Institutional investors, tight market pushing real estate on the South Shore
Commercial real estate on the South Shore has been largely isolated from the effects of the pandemic, but the economic rebound, a wild real estate market and a wave of extremely low interest rates have pushed large investors to smaller markets around Boston.
The South Shore Chamber of Commerce hosted the South Boston Summit on Wednesday to discuss how rising interest rates and big money from financial institutions are creating chaos in the local real estate market.
Ashley Lane, of real estate firm Perry CRE, said the biggest trend is for office space vacated during the pandemic to be turned into lab space, which landlords can rent out for double the price.
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On the South Shore, vacancy rates before the pandemic were low, and they still are, Lane said.
More people heading to Boston for high-paying lab jobs could mean even more pressure on the already heated real estate market. But interest rates are rising rapidly as the Federal Reserve raises rates and stops buying mortgage-backed securities, which drove mortgage rates down in the first place.
Michael Ruh of developer Quincy FoxRock Properties said interest rates for commercial and residential loans were rising rapidly, eating away at the company’s cash flow.
“Theoretically, in Econ 101, in an environment of rising interest rates, you see price drops, but it’s a weird time. With such a rise in interest, we still see high prices at rates of high interest,” said Ruh, director of acquisitions and finance. “Sellers and brokers still think their properties are worth the high prices they were worth when interest rates were low. Buyers and banks are trying to make sense of the rates.”
According to data from mortgage lender Freddie Mac, the 30-year fixed mortgage rate bottomed at 2.77% in August 2021 and has since climbed to almost 5%. The number is rapidly approaching a 10-year high, down from just under 5% in 2018.
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Ruh said restrictions on the number of properties on the market, lack of buildable space and increased demand from large investors are keeping property prices from falling.
“The largest amount of capital ever raised in the commercial market was raised in 2021,” Ruh said. “There’s a ton of capital to deploy, and since it’s frowned upon to return it to investors, institutions are competing with local investors like us.”
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David Ellis, who runs commercial real estate firm Ellis Realty Advisors, said competition for small spaces is growing as people leave big jobs and start small, niche businesses. This has reduced the vacancy rate at the retail level.
More sales, less supply
Real estate purchases, both residential and commercial, are up on the South Shore, said Denver Gibbs of Local Leads 365.
While Quincy is perhaps the most populous municipality on the South Shore, Weymouth saw slightly more single-family home sales in 2019, 2020 and 2021. Plymouth had the most activity, with 983 sales in 2020 and 871 in 2021.
Real estate brokers told the Patriot Ledger that fewer homes are on the market in every community as demand has increased, creating price spikes.
On the South Shore, the median house price increased by 27% between 2019 and 2021, going from $492,000 to $628,000.
Statewide, since 2019, single-family home prices have risen 25% to a median of $500,000, up from $399,000 in 2019. Condominium prices have also risen 15% since 2019 — reaching a median of $438,000 in December 2021, according to The Warren Group.
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Contact reporter Wheeler Cowperthwaite at [email protected]