METRO BOSTON Q1 2018 | OFFICE REPORT
TOTAL VACANCY RATE
Q1 NET ABSORPTION (SF)
ASKING RENT ($/SF)
UNDER CONSTRUCTION (SF)
11.5%
74,264
$33.18
3,340,498
303 Congress Street | Boston, MA 02210 | 617.457.3400 | www.NAIHunneman.com
1
201 8
Q1
OFFICE STATISTICS DOWNTOWN
DOWNTOWN
TOTAL INVENTORY (SF)
TOTAL VACANT (SF)
TOTAL VACANCY RATE
Q1 NET ABSORPTION (SF)
YTD NET ABSORPTION (SF)
Class A
48,887,186
3,435,560
7.0%
281,462
281,462
Class B
20,978,391
1,803,527
8.6%
(57,712)
(57,712)
69,865,577
5,239,087
7.5%
223,750
223,750
CLASS A & B TOTAL
Vacancy
Q1 2013
12%
TOTAL VACANCY Vacancy 10%
TRENDS
12% 8%
•
Large commitments dominate the urban leasing environment as the competition for talent heats up. From innovative companies like Wayfair and Oath to traditional finance firms like MassMutual, tenants are taking down large blocks of space throughout the Downtown markets. The near-term outlook for demand is also positive. Preleasing among new construction is particularly strong and several tenants, including Chewy, LevelUP, and Burns & Levinson, are out with requirements of 50,000 square feet or more.
•
The Back Bay is finally reaping the rewards of this cycle’s urban office market expansion. Not long ago this submarket was facing high vacancies as tenants left for greener pastures in the Financial District and the Seaport. Strong leasing in this traditional high-rise market has led to a swift decline in vacancies (more than 200 basis points) over the last 12 months. And more growth is on the way. Wayfair is going gangbusters, DraftKings is moving to the neighborhood, WeWork is opening another location, and John Hancock is shifting its headquarters from the Seaport to space they occupy at 200 Berkeley and 197 Clarendon.
•
Boston’s Seaport is about to get a little more crowded. Amazon announced plans to lease 430,000 square feet, a separate requirement from the much-anticipated HQ2, in a to-be-built office tower at Seaport Square. This move will bring roughly 2,000 additional employees to the area. The e-commerce giant, who recently took occupancy of 150,000 square feet at 253 Summer Street, also has the option to expand into another 610,000 square feet on an adjacent parcel. MassMutual is throwing its hat into the ring as well; bringing 1,000 workers and 300,000 square feet of office space to Fan Pier by 2021.
•
On the heels of Rapid7’s recent deal, Oath will likely anchor the next office phase at Boston Properties’ Hub on Causeway in North Station. The media subsidiary of Verizon is said to be negotiating a 300,000-square-foot lease at the new development.
•
Rents continue to climb across most submarkets, but slower growth, which is indicative of a cycle’s maturation, has set in. Average asking rents are flirting with $58.50/SF in the first quarter — a 1.2% increase from year-ago levels. Lease rates were essentially flat compared to the fourth quarter, however. Flight-toquality among office tenants this cycle is also impacting lease rates. With fewer Class A rent observations in comparison to the overall market, asking rents could decrease despite solid fundamentals.
Historical Average = 9.2%
10% 6% 8% 4%
Q1 2013
Historical Average = 9.2%
6% 2%
5-Year Historical Average = 9.2%
4% 0% 2013 2%
2014
0% 2013
2015
2014
2015
2016
2017
2016
2018
2017
2018
NET NetABSORPTION Absorption 1,200 1,000
Net Absorption 800
SF (000s)
1,000 400
SF (000s)
1,200 600
400 -200
800 200 600 0
@#H'(%#$' IJ567 T+'.,2 T)4.), T*1.))
