Real Estate

The 2023 Real Estate Sector in Review 

Over the course of 2023, the real estate industry has seen great shifts and challenges, to which the northeast has been no stranger. To take a deeper dive into the key topics that the real estate industry faced in 2023, we recently sat down with Issues Management Group (IMG) Vice President Sean Hathaway.  

Q: Could you share a bit about the scope of your work as it relates to the real estate sector?

Hathaway: We do a lot of work on the earned media side of strategic communications, but we also do digital and public affairs work, particularly around the entitlement phase for developments. Earned media is a full-service public relations practice and a lot of times that encompasses publicizing announcements from new deals to project milestones. We also do thought leadership, which can entail op-eds and letters to the editor on behalf of clients, and commentary around market trends both locally and nationally within specific industries. 

Q: What major milestones or key issues did you see impact the real estate market in the northeast region?

Hathaway: Everywhere in the country has felt the effects of the decline in office occupancy.  Offices aren’t as populated as they once were, and buildings are sitting vacant or underutilized in key downtown locations and metro areas. In 2023, we started to see efforts made to solve this issue. 

In October, the Boston Planning and Development Agency (BPDA) announced its Downtown Residential Conversion Incentive Pilot Program, which incorporates a payment in lieu of taxes (PILOT) agreement for developers who will be converting office space into residential space. Other cities like San Francisco have unveiled similar programs of their own.  

Lab space is also another big story in the real estate market. We’ve seen a bit of a downturn from where we were a few years ago when biotech was everywhere in real estate news. With so many companies signing new leases or expanding leases, it seemed like every new development project being proposed in this market was biotech-related.

Now, especially with rising interest rates and inflation, we’re seeing companies grow more cautious with how they’re spending money. This means projects that have been a few years in the making are now ready to come online but the demand from tenants for space in these life science buildings isn’t what it was a couple of years ago. Those are trends we started to see in 2023 and I think it will be a bigger topic in 2024.

Q: The real estate sector has faced a lot of hardship over the course of the year, what positive initiatives or promising pieces of legislation have you seen emerge as a result in Massachusetts or the northeast region as a whole?  

Hathaway: Massachusetts is in the midst of a housing crisis that’s affecting everyone from renters to folks who are looking to enter into home-ownership. At the heart of this issue is the high cost of housing and lack of inventory, but what’s exciting about 2023 is that we’re starting to see momentum change the course. One of the biggest drivers of the high cost and low inventory situation has been the amount of control allocated to municipalities and neighborhoods. The term “nimbyism” comes to mind – where folks are receptive and open to the need for housing until it is proposed in their neighborhood or interferes with their lives through inconveniences like construction and traffic. People are less enthusiastic about housing when these problems are presented, and local control has limited the ability to meaningfully create new housing in Massachusetts.

Some of the legislation that we’ve seen, particularly the MBTA Communities Act, is trying to reduce the amount of opposition that can prevent or delay a project, making it easier for housing to be proposed and advance. The MBTA Communities Act ultimately wants to bring substantial new housing to the market to address the massive need and, while this program may take a while to pay dividends, it’s something that we’re very excited about.

Q: Could you share more about new state or municipal programs that encourage housing development? 

Hathaway: Looking at Boston specifically, there have been discussions this year about rezoning initiatives. Currently there’s a lack of zoning uniformity. You can have a specific use allowed on one street, while a block over it may be entirely different. Through this rezoning initiative, the city is looking to create standards – if not across the board, then within neighborhoods or zones. This uniformity will grant developers more clarity on what they are able to accomplish on projects, help to avoid the need to undergo a rezoning process, and ultimately help to spur interest in investments. 

Q: Do you see any current or potential challenges facing the city of Boston when it comes to office-to-residential housing initiatives?

Hathaway: Generally speaking, the biggest challenge for the office-to-residential program is how many candidates for conversion actually exist. Studies have shown that there is a very limited amount of supply in Boston that makes sense for this type of conversion. There can be great discrepancies that make office-to-residential conversions difficult such as plumbing systems, the amount of kitchen piping, window layouts, and much more. Based on what we’ve seen and heard, for some buildings, it would be more efficient to completely raze the building and start from the ground up rather than to pursue a conversion. So, it’s a matter of how many building candidates fit the profile to convert. 

For Boston’s program specifically, some of the challenges lie in clarity. The incentives being offered are not fully defined, and if we want to make the program more attractive, bringing clarity to the incentive package can help developers understand the full picture of what the investment and return looks like.

Q: Access to public transportation is a necessity for many who reside in Boston’s suburbs, what are your thoughts on the current state of the T system and its ability to support those outside the city?

Hathaway: The more reliable and effective our transportation system is, the further away from a job center or any other point of destination one can be. The T, much like housing, is currently in a bad state, but new leadership at the helm has brought to light the extent of the problems and what it’s going to take to fix them. Rather than bury our heads in the sand, being able to address these problems is going to be good for the overall health of the T.  

At the end of the day, if folks have more confidence in the transportation system, they’re going to use it, and if more folks are using it, there will be less demand for immediate adjacency to job centers and to other points of destination, so you’re able to open up more cities and towns as attractive housing developments, helping to reduce the strain we’re facing with the housing crisis. 

Q: Do you think specific trends we saw in 2023 will carry into this next year? Are there any particular milestones or issues you think will be prominent in real estate come 2024?

Hathaway: The biggest driver for real estate trends has been interest rates. The Fed indicated this month they may start to cut rates in 2024, but that doesn’t mean things are going to get less expensive. I think folks are going to start adapting to the climate where money is tighter. In the case of 2024, we will see owners and landlords being wise with the money being spent. Tenants looking for space will have more options to choose from, but for owners and landlords, it’s about how they’re spending money and what they’re going to get either the most return on or what’s going to create the most opportunities.

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