The Boston Metro economy is still going strong. According to Boston Bisnow, Boston has seen 125 consecutive months of economic expansion. The city holds an enviable unemployment rate of just 2.7%, and enjoys a positive net migration of new residents. During the first half of 2019, Boston was among the top 5 inbound cities for foreign investment.
There are a plethora of large-scale developments happening in the Boston Metro, and more are in the planning stages. If there is a sense of caution among developers and investors, it isn’t readily apparent. Yet there are emerging headwinds that could be tempering the pace of future commercial projects.
Rising costs. The costs of site acquisition, materials, and labor have been escalating for years. Boston’s higher-than-average rents have helped developers and investors realize profits despite rising expenses, but fewer are willing to build on spec.
Reduced spreads between borrowed money and returns on investment. Large projects require hefty capital. While interest rates are still favorable, rising development costs have reduced profit margins.
Shortage of skilled labor. It’s difficult to find experienced contractors and skilled laborers these days, no matter what you are willing to pay.
Of course, these same challenges are found in most cities around the country. Boston’s economic conditions remain attractive to developers and investors. Still, some industry analysts suggest that our development boom has reached maturity and is entering late-cycle stages. But as long as the demand for Boston Metro commercial real estate space remains strong, we are unlikely to see any near-future downturn.
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