200 -400
-6000 -200
2013
2014
2015
-400
Class A
2016
2017
2018
Class B
-600 2013
2014
2015
NOTABLE TRANSACTIONS Notable Transactions
Class A
WeWork
2016
2017
2018
Class B
Cengage Learning Nixon Peabody DraftKings WeWork 75K SF Back Bay
2
90K SF Seaport
105K SF Financial District
120K SF
135K SF
OFFICE STATISTICS CAMBRIDGE
TOTAL VACANT (SF)
TOTAL VACANCY RATE
Q1 NET ABSORPTION (SF)
YTD NET ABSORPTION (SF)
Class A
7,036,443
320,548
4.6%
(13,088)
(13,088)
Class B
3,168,145
12,884
0.4%
24,518
24,518
10,204,588
333,432
3.3%
11,430
11,430
TRENDS •
•
•
•
•
Cambridge remains one of Boston’s tightest and most expensive office markets. Vacancies ended the first quarter near historic lows as the market absorbed roughly 11,000 square feet. MIT took occupancy of nearly 48,000 square feet at 105 Broadway, and Air Inc. moved into 19,207 square feet at 675 Massachusetts Ave. In West Cambridge, however, office vacancies climbed to 8.7% as negative absorption surpassed 50,000 square feet for the quarter. QuickBase accounted for the majority of this activity; vacating more than 30,000 square feet at 150 Cambridgepark Drive. Persistent demand for commercial space in Cambridge will keep fundamentals at or near current lows in the foreseeable future; leaving landlords with a clear upper hand. Cambridge Crossing landed its first large office user this quarter. In another suburban-to-urban relocation, Philips NV is planning to move its North American headquarters from Andover to East Cambridge; bringing along roughly 2,000 employees. In 2020, the firm will occupy more than 300,000 square feet at the first phase of the Cambridge Crossing development. The catalyst for this deal was proximity to the booming life science market in Kendall Square, where the firm already employs 200 researchers. While companies continue to move in from the suburbs, several home-grown Cambridge tenants are expanding. Cambridge Innovation Center is adding another location at 255 Main Street to accommodate the growing demand for co-working and shared office space. The startup hub is taking 92,500 square feet formerly occupied by Microsoft — bringing its Kendall Square footprint to 300,000 square feet. MIT, Draper Labs, Broad Institute, and CarGurus are growing here as well. Nearly 80% of the 917,000 square feet of office space currently under construction in East Cambridge is spoken for. Work continues on Akamai’s new headquarters at 145 Broadway, and Philips NV and CarGurus both executed leases at new developments this quarter. While a handful of projects are slated to break ground this year, including the 425,000-square-foot 314 Main Street and the 430,000-square-foot courthouse redevelopment, demand for product in Cambridge seems insatiable. Several of the proposed developments are also being marketed to both office and lab users; creating even more competition for this market’s limited office inventory. Limited availabilities and few rent observations have created some volatility in Cambridge’s recent rent data, which is not indicative of market health. Asking rents in East Cambridge and Mid Cambridge are among the highest in the metro area, and lease rates for the new construction, which are not included in current calculations, are well north of $90/SF gross.
Vacanct SF Vacanct SF VACANCT 1,200 1,200
SF
1,000 1,000
SF (000s) SF (000s)
CLASS A & B TOTAL
800 800 600 600 400 400 200 200 0
0 2013 2013
2014 2014
2015 2015 Direct Direct
2016 2016
2017 2017
2018 2018
Sublease Sublease
