DTZ_Q2_2015_MarketWatch

Market Watch Boston | Second Quarter 2015

Overall O�ce Market StatisticsQ2 2015 Summary

$46.48 PSF

$55.55

$22.62

Boston

Cambridge

Suburbs

Year Over Year

Quarter Over Quarter Change

CurrentAskingLocation

14.7%

8.1%

21.9%

Boston

Cambridge

Suburbs

Year Over Year

Quarter Over Quarter Change

CurrentAvailabilityLocation

144,731 SF

510,717 SF

861,115 SF

Boston

Cambridge

Suburbs

Year Over Year

CurrentNet AbsorptionLocation

The State of Economyby the Numbers

2%

1%

3%

4%

5%

6%

7%

2014 2015 2014 20152014 2015 2014 2015

US UnemploymentMA Unemployment

US EmploymentMA Employment

% U

nem

plo

ymen

t

Quarter 2 Quarter 2

Em

plo

ymen

t (M

illio

ns)

30

60

90

120

150

6.3%

5.5%

5.8%

4.6% 3.34

3.47

138.

6

141.

6

Economic OverviewLast year, the June jobs report

heralded “early fireworks” as the

number of new non-farm jobs topped

200,000 for the fifth consecutive

month. Last week, headlines

announced that June 2015 was the

57th sequential month of positive

job creation. And at 5.3%, national

unemployment is at its lowest level

since April 2008.

Yet nearly all articles expressed

universal disappointment – not only

that the 223,000 jobs created were

significantly lower than predicted,

but that, at 2% year-over-year, wage

growth is essentially stagnant.

We can certainly speculate about

what these numbers mean for

commercial real estate (and Boston

in particular) but the truth is that

employment statistics have had little

to do with greater Boston occupancy

trends in recent years.

We know that the healthcare,

education and innovation sectors

have protected us from wild swings,

but trends in workplace design and

remote work policies have had more

of an impact on vacancy rates than

employment trends.

So we’re focusing on entrepreneurs

opting for shared space, millennials

heading for the coffee shop and

established firms driving down square

footage per employee. At least for

now, in our region, these are the

more significant drivers of growth and

contraction.

Market SummaryAt 1.7 million square feet (MSF),

mid-year absorption is the strongest

it has been since mid-year 2005.

Metrowide, leasing activity is solid

– and the majority of activity can be

attributed to a handful of deals over

100,000 SF (Houghton Mifflin, Bristol-

Myers Squibb, General Dynamics in

Westwood and Dedham – to name a

few this quarter).

In Boston, investment sales activity

paired with tightening vacancy

means that class B rents are

climbing – in some cases over 30%

in the past 6 months. In Cambridge,

office availability has dropped 5.0

percentage points (to 8.1%) since

the beginning of the year. And in an

interesting suburban twist, markets in

the south were the liveliest for the first

half of the year.

Outlook

With solid market conditons, a

significant number of tenants in the

market for over 50,000 square feet

and large blocks of centrally located

space rapidly becoming extinct, we

are watching for the reemergence of

speculative construction.

UPDATED W Q4 2014 OFFICE STATS

INNER SUBURBS4.8 MSF

BOSTON62.7 MSF

CAMBRIDGE10.1 MSF128 CENTRAL

28.1 MSF

128 NORTH10.2 MSF

128 SOUTH10.1 MSF

3/24 SOUTH1.4 MSF

METROWEST4.8 MSF

495 WEST8.6 MSF

495 NORTH11.4 MSF

495 SOUTH1.5 MSF

Greater Boston

62.7

10.128.1

10.2

10.11.4

4.88.6

11.41.5

4.8

Economic Overview

Q2 2014 Q2 2015

Overall Availability Rate 19.1% 17.5%

Average Asking Rent $30.88 PSF $32.11 PSF

Net Absorption YTD 530,768 SF 675,207 SF

Greater Boston Office Market Snapshot

Overall Office Statistics Summary

25.0% $70

Class A Rent

Class B Rent

15%

0%

$50

$202008 2009 201020072006 2011 2012 2013 2014 2015

Q2

Overall Availability Vs. Average Rent by Class

Q2 2015

Inventory 62,933,546 SF

Availability Rate 14.7%

Net Absorption YTD 2014 144,731 SF

Average Asking Rent $46.48 PSF

Market Highlights

In the first quarter, we mentioned

that Tokai Pharmaceuticals had

relocated from Cambridge to 255 State

Street in Boston. This quarter, Keryx

Biopharmaceuticals expanded from a

short term sublease into 27,000 SF at 1

Marina Park Drive in the Seaport. While

the presence of life science companies

downtown is not exactly an aberration,

it’s still noteworthy when a deal is signed.

