Transcript of "Team 1B, Commercial Market Anylsis..doc"
Commercial Market Analysis
Grove Hall Development
Real Estate Investment & Analysis
Summer 2002 - Professor Yang
Commercial Market Analysis
To provide a recommendation for the commercial aspect of the Grove Hall Development Project, it is important to first consider the
strengths and weaknesses of the location. A resource in developing this analysis was Leo Downey of ELEO Realty and Management.
Leo Downey is a commercial real estate agent in the Roxbury area. Downey possesses a strong familiarity with Roxbury and the
surrounding areas, as he has been in real estate in this vicinity for approximately twenty years.
The following SWOT (Strengths, Weaknesses, Opportunities, and Threats) Analysis highlights key points to consider for this project:
– The recent development in this neighborhood, i.e. the new shopping center, will bring more potential customers to the
– The Grove Hall area is a busy section of Roxbury, which could reflect upon a large group of potential business clients
and retail customers for the tenants in this location.
– The Grove Hall area is one of the less desirable neighborhoods in Roxbury and Boston.
– A parking deficiency exists in the neighborhood and is a significant concern that must be addressed to receive
community approval of the project.
– Roxbury and Grove Hall exhibit a high and currently increasing crime rate.
– New construction will be desirable for retail and commercial tenants.
– Many efforts are being put forth for this area, and in the future (i.e. five to ten years) the neighborhood may improve if
these investments address the Weaknesses above.
– Additional new development may minimize the current significance of the New Construction Opportunity.
– The shopping center may actually detract traffic from this location’s retail space, due to the chains in the shopping
center and the established nature the shopping center will posses when this project is complete.
The next step in the commercial analysis is to determine the appropriate commercial and retail costs to apply to this project. For this
historical market information for Roxbury and the surrounding areas is analyzed. The CoStar Group, Inc. was another resource
utilized here. The CoStar Group develops databases, creates analyses focused on commercial real estate, and provides sales and rental
comparison information for their clients. Their commercial database is comparable to a Multiple Listing Service, and is used by
clients such as Real Estate professionals and other commercial service providers to locate properties and obtain specific information
on tenants and services within those properties.
As detailed in Exhibit One, and obtained from The CoStar Group, the commercial vacancy rate in the Roxbury/Dorchester area varied
from 6.60% in the first quarter of 1999 to 3.36% currently. Despite the recent reduction in vacancy, rental prices have decreased to
1999 rates. This pattern indicates potential tenants are not willing to pay a premium for this location. As prices decreased, so has the
vacancy, indicating the market feels the lower prices more accurately reflect the price tenants are willing to pay. Over the past three
years the average vacancy rate was 4.47%, with a standard deviation of 1.17%. The average price per square foot for the same period
was $23.31, with a current rate of $20.83 and a standard deviation of $2.91.
Exhibit Two details vacancy and rental rates for the first comparable neighborhood, the Brighton/Allston/Fenway area. For the same
period, the Fenway area’s average vacancy rate was 12.38%, with a standard deviation of 5.30%. The average price per square foot
was $24.58, with a current rate of $25.65 and a standard deviation of $2.88. It is noteworthy that the rental rates in
Roxbury/Dorchester are consistently lower than those in the Fenway area, despite the Fenway’s lower occupancy levels. This may be
due to the variable levels of rent in Roxbury. According to Downey, pricing in Roxbury is very dependent upon the specific location.
The Grove Hall area is currently determined as a less desirable and thus a lower rent section of this neighborhood.
Exhibit Three gives information on the second comparable neighborhood, South Suffolk County. From first quarter 1999 to present,
the average vacancy rate was 15.46%, with a standard deviation of 2.82%. The average price per square foot for this period was
$18.35, with a current rate of $21.25 and a standard deviation of $3.02. A map of the South Suffolk area is provided on the last page
of this package.
Exhibit Four provides graphs simultaneously comparing the rental and vacancy rates for Roxbury/Dorchester and the comparable
Aside from vacancy and rental rates, another consideration in the pricing of commercial space is the Class of space. As indicated
below and seen further in Exhibit Five, the vast majority of commercial space in this area is Class C or below:
• Roxbury/Dorchester 71.21%
• Brighton/Allston/Fenway 58.60%
• South Suffolk County 72.22%
Also seen in Exhibit Five is the impact Class of space has on the rate per square foot. Considering this, a premium cannot be
demanded for commercial space rent within the Grove Hall Development Project, despite its new construction status.
Downey indicates retail pricing for Roxbury is also dependant upon location. This is further apparent in Exhibit Six, based upon
information from The CoStar Group, which indicates that retail space in Roxbury currently rents at widely varying rates. Although
the average retail rate per square foot is similar to surrounding neighborhoods, the minimum square foot rate is significantly less than
both commercial and retail space in comparable areas. Downey estimates the retail rates for this location would be $10.00 per square
foot. This presents a concern and is a consideration when developing the commercial/retail split of this development.
The recommendation for the commercial portion of the Grove Hall Development Project is to build the first and second floor space
with certain initial retail tenants in mind, as these seem to be long-term clients. The rental income for this project will be calculated at
$15.00 per square foot for retail space and $21.00 per square foot for commercial space.