NET ABSORPTION AND ASKING RENT 300 300 200 200 100 100 SF (000s) SF (000s)
CAMBRIDGE
TOTAL INVENTORY (SF)
0
0
-100 -100 -200 -200 -300 -300 2014 2014
2015 2015 Net Absorption Net Absorption
2016 2016 Asking Rent Asking Rent
2017 2017
$80 $80 $70 $70 $60 $60 $50 $50 $40 $40 $30 $30 $20 $20 $10 $10 $0 $0
NOTABLE NotableTRANSACTIONS Transactions Philips NA CIC CarGurus Matrix Partners EIU 25K SF
50K SF
75K SF
100K SF
350K SF
East Cambridge
3
201 8
Q1
CONSTRUC TOTAL CONSTRUCTION
CONSTRUCTION COSTS
U N D E R W A Y
(PER SQUARE FOOT)
42%
31%
4
SUBURBS
CAMBRIDGE
1,200,000
50K-75K SF: $75-$80 75K-150K SF: $70-$75 150K-225K SF: $65-$70 Source: Dacon Construction
1,000,000 800,000 600,000 400,000 200,000 0
TALLEST PLANNED OFFICE Preleased
TOWERS IN BOSTON
Available
3,500
1,500
1,000
500
0 1998
1999
2001
2002
2004
2005
2007
2008
2010
2011
2013
2014
2016
2017
BULFINCH CROSSING 45 FLOORS / 528 FT
2,000
HARBOR GARAGE 52 FLOORS / 600 FT
2,500
SOUTH STATION TOWER 49 FLOORS / 677 FT
3,000
WINTHROP SQUARE 53 FLOORS / 691 FT
HISTORICAL DELIVERIES CURRENT CONSTRUCTION
BOSTON
27%
50K-75K SF: $120-$130 75K-150K SF: $115-$120 150K-225K SF: $100-$105
C T I O N TRENDS B O S T O N
KEY: UNDER CONSTRUCTION & PROPOSED DEVELOPMENT 440,000+ SF
120,000 - 190,000 SF 190,000 - 310,000 SF 310,000 – 440,000 SF LESS THAN 120,000 SF
HIGHLIGHTS 1. RISING LABOR AND MATERIAL COSTS CONTINUE TO DRIVE UP THE PRICE TO BUILD OFFICE SPACE IN GREATER BOSTON. 2. A MAJORITY OF OFFICE INVENTORY CURRENTLY UNDERWAY IN THIS MARKET HAS BEEN PRELEASED. 3. MORE SUBURBAN BUILD-TO-SUITS ARE ON THE WAY, AND A HANDFUL OF MAJOR DOWNTOWN PROJECTS, INCLUDING WINTHROP SQUARE AND THE GLOBE SITE REDEVELOPMENT, WILL LIKELY KICK OFF THIS YEAR. 5
201 8
Q1
OFFICE STATISTICS SUBURBAN
SUBURBAN
TOTAL INVENTORY (SF)
TOTAL VACANT (SF)
TOTAL VACANCY RATE
Q1 NET ABSORPTION (SF)
YTD NET ABSORPTION (SF)
Class A
59,081,606
7,958,514
13.5%
(246,271)
(246,271)
Class B
54,823,798
8,856,567
16.2%
85,355
85,355
113,905,404
16,815,081
Vacancy
1,500
CLASS A & B TOTAL
17%
1,000
16%
500 VACANCY & NET ABSORPTION
15%
1,500 0
17% 14%
1,000 -500
16% 13%
-1,000 500
2013
2014
2015
2016
Absorption
0
12% 15% 2018
2017
Vacancy
14%
-500
13%
-1,000
2013 (160,916) (160,916) 2013 2014 2014 2014 TRENDS 2014 • Suburban office vacancies spiked2015 in the first quarter of 2018 as Reebok’s former 2015 headquarters hit the leasing market. Barring this event, market conditions have 2015 otherwise been positive with expansions coming from owner-users and in-place 2015 tenants. While office-users continue to migrate towards urban locales, demand 2016 for build-to-suits has helped drive2016 activity in Boston’s suburban markets. Similar 2016 to Downtown, rents continue to rise, but growth is waning. Looking ahead, the 2016 suburbs will remain on solid footing despite continued migration to the urban 2017 center. Pockets along Route 495 may 2017continue to contend with higher-than-
14.8%
average vacancies and struggle with lease-up, but adaptive reuse projects could help mitigate these risks.
12% 2013
2014
2015
2016
Net Absorption
2017
2018
Vacancy
•
The sale of Reebok’s former headquarters in Canton following its recent relocation to Boston’s Seaport neighborhood generated several hundred thousand square feet of negative absorption in the Route 128 South office market this quarter. Spear Street Capital purchased the 600,000+-square-foot campus for $88 million or $129 per square foot. While this site presents an interesting redevelopment opportunity, the new owner is planning to lease out the space.
