Friday, July 12, 2024

Cambridge development officials Iram Farooq, second from right, and Pardis Saffari, right, at a Kendall Square groundbreaking Oct. 26, 2022, with the Cambridge Redevelopment Authority’s Tom Evans and Cambridge Community Foundation’s Geeta Pradhan. (Photo: Marc Levy)

Cambridge officials are largely optimistic about the city’s economy and where it’s headed in 2024, though some issues complicate the long-term outlook, residents learned at a Feb. 15 meeting of the City Council’s Economic Development & University Relations committee.

Municipal officials and leaders of local business groups updated the councillors on the state of Cambridge’s economy, which they say has recovered well from the challenges of the Covid pandemic despite a warning from city staff in December that spending was entering a period of austerity that’s been warned about for years.

“We have a lot of faith in the Cambridge economy,” said Iram Farooq, assistant city manager for community development. 

The number of jobs available in the city’s borders are up 9 percent over the past two years, while its unemployment rate of 2.2 percent is better than the regional, state and national averages, Farooq said. In terms of jobs, the city has seen industries shrink and others grow, losing life-sciences jobs while gaining many more in the tech and information technology industries and hospitality sector.

One of the most promising developments, Farooq said, was the opening in Cambridge of the Investor Catalyst hub, a venture capitalist project by the federal Advanced Research Projects Agency for Health. According to an ARPA-H press release, the hub will “focus on speeding the transition of innovative ideas into practical, accessible solutions” in the health and medical industries.

“That will really support our startups and innovation companies,” Farooq said of the hub.

Paradis Saffari, director of economic opportunity and development, added to the good news, announcing that, as of February 2023, Cambridge’s vacancy rate for retail space sat at 1.5 percent, down slightly from the previous year. Retail rents also fell by about 20 percent throughout the city. 

Regarding the budget, Claire Spinner, assistant city manager for fiscal affairs, said Cambridge is in a strong position. The city, she said, has enough data to make sound, long-term decisions.

“We remain a very fiscally strong organization in terms of how we think about our finances, in terms of the various benchmarks that we try to meet, in terms of our debt and reserves,” Spinner said.

Concerns

Despite the positives, Cambridge is not immune from the macroeconomic factors influencing the national economy, such as higher interest rates and building costs.

“Despite my optimism, nobody can debate the fact that we’re in a down cycle nationally. And Cambridge, despite being more buffered than other communities, is not exempt from the impacts of the changes in how people work, the changes in how people shop,” Farooq said. “We are in this moment of a little bit of readjustment. The question is – and this is anybody’s guess – how long that period of readjustment will last.”

A report prepared by CBRE, a real estate data firm, showed that the city ended 2019 seeing demand for more than 1.25 million square feet of office space, but that is down more than 70 percent. Last year ended with demand of only 360,000 square feet.

Effect of hybrid work

According to local business leaders, widespread hybrid working has changed the city’s economic landscape. 

Nancy Donohue, senior director of government and community relations at the Cambridge Chamber of Commerce, said that the city’s small businesses are suffering from decreased foot traffic because of hybrid working. Beth O’Neill Maloney, executive director of the Kendall Square Association, and Denise Jillson, executive director of the Harvard Square Business Association, agreed that remote work hurt businesses in their districts. On average, workers at Kendall Square businesses are physically in their offices about three to three and a half days a week, O’Neill Maloney said.

As well as eliminating some of the traffic to local businesses, hybrid work has hurt Cambridge’s office rental market, according to the city’s assessing director, Gayle Willett. Turning empty office space into labs, the market for which is more stable, could be a smart investment, Willett said.

Offices to housing

A few councillors also floated the idea of converting vacant offices into housing. Vice mayor Marc McGovern said that incentivizing office owners to convert their properties could be a good strategy for the city.

“I just worry when we leave it up to the market too much, because normally when we do that, it doesn’t always benefit the average person,” McGovern said. “Given our housing needs and sometimes the struggle of finding places to build new housing, rather than an office building sitting vacant for five years, maybe we can steer people [toward residential conversions]. That might be a good thing.”

Farooq cautioned that too many office-to-residential conversions could hurt the city’s economy in the long run. By taking commercial space out of circulation, she said, the city limits space for future companies and innovation. 

“Tempered optimism”

Farooq also noted that Cambridge no longer corners the market on lab space, as neighboring communities such as Watertown are competing for companies.

The councillors agreed that the state of Cambridge’s economy warranted “tempered optimism,” as Patty Nolan put it, but that keeping an eye on long-term developments was crucial to maintaining the city’s vibrant and innovative economy.

The council’s committee is chaired by councillor Paul Toner. McGovern and councillors Sumbul Siddiqui, Jivan Sobrinho-Wheeler and Ayesha Wilson make up the other voting members. Councillors Nolan and Joan Pickett, as co-chairs of the Finance committee, participated in the meeting.