Covid-19 Impact on Greater Worcester’s Commercial Real Estate Market

Fidelity Bank Podcast Series
July 2020

Join Jim Umphrey of Kelleher & Sadowsky and Edward Manzi of Fidelity Bank as they discuss the impact of Covid-19 on Worcester’s commercial real estate market.

Jim Umphrey [01:41] I think you have to break it down into different segments of the actual commercial real estate market. Things like high-bay industrial space and modern manufacturing space, have seen a lot of activity. I actually think there’s going to be a lot of growth in that particular segment of the market. Primarily because I think the government is going to start really providing incentives for companies to start moving the supply chain back to the US.

Jim Umphrey [02:23] Bio manufacturing and contract manufacturing of electrical products and high-bay distribution is actually very strong. The retail component has definitely been hurt significantly. I think smaller retail operations like nail salons, hair salons and restaurants have really been hurt.

Ed Manzi [10:46] Pre-COVID, as you pointed out a few minutes ago, Worcester was really on fire. We were attracting investors from outside the city, Los Angeles and Boston based investors were coming in. Do you think that Worcester will continue to attract these outside investments as we move forward?

Jim Umphrey [11:20] I definitely do. Value wise Worcester is an attractive place. When you get into the major markets, it really is dominated mostly by institutional money, which has a requirement for a return on their capital. Worcester has all of the bones to be a solid investment. It has transformed itself from an older manufacturing type city to life science, to healthcare, to education. Those are where the growth is in the economy.

Hank (00:00): Place of Business presented by the Worcester Regional Chamber of Commerce. It is sponsored by Worcester Airport and Fidelity Bank. And the chairman of Fidelity Bank, Ed Manzi is with us. And Ed’s guest today is Jim Umphrey of Kelleher and Sadowsky. And Jim has distinguished himself as a leading real estate broker in central Massachusetts. He’s been with Kelleher and Sadowsky for over 35 years. Principal of the firm, uh, became the principal of the firm in 2005. He has brokered numerous multimillion dollar deals in the medical and office sectors, works with major corporate clients throughout the region. Kelleher and Sadowsky is based here in Worcester at 120 Front Street at Mercantile Center and employs 15 brokers and Ed, no surprise as to why you would want to talk to Jim. He is involved in so much that is going on in the Renaissance of the city and here is Ed Manzi.

Ed Manzi (00:55): Hey, good morning, Hank. Thank you very much. And good morning, Jim, how are you doing today?

Jim Umphrey (00:59): I’m doing great. Ed. Nice to talk to you. Thank you for the invite.

Ed Manzi (01:03): No happy to do it. We, you and I have known each other for a long time. I remember back about 20 years ago, helping find you help in trying to help us find corporate headquarters and all kinds of things. So you are really the right guy to talk about these important issues with the public here. So I’ll get right into our questions. We have a time limit of 15 minutes or so. So let’s go, obviously the topic of the day is COVID-19 and it’s having a huge impact on every business, but in particular, the community, like the commercial real estate businesses as well. We want to hear from you about, what do you think? Can you share with us how it’s been affected locally?

Jim Umphrey (01:41): I think you have to break it down a little bit into different segments of the actual commercial real estate market. I think that things like high-bay industrial space and modern manufacturing space have a lot of activity. I actually think there’s going to be a lot of growth in that particular segment of the market. Primarily because I think the government is going to start really providing incentives for companies to start moving the supply chain back to the US.

So we’ve seen bio manufacturing and contract manufacturing of electrical products and High-Bay distribution is actually very strong. The retail component has definitely been hurt significantly. I think smaller retail operations like nail salons and hair salons and restaurants have really been hurt. I would say downtown urban office space has definitely taken a hit. The one thing to keep in mind is that most of those buildings have long-term leases, so tenants are paying and so on, but it’s definitely going to leave a mark on the office market in any city, Worcester included.

Ed Manzi (03:16): Well, I mean, that’s a good segue. The last week guest we had the City Manager Ed Augustus on, and one of the things he had a lot of positive stories and things to talk about, but one of the challenges was that Unum’s recent decision to vacate because of the people shifting to working from home. It’s a very strong company. It’s got nothing to do with their ability to pay the rent. It’s just a question about is this the new normal, or is this just a phase that we’re going to go through? So I guess maybe you could dig a little deeper into what you think that means. I know it’s early, so it’s just our best guess.

Jim Umphrey (03:54): You know, Ed that Unum vacating at least 120,000 square feet is definitely a real blow to downtown Worcester in the respect that that’s a lot of space to go on the market. One of the things that does happen typically with sublease space as well, is that because they’re obligated to pay the rent for the next 10 years, every deal that they can do in there saves them money. They look at it differently than a developer would. A developer always looks at leasing space as adding value to the property when you’re subleasing space, you’re kind of looking at stopping the bleeding. And so-

Ed Manzi (03:54):
Yeah.

Jim Umphrey (04:48): … I think that they could actually put some downward pressure on pricing, which in pre pandemic the office market in Worcester had a lot of momentum and a lot of velocity from the point of view of lower vacancy and pricing moving up. But, that’s definitely not a good thing for downtown for sure.