•
Move-ins from Raytheon, Digital Federal Credit Union, Digital Guardian, and ServiceNow contributed to strong net absorption in markets like Route 128 West and Route 495 North. In addition to the Reebok space, Comverse Technology also vacated roughly 78,000 square feet at 200 Quannapowitt Parkway in Wakefield Q1 2017 Q2 2017 this quarter.
Suburban Rents SUBURBAN RENTS 35%
$40
30%
$35 $30
25%
$25
20%
$20
15%
$15
10% Asking
$10
5% Rent
Route 495 South
Fra mingham-Na tick
Current Rent
Route 495 Northeast
Rent Growth (2014-Q1 2018)
Route 495 West
Route 495 North
Route 128 North
Route 128 Northwest
Inne r Suburbs
$5 Route 128 South
($/SF) 0% $28.86 $22.42 $25.43
Route 128 West
ption 6,271) 5,355 0,916)
$0
•
Office users are flocking to build-to-suit construction in Boston’s suburbs. Following Simpson Gumpertz & Heger’s 110,000-square-foot lease at the soon-to-be-built 20 CityPlace in Waltham, Alkermes recently confirmed its plans for growth. The drugmaker inked a deal for more than 200,000 square feet of new office space in Waltham; expanding its footprint to nearly 400,000 square feet here by 2020. Agero, Inc. also signed a lease for 115,000 square feet for a new headquarters at River’s Edge in Medford. The roadside assistance company will relocate from nearby One Cabot Road.
•
Asking rents have been expanding rapidly in select suburban submarkets, but overall growth will likely wane as this current cycle matures. Demand for space within Route 128 and the Inner Suburbs has led to above-average gains over the past three years, with cumulative rent growth reaching 20-30% in some submarkets. Speculative construction in key markets, like Route 128 West, has also been driving higher rents. Average suburban asking rents are nearing $25.50/ SF in the first quarter — a 6% increase from year-ago levels. Lease rates were essentially flat compared to the fourth quarter, however.
Notable Transactions NOTABLE TRANSACTIONS Alkermes Agero, Inc. Everbridge Collegium Pharmaceuticals MKS Instruments 25K SF Route 128 West
6
arket conditions have otherwise s, demand for build-to-suits has
75K SF
Inner Suburbs
125K SF
Route 128 Northwest
175K SF Route 128 South
225K SF Router 495 Northeast
Q3 2017 Q4 2017
SALES VOLUME ($)
NUMBER OF TRANSACTIONS
$704,191,923
55
Property City/Submarket Property Buyer City/Submarket Price Buyer Total SF Price Price/SF Total SF TOTAL Cap Rate Price/SF SF Cap Rate
CAPITALProperty MARKETS 101 Station Drive
40 Court Street Boston 40 Court Street Exan Capital LLC Boston $54,000,000 Exan Capital LLC 109,705 $54,000,000 $492 109,705 MEDIAN 4.0% $492 $/SF 4.0%
4,135,512 Sale Volume
City/Submarket Westwood STATISTICS Property 101 Station Drive Buyer AEW Capital Manag City/Submarket Westwood Price $53,100,000 Buyer AEW Capital Man Total SF 208,134 Price $53,100,000 Price/SF $255 Total SF 208,134 CapMEDIAN Rate 6.50% Price/SF $255 CAP RATE Cap Rate 6.50%
$177
6%
Sale Volume SALES VOLUME $4,000
TRENDS
•
•
$3,500 $4,000
Following a rather lackluster second-half of 2017, transaction volume failed to make headway in Boston’s office market during the first quarter. With that said, Boston remains a highly-desirable destination for capital among all investor types and the limited inventory of available properties for sale continues to drive up pricing. Similar to national office trends, suburban investment is on an upswing, with the median price-per-square-foot increasing by more than 30% over the past year. This compares to just 1.6% growth in the urban markets. Investors seeking higher yields and greater opportunities are driving the expanded suburban investment activity in recent quarters. Three out of the top four largest office transactions took place in the ‘burbs, with CrossHarbor Capital Partners; $277 million purchase of Cross Point in Lowell representing the top deal. Spear Street Capital’s $88 million acquisition of the former Reebok campus in Canton was another major sale that closed during the first quarter. National development sold 101 Station Drive in Westwood to AEW Capital for $53.1 million or $255 per square foot and Minardi Limited Partnership picked up two assets on Donald Lynch Boulevard in Marlborough for $13 million or $104 per square foot.
