2020 Economic Outlook from Brookline Bank President & CEO Darryl Fess
Brookline Bank President and CEO Darryl Fess, via a Q and A, shares his outlook on the 2020 economy and his view of certain issues impacting businesses in the Greater Boston Area including interest rates, trends in commercial real estate, the demand for office space, the changing retail industry, evolving work environments and cybersecurity.
1.Q: The Fed left rates unchanged at its last meeting in 2019. Are recession fears subsiding?
A: Although the Fed left rates unchanged in its final meeting of 2019, it probably shouldn’t be construed as a victory over a potential recession. The country is in the longest economic expansion we have ever seen, but political and international uncertainty are outliers which could easily trigger a recession. Companies should continue to expect some growth, but prepare for a downturn by ensuring they have adequate liquidity, don’t take on too much debt, and be nimble enough to adapt to changes in the business environment.
2. Q: What are some things small businesses should be discussing with their banks as 2020 begins?
A: Small business owners should be having up-front and open communications with their Bankers. It is important that they understand the availability of credit and have the appropriate structure built into their credit agreements to ensure their business can continue to grow at a sustainable rate. They should be asking for advice and recommendations to business partners that can alleviate some of their administrative burdens and help them to make more money.
3. Q: There are still cranes everywhere in Greater Boston. Will demand and office rents continue an upward pace? What’s your take on retail strip malls and the decline of big box retail tenants?
A: Demand for office space in the Boston market remains strong with low vacancy rates and high rents. To date, office construction has been primarily build to suit for specific tenants. Most of the cranes we see are working on apartment and condo projects, but that might change as several speculative office projects have recently been announced. Some space will become available as corporate tenants relocate into new custom spaces. Most of that space will be backfilled by start-ups and new companies that are relocating to Boston because of the diverse, well-educated workforce. It’s a young city and tech and biotech companies are drawn to this employee demographic in a city that has growing population and household formation.
The retail real estate market is something that continues to evolve. Many of the big box tenants are gone, department stores are suffering and online purchases are taking up more and more of the market share. That said, community retail centers are still a highly desired asset class, restaurants, card shops, pharmacies, grocery stores and the like are still places people need to go to touch, feel, and smell the product they purchase. Grocery or even pharmacy anchored plazas will continue to thrive in neighborhood communities. In eastern Massachusetts, vacancy rates are very low and there has actually been some new construction.
4. Q: Many small companies exist in small studio spaces such as We Work. What does the future hold for these companies as We Work struggles? And, how does the entry of Staples and others into the studio work space market change things?
A: The shared office space is a unique and unproven product. It is meant as a market disruptor to traditional office leasing. Many of the companies that use the space are either very small or are a sales office for a major company with its headquarters elsewhere. The tenants in these spaces will continue to have options if the shared office business model suffers. They could move back to a home office environment or find conventional office space.Places like Staples as well as major property owners now have their own brands, so the free market economy will ensure that the demand is filled. The larger concern I have is if We Work fails, as the largest single tenant in Boston, a lot of office space would come back onto the market and could offset the overall supply balance in a negative way.
5. Q: More companies are pushing for remote work environments to help with real estate and infrastructure costs. Will this force any changes in the banking business?
A: Banking has been one of the industries that has embraced technology to help make client’s lives easier by enabling clients to bank anywhere. With online and mobile banking and remote deposit capture technology, fewer people come into bank branches for transactions. The traffic and transportation problems in the Boston area have caused us to rethink how we attract employees who don’t want to deal with coming into the city. We’ve established outposts in the suburbs that allow many of them to have shorter commutes. We also use technology to allow people to securely access our systems so they can be productive from home if there is a need.
6. Q: Are you seeing more companies invest in cybersecurity to protect remote work environments?
A: It seems as if companies are becoming a little more aware of cybersecurity issues. And while I expect to see this trend continue, too many still think that their banks and other vendors are handling data security for them, so they don’t need to worry about it. While we do have many protections in place for clients, we have had a few cases where clients have fallen victim to cyber fraud, particularly ransomware and social engineering. You can hire the best technologists to protect your systems but inevitably the human element allows something to get through. Our advice to clients is that they build a culture that includes constant awareness, education, and training of employees. This will help them be more effective at mitigating cyber risk.
About Brookline Bank
Brookline Bank is a subsidiary of Brookline Bancorp, Inc. (NASDAQ: BRKL), and is headquartered in Brookline, Massachusetts. A full-service financial institution, Brookline Bank provides individuals and businesses with deposit and lending services, residential mortgages and home equity lending, commercial and CRE banking, cash management, foreign exchange services, merchant services, and access to investment services. Brookline Bank operates 25 offices in Greater Boston. For more information go to brooklinebank.com. Brookline Bank is an Equal Opportunity and Equal Housing Lender. Member FDIC.