Ed Manzi (05:15): Well, you know, that what we hope, obviously all of us who are vested and invested in the city and in the region is that this is a phase and one, one thing a hypothesis I heard is that in the, in the intermediate term, it can start benefiting the city because of the large density problem that the major city of Boston has. And so I’m curious if you think there may be a temporary law but there’s some possible upside here to people who want to move out of the crowded offices and public transportation in Boston and find a home in Worcester.

Jim Umphrey (05:54): I agree with you completely. I do think that this is more of a temporary thing. I think employees need to get a comfort zone about going back to work. I think there’s a lot of folks that are very nervous about doing it. Employers are trying to figure out space needs moving forward, and how working remotely is going to factor into their office decisions moving forward. But, I read an interesting article in the Wall Street Journal on Friday that many executives across the country are finding that the remote work is far less productive and it’s having other impacts as well on younger people. Like it’s much more difficult for younger people to move up from a promotion point of view because they’re not getting the direct mentoring and really having direct report with some of their bosses or their boss’s boss.

I do agree with you that a city like Worcester, where virtually everybody drives to work, is not a highly public transportation type of city from a commuting perspective. That’s going to be really helpful. And a lot of the buildings in Worcester are not huge. The tallest building is 22 stories. So it’s not like in major cities where you’ve got 20,000 people working in a building and trying to manage that. So I do think that Worcester in general has a lot of momentum. It’s got a lot of momentum in many parts of the economy and I’m optimistic. I think that Worcester’s going to come out of things fine, but in the short term, it’s a little more difficult.

Ed Manzi (08:00): Well, you know, the issue is you’re running a business, I’m running a business. We’re all trying to do the right things for our health and welfare of the employees and the clients. If you try to think forward in a world where there’s a vaccine and that threat is abaited, I’ve read things that say people love the human interaction. Maybe they don’t need to come to work every day, but there’s a lot of need, just a social need of people collaborating together. So I’m looking forward to that day, too. In May, there was a good news story where WuXi broke ground on their a hundred thousand square foot facility in the reactory campus. Do you see that as an example of the bio manufacturing / life science sector you mentioned earlier? That’s a good sign, what do you think about that as a sector?

Jim Umphrey (08:57): Well, that facility is about 110,000 square feet. And, we continue to have a huge amount of activity on the balance of the park. I think that biomanufacturing is one of the hottest segments of the market, period. I think that when America got the realization that 80% of our pharmaceuticals are in one way shape or form, whether it’s the protein development or the actual manufacturing of the drug is done overseas, there’s going to be a big move for this to come back to the US. And one of the things that’s interesting about the whole life science segment is that if you took all the square footage of life science that is in Cambridge, Massachusetts-

Ed Manzi (08:57): Mm-hmm.

Jim Umphrey (10:06): … is still the number one place in the world for life science. So Massachusetts has got a tremendous amount of momentum as it relates to life science and Worcester is a good place. Worcester has got a lot of intellectual capital. It’s got a lot of momentum from the point of view of UMass, UMass medical school, the Biotech Park, WPI and The Reactory, which is really focused mostly on biomanufacturing, which is pretty exciting, because that’s a lot of jobs.

Ed Manzi (10:46): Yeah. And it’s a great example of the diversity of employment that has makes a city get through good times and bad. So that’s encouraging. I guess, one last question for today. Pre-COVID, as you pointed out a few minutes ago, Worcester was really on fire. We were attracting investors from outside the city, Los Angeles and Boston based investors were coming in. Do you think that Worcester will continue to attract these outside investments as we move forward?

Jim Umphrey (11:20): I definitely do. Value wise Worcester is an attractive place. When you get into the major markets, it really is dominated mostly by institutional money, which has a requirement for a return on their capital. Worcester has all of the bones to be a solid investment. It has transformed itself from an older manufacturing type city to life science, to healthcare, to education. Those are where the growth is in the economy.

And I think Worcester is a great place to invest. We continue to see people looking to do development. One of the things given the fact that Fidelity has a branch at 145 Front Street, you’ve kind of firsthand seen how successful that development has been. We are working with companies that are looking to build more housing. The chamber of commerce came out with a study that was incredibly positive about the demand for more housing. So I think you’ll see it in both residential development as well as industrial and I definitely think in life science as well, but Worcester’s in a good spot. I’m very optimistic.

Ed Manzi (13:05): Well, I want to thank you Jim, for your time. I mean, it’s obvious you have a tremendous handle on all aspects of this market. And you know that you and your team does such a great job. We love working with you, and you’re a great marketing and professional spokesperson for this region because you live here, you’ve worked here your whole life. You have such a command of the facts, and we’re really happy that you’re a part of the leadership of the city as we navigate these uncharted waters. So thank you, enjoy the rest of your day and back to you, Hank.

Hank (13:35): I appreciate it, Jim Umphrey of Kelleher and Sadowsky. Ed Manzi from Fidelity bringing you as a sponsor voice of business each and every Wednesday. It is presented by the Worcester Regional Chamber Of Commerce heard right here on the Radio Worcester network.

2020-10-07T14:49:31+00:00