The Urbanization of Suburbia

BOSTON—Samuel E. Park sees a bifurcated retail market in Boston. The president of Sam Park & Co. says there's a clear split between suburban and in-town shopping. With a focus primarily on the latter, most of his observations in the following Q&A are focused there.  But with the rise of in-town and outer cores, the burbs might be taking on many CBD characteristics, he points out. 

GlobeSt.com: So, what's driving the retail picture in the Boston suburbs?

Sam Park: There seems to be a need to urbanize suburbia. Here's how this plays out: Those centers that are successfully attracting the restaurants and entertainment venues that all of us suburbanites might need on a daily basis seem to be doing much better than the traditional retail destinations. We're seeing that retail customers want shopping environments that are experience-driven. They want places that are entertaining and interactive. Places where they can shop, dine, and connect.

When large power centers were first introduced, they were a great convenience. You could drive to one place and do all of your discount shopping. But we've found in the past five years that there's a much stronger demand--and much more resilient need--for places where you can go without driving into Boston to catch a movie or have a good dinner. 

We're seeing medical office users wanting to be in retail centers, which is a relatively new trend. We're seeing healthcare providers and educational uses and even some office tenants who want to be in the middle of a retail environment because where they work is where they eat and shop.

GlobeSt.com: Explain to an out-of-towner how this plays out geographically.

Park: So here's a quick geography lesson. Boston is like the spokes of a wheel with thoroughfares feeding into the city. One-twenty-eight is our inner beltway. The outer beltway, 495, circumscribes the bedroom communities, which fall between the two. That's important to understand because the city itself inside 128 is a high-density urban environment where space is limited. Between 128 and 495, you have all of the commuters. It's an easy commute into town because of all the radial spokes. But there's a trade-off because of the price of homes. People beyond 495 are basically not commuting.

Over the past 10 to 20 years there's been an enormous amount of development along 495 and 128, as many of the Silicon Valley-type users and manufacturing firms have located further out. What's resulted is one of the hottest areas in the region, the “I-495 Think Belt,” an area along 495 between Routes 2 and 3 that's filled with technology companies like IBM, Red Hat, Juniper Networks, Cisco and others.

GlobeSt.com: So where in this scenario is retailing growing and where not?

Park: Generally the entire Boston market is pretty saturated for retail.  A lot of it is flight-to-quality and the reinvention of the mousetrap, trying to convert older product into more attractive multi-purpose or entertainment product. Obviously the areas with the greatest density are having the most success, such as the Downtown Seaport, which basically used to be parking.

Along 128, you have very strong densities and very strong competition because most of the area has been fully developed.  The successful products are redevelopment.

While 128 has been good, 495's been on fire. Markets are underserved and surprisingly strong. And, from a retailer's perspective, they're populated with new customers. We specialize in mixed-use and combining different product types, which is why we love the 495 market.

GlobeSt.com: A lot of value-add.

Park: It'srejuvenating a lot of older product along 128. With 495, retailers are surprised to find strong demographics with almost comparable wealth. The 495 area was hit hard in 2009, but now it's a hot market because it's one of the few areas where retailers can find new young tech customers--without cannibalizing existing stores. It's why we're developing a $100-million, 540,000-square-foot mixed-use project called The Point across the street from IBM in Littleton. It's a mix of retail, restaurants, office, entertainment and a Courtyard Marriott. It began construction this month.

GlobeSt.com: What's driving the reinvention? Is it retooling to stay ahead of competition or new tenants with new concept?

Park: There's always new tenants. It has more to do with lifestyles. As I said, people are looking for places where they can dine and watch a movie and do other things--rock-climbing or what have you.

GlobeSt.com: And what about the reinvention of the mall? Does that play in here?

Park: We looked at acquiring a couple in the past five years, but in general the cost of running a mall puts them at a disadvantage over open-air centers, which tend to attract a younger crowd and the socialization that occurs there, much more so than the traditional mall.

GlobeSt.com: Let's talk about rents.

Park: Rents are really location-driven, obviously. In terms of ranges, from 2009, they've fully rebounded and are well above where they were then. Many are well above the $30-to-$40-net range in the suburbs for good product. Less than three years ago, that same product may have been in the mid-teens to low 20s. Rents have probably jumped 20% a year. It all depends on the size of the space.

GlobeSt.com: What are you seeing on the investment side?  

Park: It's a great time to be selling product. Interest rates are still historically low. Cap rates we've seen are probably much lower than we would have expected at any time. As an example, a really good credit-tenant product can be valued as low as 5 ¼ or 5 ¾.

GlobeSt.com: What worries you?

Park: There's only so much retail show-space you could have before it becomes too commonplace. At some point, we'll have so many centers that offer the same thing that the availability of something unique and new won't be there. That's why we've worked hard to make sure The Point offers customers something new and different.