
Properties, and Akamai Technologies.
According to Esri, a geographic information system company, the
Boston-Cambridge-Newton, Mass., metropolitan area had a 2015 total population
of 4,769,691 and experienced an annual growth rate of 0.9 percent, which was
higher than the Massachusetts annual growth rate of 0.7 percent. The UMass
Donohue Institute predicts strong growth in the Greater Boston population over
the next 25 years, increasing by roughly 100,000 residents every five years
through 2025. In 2015, the number of households in the metropolitan area was
1,799,442 and that number is projected to grow by 0.5 percent annually,
increasing the number to 1,840,537 by 2020. The Boston-Cambridge-Newton, Mass.,
metropolitan area had a 38.2 percent renter occupied market, compared to the
lower 37.5 percent in Massachusetts and the lower still 34.6 percent in the
United States. The 2015 median household income for the metropolitan area was $78,800,
which was 27 percent higher than the United States median household income of
$53,608. Total employment has increased annually over the past decade in the
Commonwealth of Massachusetts by 0.4 percent and increased annually by 0.9
percent in the Boston-Cambridge-Newton area. The Bureau of Labor Statistics
notes that Boston-Quincy’s economy is expanding steadily, and healthcare and
technology are the major drivers. Although the labor force rose substantially
in the past few months, aggressive hiring has brought the unemployment rate
down to four percent—lower than both the state and national rates.
In summary, the MSA has had a steadily
declining unemployment rate through January 2017 and currently sits at 2.8
percent. The area has a diverse culture and business climate with a workforce
that combines and unites to maintain an economic stronghold while having the
ability to affect regions not only locally but also nationally.
The Greater Boston area has
continued to experience steady growth and now employs more individuals than any
other time in its history. Since 2010, the region has been experiencing
population growth above the U.S. average, driven by a broad-based recovery
across a number of industries. Companies of all sizes seek access to the area’s
top talent, which has dropped the unemployment rate below the national average.
Overall, the Boston region is attractive to potential investors as it offers a
vibrant atmosphere supported by universities, hospitals, urban attractions, and
a history of stability. Boston is a top-6 market area alongside Chicago,
Washington, D.C., San Francisco, Los Angeles, and New York, and is an area of
targeted global investment as a gateway city.
Boston Vs. U.S.
The attached chart, prepared by
Reis, Inc., illustrates the current rental rates for standard size units, both
climate- and non-climate-controlled in the Boston metro area versus the U.S. national
Of note is the fact that the
Boston metro rates are higher than the national averages across the board,
which bodes well for developers of new projects, owners seeking to expand, and
sellers ready to take advantage of this robust market.
Sales, Development, And Supply As advisors to seasoned self-storage investors as well as new-to-the-market
entrants, we are regularly asked whether a market is oversupplied or if there’s
room for additional projects. In truth, this asset class has benefitted from
limited construction over the past five to six years, which has resulted in
most facilities enjoying 90-plus percent occupancy rates and the prediction
that vacancies will stay at or slightly lower than the 2016 numbers. This favorable
supply/demand balance has afforded developers, who call Massachusetts home, as
well as out-of-state companies to aggressively source urban infill locations
where they are re-purposing vacant land parcels and converting functionally obsolete
structures to an adaptive re-use for self-storage.
Despite high barriers to entry
within the Route 128 and Route 495 highways that ring the Boston core market,
local developers like SSG Development, LLC, Casey Storage Solutions, and
Chicago-based Banner Storage Group have secured parcels or buildings that have
been successfully brought on line in Brighton, Somerville, Jamaica Plain,
Shrewsbury, and Lynn. Additionally, within the last two years, U-Haul has taken
a strong corporate stance for adaptive re-use and converted the former
Charrette Office Supply building on Olympia Avenue in Woburn to a 140,000-square-foot
self-storage facility and major truck rental operation.
issues, zoning challenges, and lengthy approval and permitting processes, self-storage
developers persevered in 2014, 2015, and 2016 and delivered several Class-A
properties to the core Boston market and the surrounding suburbs. Even without
a single tenant, these facilities are being delivered at Certificate of Occupancy
(CofO) to the self-storage REITs, funds, and investment groups anxious to
assume the operational responsibilities and willing to take on the lease-up.
As owners of up, open, and
operating facilities enjoy historically high occupancies and cash flow, sales
have been lean in the Boston core market and in the New England region. When an
owner decides to sell, the per square foot prices in Boston and Suffolk County
are in the $170 to $225 range. Even sales in southern New Hampshire and
Massachusetts’ south coast have achieved $97 per square foot for stabilized Class-B
According to a University of
Massachusetts study, the state’s economy grew by 3.7 percent in the third
quarter of 2016, while the national economy grew by only 2.9 percent during the
same period. Unemployment is lower than it has been since 2000. The state’s
population is predicted to grow over the 20 years, wages have increased, and
unemployment is virtually non-existent. All of these factors along with high occupancies
and elevated rental rates within the industry, combine to make Boston and the
New England region highly desirable for self-storage developers and investors.
Constance Neville, J.D., is a Senior Self Storage Advisor with the Sperry Van Ness National Self Storage Team.
Nick Malagisi, SIOR, Malagisi is the National Director of Self Storage for the Sperry Van Ness National Self Storage Team.
Jason Taunton-Rigby serves as a Valuation Specialist at Colliers International Boston office providing valuation and advisory services throughout New England.