Due to the variations in local demand, the remaining commercial space should be constructed as space that is convertible to residential
space, in case the demand for commercial or retail space is not prevalent. This recommendation is presented considering the market
analysis detailed above and in the attached exhibits, in collaboration with the other commercial market analysis team, and considering
the following assumptions.
The initial tenant space accounts for 22,000 square feet of the available commercial/retail space with the following breakdown:
• School of Cosmetology: 6,000 square feet, market retail rental rate of $15 per square foot for income of $90,000 per year
• Post Office: 10,000 square feet at $15 per square foot for an annual income $150,000
• Day Care Center: 6,000 square feet at the commercial rate of $21 per foot for an income of $126,000 per year
Other possible tenants include
• Restaurant location,
• Small business offices (i.e. Apartment Management and Sales office)
• Other small retail location (i.e. Check Cashing or ATM Location)
If 40,000 square feet of retail or commercial are available, 18,000 square feet remain after the initial tenants. This may be
filled with the above suggestions.
Consideration must also be made regarding the parking problem in this area. It is highly likely additional parking will need to be
provided. If one to two spaces are required for every 1,000 square feet of commercial space, forty to eighty parking spaces must be
Exhibit Four – Comparison of Three Sub-Markets
South Suffolk County
Average Rental Rate
South Suffolk County
AVAILABILITY AND VACANCY ANALYSIS
Office Market Analytics
Existing Direct w/ Vacancy
Rentable Sublet SF % with Total SF Sublet SF Max SF Avg Total
Building Class Area Vacant Sublet Available Available Contig Rate in Class
Submarket - Roxbury/Dorchester
A Class Totals (6 Bldgs) 1,164,408 - 0.00% - - - $ - 9.09%
B Class Totals (13 Bldgs) 648,780 7,088 1.09% 16,828 - 8,000 $ 22.75 19.70%
C Class Totals (47 Bldgs) 1,304,439 104,195 7.99% 102,295 - 18,000 $ 17.00 71.21%
Totals (66 Bldgs) 3,117,627 111,283 3.57% 119,123 - 18,000 $ 20.83 100.00%
A Class Totals (4 Bldgs) 1,408,521 182,882 12.98% 251,882 169,011 69,000 $ 36.65 3.4%
B Class Totals (44 Bldgs) 1,552,814 146,495 9.43% 196,045 15,142 60,000 $ 21.96 37.9%
C Class Totals (68 Bldgs) 2,057,007 138,798 6.75% 452,298 - 265,000 $ 26.81 58.6%
Totals (116 Bldgs) 5,018,342 468,175 9.33% 900,225 184,153 265,000 $ 25.65 100.00%
Submarket - South Suffolk County
A Class Totals (0 Bldgs) - - 0.00% - - - $ - 0.00%
B Class Totals (5 Bldgs) 31,268 - 0.00% - - - $ - 27.78%
C Class Totals (13 Bldgs) 211,415 31,800 15.04% 29,300 - 12,500 $ 21.25 72.22%
Totals (18 Bldgs) 242,683 31,800 13.10% 29,300 - 12,500 $ 21.25 100.00%
Grand Totals (200 Bldgs) 8,378,652 611,258 7.30% 1,048,648 184,153 265,000 $ 24.63 100.00%
FACE RENT ANALYSIS
Retail Rental Analysis
Direct Space Sublet Space
Submarket Spaces Minimum Avg Rent Maximum Spaces Minimum Avg Rent Maximum
Full Service - $ - $ - $ - - $ - $ - $ -
Triple Net 6 $ 5.00 $ 34.58 $ 65.00 - $ - $ - $ -
Other 6 $ 10.00 $ 11.86 $ 65.00 - $ - $ - $ -
Roxbury Area Average $ 7.50 $ 23.22 $ 65.00 $ - $ - $ -
Full Service 2 $ 20.00 $ 27.29 $ 28.50 - $ - $ - $ -
Triple Net 12 $ 15.00 $ 24.96 $ 40.00 - $ - $ - $ -
Other 5 $ 25.00 $ 27.97 $ 28.50 1 $ 18.00 $ 18.00 $ 18.00
Fenway Area Average $ 20.00 $ 26.74 $ 32.33 $ 18.00 $ 18.00 $ 18.00
South Suffolk County
Triple Net 4 $ 18.00 $ 22.37 $ 30.00 - $ - $ - $ -
Other 4 $ 17.00 $ 17.00 $ 17.00 - $ - $ - $ -
S. Suffolk County Average $ 17.50 $ 19.69 $ 23.50 $ - $ - $ -
Full Service 3 $ 20.00 $ 27.29 $ 28.50 - $ - $ - $ -
Triple Net 22 $ 5.00 $ 25.19 $ 65.00 - $ - $ - $ -
Other 15 $ 10.00 $ 16.60 $ 65.00 1 $ 18.00 $ 18.00 $ 18.00
Comparable Averages $ 11.67 $ 23.03 $ 52.83 $ 18.00 $ 18.00 $ 18.00
Commercial Market Analysis - Resources
Leo Downey, Real Estate Agent
ELEO Realty and Management
1568 Tremont Street, Roxbury, MA 02120
James C. Rushton
CoStar Group, Inc.
176 Federal Street, Boston, MA 02110
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