Douglas Macmillan says there is some movement in the local commercial real estate market just not the kind that the region's economic development leaders might want to see.
The president of Macmillan & Son Inc. in Springfield and what's happening a game of musical chairs, with companies moving from one office structure to another often trading up in the process. For each vacancy filled, another is usually created, he said. This type of movement provides some business for local brokers naturally, but overall, it doesn't bode well for the area's economic health and well-being.
Striking a familiar chord, area brokers who spoke with BusinessWest, said he lack of new interest in Springfield has been frustrating. And the situation hasn't been helped any by a slowing economy that has prompted many companies to rethink plans to expand or find new quarters.
So while brokers keep one eye on the economy, they're keeping the other onprogress or "lack" thereof to draw new business to the region.
In short, brokers say business is still good, but there is considerable room for improvement
Disappearing Acts
In the midst of the general economic malaise that has crept across Massachusetts, some major business tenants are starting to disappear from the region. In downtown Springfield, for instance, Merrill Lynch is vacating 50,000 square feet of space at Monarch Place, while. Tower Square has 60,000 square feet becoming available in October.
"I don't see anyone new coming in," said Bill Low, senior vice president and partner at Samuel D. Plotkin & Associates in Springfield. "Our company has picked up roughly 1 million square feet of industrial space in the past two months, and half of that is the result of companies downsizing and leaving the area. So the overall picture is not very good."
While he has seen some good-sized Class A office deals in the city, Low said much of it is just space-trading in the downtown area.
"We can still make a living as someone trades from Class B to Class A office space, but it doesn't help the overall health of the local economy," he said. "Until you have some significant new companies coming in from outside, things aren't going to get much better."
Macmillan said there are some new companies coming in, but they are outweighed by the amount of space suddenly coming onto the market.
"I don't know if it's directly attributable to the present economic climate, but it's measurable, particularly in the industrial sector, where there are a lot of big blocks in individual buildings becoming available."
However, Thomas King, partner with King & Newton in Springfield, said although sometimes it takes a while for an economic slump to affect his business, he hasn't noticed any slowdown caused by current conditions.
"We have been pretty busy," King said. "I certainly read the paper and hear about the slowdown in national and local news, and I understand the stock market has gone down, but I can't relate it to anything I've seen here. It seems like there's mortgage money available, and interest rates are low, and I see a demand."
Mitch Bolotin, vice president of Colebrook Realty Services Inc. in Springfield, falls into that camp as well. Despite all the talk about the economy and people looking over their shoulders for looming trouble, Colebrook is coming off two very strong quarters and still sees quite a bit of activity, he said.
Cautious Optimism
Ronald Schortmann Jr. is counting on that strong office market as he tries to rent some 80,000 square feet of office space at 94 North Elm St. in Westfield. The project, which involved partial demolition of the former Old Colony Envelope warehouse on the site and renovation of the building for office use, was put on the drawing board 18 months ago, when the economy was sound and demand for office space was high.
The scene has changed dramatically, but as Schortmann focuses on getting the building ready for occupancy in September, he said he is confident that there will be considerable interest in the property, which lies on one of Westfield's mosttraveled roads and boasts plentiful parking.
"There's definitely some interest in the space and in larger chunks of space, because we have the capacity to handle large space requests," he said, adding that he has heard interest expressed by software companies, insurance companies, financial services firms, and others. A marketing push will begin soon.
"There is a softening economy, and there's some worry, but there are still a lot of companies doing well," Schortmann said. "I don't know how bad the economy is. It appears to be bad now, but we're hoping for a turnaround in the latter half of 2001. "I think we'll see signs of things turning around."
What might be more difficult to reverse, Macmillan said, is the effect of attrition caused by consolidations and mergers in the financial services sector. He noted that mergers in banking, for instance, mean fewer separate banks, fewer vice presidents, and less office space needed for them.
"There is a void being created there, and we don't see a lot of new companies coming in to fill it," he said. "The attrition is occurring on a national level, and it all trickles down to a tertiary market like this."
Bringing In the New
Accurately assessing the health of the local market may be difficult to do at this time. Low said summer is traditionally a slow time in commercial real estate, and the bigger picture should come more clearly into focus after mid-August. Personally, he expects the current economic slowdown to last at least another year, but he said the bigger question beyond that is the same one that area business people ask year after year.
"We keep saying to ourselves every year, 'What do we need to tell people about Springfield to bring businesses from the outside?' There isn't enough new business coming in, and I don't know how to change that," he said.
"Nobody wants to come here," Low added. "Yes, the national economy and the more regional economic slowdown affects us. But we are also a third-tier city that has a difficult time attracting a new workforce, because there are not many high-paying jobs here. If you're a kid coming out of college, are you going to come to Springfield to find work? Probably not. You're probably going to go to Boston, New York, or somewhere else. It's all interrelated."
On the other hand, according to Liam Reynolds, vice president at Samuel D. Plotkin & Associates, smaller cities like Springfield are buffered against the extremes of economic changes, a phenomenon which becomes a positive in a slowdown or a recession.
"In a tertiary market like Springfield, we're not as affected by national trends in the economy as a major market would be," Reynolds said. "We don't have the sharp spikes up or down. We're much more stable because we don't see fluctuations like in Boston. We see more slow, steady increases in this market."
Springfield's prior struggles to attract new businesses have also blunted the impact of a slowdown, Reynolds said, simply because there hasn't been as much development in the area as industry leaders might have desired. As a result, the city doesn't have tremendous pockets of open space in a downturn.
More specifically, Schortmann said, bigger cities like Boston had an influx of new technology-based businesses in the past few years, many of which weren't ready to make the leap into the business world.
When much of the dot.com economy fell apart, these businesses vacated a lot of prime real estate. By focusing on more traditional businesses, like financial services and insurance, he said, area developers have been able to lessen economic jolts.
"It's clear to me that the tide didn't lift all boats evenly," Macmillan said of the economic upswing of recent years. "This market has historically lagged behind the rest of the country. We didn't see the levels of appreciation that were typical across the country in other markets, so we probably don't have as far to fall."
If the economy continues to swoon and hits the commercial real estate market harder than it already has, that lag of the past few years could turn out to be a blessing in disguise.
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