And it’s a trend we’re watching.

In construction news, Boston’s pipeline

remains strong. Lovejoy Wharf (160

North Washington Street) delivered

this quarter and PwC’s new building at

101 Seaport Boulevard is scheduled

to deliver later in the year. We’ve even

heard that more than one project may

be going spec in the near future – a

testament to the strength of the Boston

market.

At just 144,700 SF year-to-date (YTD)

absorption in downtown Boston was flat

at mid-year – but as we have seen in the

past, this doesn’t mean large deals aren’t

being executed. In fact, the largest deal

of the quarter was Houghton Mifflin’s

160,000 SF lease at 125 High Street in

the Financial District.

In 2017, the publishing firm will relocate

from the Back Bay (500 Boylston

Street and 222 Berkeley Street). While

considerable, this deal was statistically

negated by 180,000 SF (formerly

occupied by State Street) coming online

on the 3rd through 6th floors at 200

Clarendon Street.

Last quarter, we noted a surge in class

B asking rents. This quarter continued

the trend. In the first 6 months of the

year, class B rents have risen 11%

in Charlestown, 21% in the Financial

District, 12% in Government Center/

North Station and 20% in South Station.

This trend is partly driven by the recent

burst of investment sales activity - nearly

25% of Boston’s inventory traded hands

in the past year. And this means that

new owners are positioning assets to

maximize cash flow – mostly in the form

of higher rents. In fact, we have seen

only a few class B deals executed below

$40 PSF in the past 6 months.

While not as marked as in the B market,

low-rise class A rents in the Financial

District are also rising. Two years ago,

they were in the mid-to-high $30s PSF.

Last year they were commanding high

$30s to low $40s PSF. And now low-rise

deals are being executed in the mid -to-

high $40s PSF – a nearly 30% jump in

24 months.

2 | DTZ Class A Class B

Boston Overview

Q2 2014 Q2 2015

Overall Availability Rate 19.1% 17.5%

Average Asking Rent $30.88 PSF $32.11 PSF


Houghton Mifflin State Street Keryx Pharmaceu-

ticals

125

High Street

100

Summer Street1 Marina Park Drive

160,000 SF 37,400 SF 27,300 SF

Q2 2015 Market Makers

2008 2009 20102007200620052004 2011 2012 2013 2014 2015Q2

0

500,000

1,000,000

1,500,000

2,000,000

Squa

re F

eet

Sublease Office Direct Office Sublease Lab Direct Lab

Direct Available Vs. Sublease Available

Lab Office

Availability Rate 6.6% 8.1%


Average Asking Rent $57.42 PSF NNN $55.55 PSF

The strongest market in Massachusetts

continued its impressive performance

throughout the first half of 2015. With

YTD absorption in the office market at

510,700 SF, the availability rate has

dropped 5.0 percentage points to 8.1%

since the beginning of the year—with

overall vacancy below 5% in both the A

and B office markets.

The space formerly occupied by Vertex

Pharmaceuticals (21 Erie Street, 130

Waverly Street, and 200 Sidney Street)

was the story of the quarter— as it was

all taken back by building owner BioMed

Realty Trust. With overall lab availability

at a mere 6.6%, the combined 344,000

SF will provide much-needed lab options

for tenants in the market.

Binney Street has been rife with activity

as “Alexandria Center at Kendall

Square” has secured large anchor

tenants Genzyme and Bristol-Myers

Squibb, who join existing tenants

Amgen, Alnylam, Ariad, and Biogen on

this half mile stretch of Binney Street—a

who’s who of the Life Science and

Pharmaceutical industries.

Rents in the office market continue to

rise steadily—most notably in Alewife/

West Cambridge and the Mass Ave

Corridor, both climbing over 13% since

the beginning of 2015. East Cambridge

has also increased 3% over the same

timeframe.

On the capital markets front,

building sales have surged. 13.6% of

Cambridge’s office and lab inventory

has transferred ownership in the last 12

months. Seven properties within one-half

mile of Alewife Station changed hands

(1 Alewife Center and 6 buildings on

Cambridgepark Drive) for an astounding

44.3% of the total tracked SF in Alewife/

West Cambridge. As is customary with

new ownership, we expect asking rents

to rise in the neighborhood.

In the lab sector, Alnylam

Pharmaceuticals will backfill 295,000

SF of Vertex’s former space in May

2018 at 675 West Kendall Street. In the

interim, the space is occupied by Mass

Innovation Labs (which inked a deal in

the first quarter) as well as Genzyme and

Momenta.

