The eagle has landed – on land.
Barely a decade ago, it was dirt cheap, but as urban sprawl begins to march ever outward, developable land is becoming an increasingly rare commodity, especially given the sudden surge in demand for office space. Trammell Crow broker John Boyle, for example, estimates he has seen a tenfold increase in land values since the market crashed in the early 1990s.
“Everybody talks about [office] rents, but nobody talks about the corresponding land prices,” Boyle said. “But the two really go hand-in-hand.”
Whereas land could be had for $5 to $10 per buildable square foot in communities such as Waltham and Newton 10 years ago, Boyle said premier sites are fetching upward of $100 per square foot today. Broker Scott R. Hughes of Hughes Property Corp. said the average tends to be in the $60 to $75 per-square-foot range, versus $25 to $30 per square foot just a few years ago. That would require between $6 million and $7.5 million to buy land yielding a 100,000-square-foot office building, for example.
“Everybody wants it, but people are getting sticker shock,” agreed Codman Co. principal Thomas M. Lescalleet, noting that industrial users have all but been pushed out of the metropolitan area. “The prices are definitely increasing.”
In one deal Lescalleet is brokering, a buyer has reportedly been found for 3.2 acres at the Flagship Automation property in Westborough, one of the hottest office markets in the region. While Lescalleet declined to discuss the deal, one source said the property is trading at about $35 per buildable square foot, or between $1.4 and $1.7 million, depending on how large an office building can be constructed. The source said the project would range between 40,000 and 50,000 square feet.
“That would be the standard for that market,” said the source, placing it at least $10 above the previous sales record. “It’s a great location, but that’s a high number.”
One reason prices have been driven up, Boyle said, has been the advent of large companies buying substantial tracts for their own use. Sun Microsystems has a 158-acre campus in Burlington, 3Com recently completed a 540,000-square-foot complex in Marlborough, and Cisco Systems made headlines earlier this year when it bought 580 acres northwest of Boston. Hoping to attract a dwindling pool of skilled employees, most companies are turning to corporate campuses as a lure.
“A user will always pay more for land than a developer,” said Boyle. “The campus demand, coupled with the scarcity of land sites and the difficulty in permitting, is what’s really creating the [price] increases.”
Anticipating Development
While users remain active in the land market, Hughes said developers are also beginning to show their interest as well, drawn in by the escalating office rents. The risks of holding raw land can be a daunting prospect, agreed Boyle, but the presence of single-digit vacancy rates throughout the suburbs is steeling the nerves of many players.
As reported in last week’s Banker & Tradesman, for example, Sun Microsystems was the only serious finalist in a bid to tie up a 700-acre swath in Marlborough and Northborough. The Gutierrez Cos. of Burlington reportedly has been selected as buyer of the undeveloped parcel, with some estimates placing the sales price in the $13 million to $15 million range. The final rate will depend on how much of the property is upland, or able to sustain commercial construction. Gutierrez is said to be in a due diligence phase at present.
Developers are also homing in on two other Marlborough land sites, according to sources. Along with a 21-acre property that is reportedly already under agreement, sources maintain that Boston Properties is close to buying 50 acres from Compaq Computer. Located at the corner of Crane Meadow Road and Cedar Hill Road, the land was once part of Digital Equipment Corp.’s complex before the company’s fiscal woes forced a retrenchment.
Fidelity Investments passed on the opportunity several years ago when it acquired two adjacent DEC buildings, but Boston Properties is apparently gambling that the opening of a new interchange to Interstate 495 will attract interest from office users. The site is a short distance from the new interchange.
The acquisition price was not provided, with Spaulding & Slye broker John Harris and Boston Properties not returning phone calls by press deadline. One source said the deal should be cemented within the next month.
Given the recent dealings, Hughes said he expects several dormant sites to be yielding office space over the near term. Carruth Capital is supposedly gearing up to do several buildings in the Westborough market, while the source following the MetLife deal noted that “whoever gets that sure won’t be mothballing it,” particularly the hyperactive Gutierrez Cos. According to his calculations, Lescalleet said there is nearly 3 million square feet of potential commercial space that can come from undeveloped land parcels in the Metrowest market.
“What we’re finally seeing is land sales in anticipation of development,” said Hughes. “There’s clearly going to be new [office] product.”
