Boston is emerging as one of the strongest retail markets in the U.S., even though new construction in the area has hit its lowest level in two decades. Demand remains high for fast-casual restaurants, fitness concepts, discount stores and service companies.
This gives property owners an advantage. A good retail space in the suburbs or in the Back Bay, Seaport and Fenway areas can get five or six offers, said Bialow Real Estate CEO Corey Bialow.
“Boston is one of the healthiest cities in America right now from a retail perspective,” said Bialow.The area's retail vacancy rate was 3.5% in the third quarter, according to the latest report from Marcus & Millichap. The company calls Boston one of the most constrained markets in the country, with a national rate of 4.9% as of June.
New construction is not keeping up with demand
New retail space deliveries this year are expected to be the lowest since 2007. Most of the new developments are under 20,000 square feet, and over the past five years the area has averaged 500,000 square feet of new space per year. Prior to 2021, most years exceeded 1 million square feet.
Meanwhile, retail sales in the area grew 5% in the 12 months through June, the strongest performance among markets outside the Sun Belt. Bailow says supply has not kept up with demand, especially in the suburbs.
Landlords are looking for businesses that are hard to displace online – restaurants, entertainment venues and services. High interest is also seen on Newbury Street, one of Boston’s most prestigious shopping locations.
Interest in Newbury Street and discount stores
Newbury Street saw transactions worth more than $162 million in nine deals in the second quarter. Among them was the acquisition of two buildings with Chanel and Cartier stores by New York-based Acadia Realty for $113.5 million. The deal price is about $6,000 per square foot.
Against this backdrop, the role of discount stores is also increasing. These stores account for 30% of new openings in the U.S. this year, up from 28% a year earlier. Ross Dress for Less has opened 115 stores nationwide, including 51 in the past two months. The company is entering Massachusetts for the first time with locations in Danvers, West Springfield and Chicopee.
The decision on where to open a new store depends not only on location but also on neighboring tenants and the reputation of the mall owner, said Michael Shanahan, senior vice president of real estate at Ross Stores.
„We are betting on the mall and the landlord to quickly replace departing tenants and continue to attract foot traffic. “Proximity between tenants is the most important part right now,” Shanahan said.Restaurants report mixed results
The health and wellness sector is also growing. Among the formats in demand are medical spas, boutique gyms and doctor’s offices. Rachel Dehars of Samuels & Associates notes that consumers continue to visit brick-and-mortar stores and buy groceries on-site.
For restaurants, the picture is more mixed. Quick-service and high-end restaurants are doing well in urban areas, while mid-range locations are lagging behind. Some are reporting double-digit annual sales declines.
High rents and occupancy costs are making it difficult for restaurants that don’t regularly invest in renovations. According to Lindsay Demeter of WS Development, the city is looking for distinctive concepts with a leading chef, while in the suburbs, restaurants that can turn a shopping center into a place for a longer stay are more successful.
Among the examples is the Tavern in the Square chain, which Demeter says is attracting more visitors to suburban complexes such as The Street at Chestnut Hill, Marketstreet Lynnfield and Legacy Place in Dedham.