Foundation Medicine recently inked

an 85,000 SF deal at 55 Cambridge

Parkway. The 10 year deal will

commence in Q1 2016 and comes on

the heels of their Q1 2015 38,000 SF

deal at 10 Canal Park.

Bristol-Myers Squibb will become the

anchor tenant of 100 Binney Street. The

new facility (15-year lease of 208,000

SF) will house employees from offices in

Waltham and Wallingford, CT, in addition

to approximately 100 new hires.

9,126,217SF

10,288,173SF

LabOffice

Market HighlightsCambridge

Market Highlights

Cambridge Overview

Foundation MedicineBristol-Myers

Squibb

Alnylam

Pharmaceuticals

55 Cambridge Parkway 100 Binney Street 675 W Kendall St

85,000 SF 208,000 SF 295,000 SF


0

500,000

1,000,000

1,500,000

2,000,000

Squa

re F

eet

2008 2009 20102007200620052004 2011 2012 2013 2014 2015Q2

Sublease Office Sublease R&DDirect Office Direct R&D

SuburbanDirect Available Vs. Sublease Available

R&D Office

Availability Rate 25.2% 20.0%


Average Asking Rent $9.97 PSF NNN $22.62 PSF

Suburban Overview

Office rents finished the first half at $22.62, a 4% increase in the past 12 months.

As the popularity of mixed used developments continues to rise, we expect rents to follow suit. As this property type comes into its own, the benefits of urban-suburban workplaces will be realized to the fullest.

The Linx at 490 Arsenal Street, Watertown, is the latest in new renovations/additions to the Arsenal Street neighborhood. The 185,000 SF project hopes to benefit from environmentally conscious tenants as it will be LEED certified and provide employees with a convenient bike path.

With 861,000 SF in positive absorption, statistically the suburbs posted a solid first half. In a new twist, the South market has been the liveliest. Tenants are venturing to the south for rent relief and greater availability. University Station in Westwood received a commitment for 100,000 SF from General Dynamics.

With 4 build-to-suit sites ready to go, and easy transportation options with access to Route 128 and the commuter rail, this site is ripe to become the next live-work-play hotspot. In addition, General Dynamics leased 136,000 SF at 100 Rustcraft Road, Dedham. And companies that already have a presence are deciding to stay—New York Life has renewed its 94,780 SF lease at 690 Canton Street, Westwood.

Red line access continues to bring tenants to Quincy, as State Street Corporation signed a 100,000 SF deal 1 Heritage Drive. Worldstrides, the educational travel advisor, signed an 8,970 SF deal next door at 2 Heritage Drive. As rents rise in the city, Quincy has become a viable option for economical rent. With much of its

inventory receiving a facelift in recent years—and lunch options, gyms, and retail available by foot—it is an attractive opportunity for tenants looking to make the move out of the city, but keep the amenities.

While this past quarter was busiest in the south markets, a significant deal was executed at the 1265 Main Street complex with Clarks, the British shoe company. The company has committed to 120,000 SF at the newly redeveloped site in Waltham.

The shoe industry appears to like Waltham as Wolverine Worldwide plans to move in at 10 CityPoint as well. 2015 deals in Central 128 have been led by companies originating out of the British Isles, with Shire signing over 300,000 SF of leases in Lexington in the first quarter.

King Street Properties announced that it will break ground this fall on a spec lab building to add to its Hartwell Avenue complex in Lexington. The 94,000 SF lab building will be in addition to the 192,135 SF already built in the park. Currently, the three finished buildings are 100% occupied.

4 | DTZ

NET ABSORPTION YTD 707,455 SF

AVERAGE ASKING RENT $22.41 PSF

80,870,438SF

47,046,396SF

OfficeR&D

Market HighlightsSuburban

Market Highlights

Clarks General DynamicsState Street

Corp

1265 Main Street,

Waltham

100 Rustcraft Road,

Dedham

1 Heritage Drive,

Quincy

120,000 SF 136,000 SF 100,000 SF


Market Summary

Market Total Inventory

Total Available

Availability Rate

Total Vacant

Vacancy Rate

2015 YTD Absorption

Direct Weighted Average Rent PSF

Boston Office 62,933,546 9,230,254 14.7% 4,989,049 7.9% 144,731 $46.48

Back Bay 12,332,624 1,851,317 15.0% 1,051,302 8.5% (337,245) $56.26

Charlestown 1,748,336 503,232 28.8% 189,610 10.8% (3,313) $26.00

Fenway 1,898,192 126,717 6.7% 27,885 1.5% 5,514 $33.61

Financial District 30,921,319 4,946,253 16.0% 2,902,365 9.4% 376,068 $47.98

Gov’t Center/North Station 3,278,104 556,265 17.0% 187,914 5.7% (11,577) $39.30

Midtown 2,012,109 223,967 11.1% 72,264 3.6% 47,692 $39.08

Seaport 7,851,087 883,479 11.3% 507,307 6.5% 125,284 $42.66

South Station 2,891,775 139,024 4.8% 50,402 1.7% (57,692) $38.19

Cambridge Office 10,288,173 869,020 8.1% 484,803 4.7% 510,717 $55.55

Alewife/West Cambridge 1,936,595 331,914 17.1% 126,471 6.5% 82,450 $44.15

East Cambridge 6,519,233 455,633 7.0% 321,880 4.9% 441,034 $63.96

Mass Avenue Corridor 1,832,345 81,473 4.4% 36,452 2.0% (29,767) $39.87

Cambridge Lab 9,126,217 606,531 6.6% 420,549 4.6% 248,876 $57.42*

Alewife/West Cambridge 504,511 39,775 7.9% 34,775 6.9% 1,251 $29.53*

East Cambridge 5,341,248 132,254 2.5% 60,286 1.1% 190,508 $60.97*

Mass Avenue Corridor 3,280,458 434,502 13.2% 325,488 9.9% 57,117 $58.58*

Suburbs Office/R&D 128,034,717 28,073,885 21.9% 16,616,160 13.0% 757,115 $22.62**

128 Central 35,695,344 5,761,376 16.1% 3,397,866 9.5% 328,554 $29.47**

128 North 15,147,351 2,848,886 18.8% 1,562,783 10.3% (34,069) $21.28**

128 South 13,578,982 2,610,154 19.2% 1,785957 13.2% 378,007 $20.04**

3/24 South 1,902,564 316,227 16.6% 231,824 12.2% 6,459 $20.06**

Metrowest 5,604,481 796,583 14.2% 612,831 10.9% 33,660 $24.29**

495 West 12,609,178 3,977,448 31.5% 2,247,783 17.8% 374,450 $18.40**

495 North 33,307,842 10,468,453 31.4% 6,253,289 18.8% (439,593) $19.30**

495 South 4,033,966 691,158 17.1% 316,040 7.8% 26,251 $18.61**

Inner Suburbs 6,155,009 603,600 9.8% 207,787 3.4% 83,396 $26.06**

Total 210,557,653 38,864,690 18.5% 22,510,561 10.7% 1,559,442 $32.58**

*Rents quoted on NNN basis **Average of office rents only

Second Quarter 2015

Definitions

Inventory: Includes all existing

competitive office and R&D buildings

over 20,000 sf as well as significant

buildings less than that size. Under

construction, government, medical,

educational and 100% owner-occupied

buildings are not included.

Direct Space: Space available directly

from the building owner. Includes space

available for occupancy within the next

24 months. Does not include space in

under construction buildings.

Sublease Space: Space available

through a lessee to a third party for the

remainder of the original lease term

and/or beyond. Includes space being

actively marketed.

Vacancy Rate: Space, available both

directly and by sublease, that is

currently vacant and being marketed for

immediate occupancy. Does not include

space under construction.

Availability Rate: Available space is

generally defined as space that is being

actively marketed and/or available for

occupancy within the next 24 months.

Construction Completions: Buildings

which have received their certificate of

occupancy in the stated time period.

Under Constructio n: Buildings which

have had excavation work commence,

but have not yet received their certificate

of occupancy.

Office: Space designed for general office

use. Buildings are generally two or more

stories and offer tenants a higher-level of

finish than R&D space.

R&D: Space designed for high

technology, office or light industrial

use. Buildings are generally one or two

stories.

Net Absorption: The net change in

occupied space over a given period

of time. Calculations are based on

available space.

Rental Rates: Gross: Rents which

include tax and operating expenses, but

generally not electricity.

Triple Net: Rents where the tenant is

directly responsible for all tax, operating

and utility expenses.

Weighted Average Rent: An average

rental rate that is weighted by the

amount of square footage available at

each respective rental rate.

MethodologyThe information included in this report is

the result of a compilation of information

on Class A, B and C office, R&D and

investment properties located in the

Boston area. The information was

obtained by DTZ from representatives of

each property.

All of the information gathered is stored

in a DTZ database which is updated

quarterly. From this database, total

inventory, vacancy rate, rental rate and

absorption figures may be calculated

and presented.

Total inventory may change from year

to year as a result of newly constructed

or newly renovated buildings, recently

remeasured properties, or significant

change or deletion of a particular

building status. The database is

thoroughly checked and balanced

from year to year. The appropriate

adjustments are made in order to

balance the figures and calculate the

most accurate vacancy and absorption

figures.

dtz.com | 6

For more information, contact:

Ashley Lane [email protected] 617 279 4570

Matthew Smith [email protected] 617 279 4589

495

495

90

95

93

95

24

3

2

128

128

3

Chelmsford

Lowell

Westford

Acton

Littleton

WilmingtonBillerica

Andover

Tewksbury

Boxborough

MaynardHudson

Marlborough

Woburn

SouthboroughWestborough

Hopkinton

Concord

Framingham

Milford

Franklin

Wellesley

Lynnfield

Peabody

Stoneham

Lexington

Bedford

Burlington

Lincoln

Newton

Waltham Medford

Somerville

AllstonBrookline

Needham

Natick

Wakefield

Saugus

N. Andover

Methuen

Lawrence

DanversBeverly

Malden

Revere

Foxborough

Mansfield

Taunton

Brockton

Pembroke

Rockland

Dedham

Norwood

Westwood

Braintree

Weymouth

Hingham

NorwellRandolph

Canton

Quincy

495 South

128 South

495 West

3/24 South

Boston

128 North

128 Central

495 North

Inner Suburbs

Metrowest

Glossary of Terms

Market Total Inventory

Total Available

Availability Rate

Total Vacant

Vacancy Rate

2015 YTD Absorption

Direct Weighted Average Rent PSF

Boston Office 62,933,546 9,230,254 14.7% 4,989,049 7.9% 144,731 $46.48

Back Bay 12,332,624 1,851,317 15.0% 1,051,302 8.5% (337,245) $56.26

Charlestown 1,748,336 503,232 28.8% 189,610 10.8% (3,313) $26.00

Fenway 1,898,192 126,717 6.7% 27,885 1.5% 5,514 $33.61

Financial District 30,921,319 4,946,253 16.0% 2,902,365 9.4% 376,068 $47.98

Gov’t Center/North Station 3,278,104 556,265 17.0% 187,914 5.7% (11,577) $39.30

Midtown 2,012,109 223,967 11.1% 72,264 3.6% 47,692 $39.08

Seaport 7,851,087 883,479 11.3% 507,307 6.5% 125,284 $42.66

South Station 2,891,775 139,024 4.8% 50,402 1.7% (57,692) $38.19

Cambridge Office 10,288,173 869,020 8.1% 484,803 4.7% 510,717 $55.55

Alewife/West Cambridge 1,936,595 331,914 17.1% 126,471 6.5% 82,450 $44.15

East Cambridge 6,519,233 455,633 7.0% 321,880 4.9% 441,034 $63.96

Mass Avenue Corridor 1,832,345 81,473 4.4% 36,452 2.0% (29,767) $39.87

Cambridge Lab 9,126,217 606,531 6.6% 420,549 4.6% 248,876 $57.42*

Alewife/West Cambridge 504,511 39,775 7.9% 34,775 6.9% 1,251 $29.53*

East Cambridge 5,341,248 132,254 2.5% 60,286 1.1% 190,508 $60.97*

Mass Avenue Corridor 3,280,458 434,502 13.2% 325,488 9.9% 57,117 $58.58*

Suburbs Office/R&D 128,034,717 28,073,885 21.9% 16,616,160 13.0% 757,115 $22.62**

128 Central 35,695,344 5,761,376 16.1% 3,397,866 9.5% 328,554 $29.47**

128 North 15,147,351 2,848,886 18.8% 1,562,783 10.3% (34,069) $21.28**

128 South 13,578,982 2,610,154 19.2% 1,785957 13.2% 378,007 $20.04**

3/24 South 1,902,564 316,227 16.6% 231,824 12.2% 6,459 $20.06**

Metrowest 5,604,481 796,583 14.2% 612,831 10.9% 33,660 $24.29**

495 West 12,609,178 3,977,448 31.5% 2,247,783 17.8% 374,450 $18.40**

495 North 33,307,842 10,468,453 31.4% 6,253,289 18.8% (439,593) $19.30**

495 South 4,033,966 691,158 17.1% 316,040 7.8% 26,251 $18.61**

Inner Suburbs 6,155,009 603,600 9.8% 207,787 3.4% 83,396 $26.06**

Total 210,557,653 38,864,690 18.5% 22,510,561 10.7% 1,559,442 $32.58**

*Rents quoted on NNN basis **Average of office rents only

Publication date: 4.1.15

Copyright © 2015 DTZ. All rights reserved.

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DTZ_Q2_2015_MarketWatch

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