$3,000 $3,500 $ (000s)$ (000s)
•
$2,500 $3,000 $2,000 $2,500 $1,500 $2,000 $1,000 $1,500 $500 $1,000 $0 $500 2008
2009
2010
2011
2009
2010
2011
$0 2008
2012
2013
2014
2015
Suburban Urban 2012 2013 2014
Suburban
2015
2016
2016
2017
2018
2017
2018
Urban
Median Price/SF MEDIAN PRICE/SF
Median Price/SF $700 $600 $700 $500 $600 $400 $500 $300 $400 $200 $300 $100 $200 $0 $100 2008
When Downtown assets do change hands, buyers pay a premium. Exan Capital recently purchased 40 Court Street, a 109,705-square-foot Class B asset in the Financial District for $54 million or $492 per square foot at a 4% cap rate. Stars Investment paid just $31 million for the building in 2014. The sale of 28 State Street is reportedly nearing completion, with an estimated price tag of $430 million or $745 per square foot. This would represent a 25% price increase from the asset’s 2014 sale.
2009
2010
2011
2012
2009
2010
2011
$0 2008
TOP Q1 / INVESTMENT SALES
2013
2014
2015
Suburban 2012 2013
Urban 2014
2015
Suburban
Urban
2016
2016
2017
2017
2018
2018
INDUSTRIAL SALES Q1 2017
Cross Point Former Reebok SALES VOLUME ($) HQ Lowell Canton
# OF TRANSACTIONS
Q2 2017
Former Reebok HQ $453,379,723 Canton
76
CrossHarbor Capital BuyerTOTAL SF Spear Street Capital Partners
Buyer 4,779,432 Spear Street Capital
PriceMEDIAN $/SF $227,200,000 $88,000,000
Price
Total SF
1,282,212 680,000
Total SF
680,000
Price/SF
$129 $177
Price/SF
Cap Rate
-
Cap Rate
Q3 2017
Q4 2017
40 Court Street $433,947,886
$385,172,081
Boston
78
82
TOTAL
101 Station Drive $374,173,554 Westwood
60
$1,646,673,244 296
6,394,205Buyer
4,045,511 Exan Capital LLC
Buyer 4,243,774 AEW Capital Management19,462,922
$59Price
$54,000,000$103
Price
Total SF
109,705
Total SF
208,134
$129
Price/SF
$492
Price/SF
$255
-
Cap Rate
4.0%
Cap Rate
6.50%
$75 $88,000,000
$86 $53,100,000
$90
7
201 8
Q1
TOTAL INVENTORY (SF)
Back Bay
M
E
T
R
O
B
O
S
T
O
OFFICE RECAP
UNDER CONSTRUCTION (SF)
DIRECT VACANT (SF)
SUBLEASE VACANT (SF)
TOTAL VACANCY RATE
Q1 YTD NET NET ABSORPTION (SF) ABSORPTION (SF)
13,947,135
-
1,088,263
194,502
9.2%
194,043
194,043
Charlestown
2,554,975
-
73,532
1,893
3.0%
(62)
(62)
Fenway/Kenmore
1,697,521
-
142,570
-
8.4%
(89,086)
(89,086)
Financial District
35,688,924
381,283
2,654,321
200,644
8.0%
(45,327)
(45,327)
Midtown
2,090,044
-
58,835
15,702
3.6%
(15,097)
(15,097)
North Station
2,667,523
175,000
75,888
8,579
3.2%
9,343
9,343
10,044,887
1,001,341
508,559
185,435
6.9%
171,554
171,554
1,174,568
-
25,968
4,396
2.6%
(1,618)
(1,618)
BOSTON TOTAL
69,865,577
1,557,624
4,627,936
611,151
7.5%
223,750
223,750
East Cambridge
5,636,548
916,814
36,641
82,576
2.1%
54,618
54,618
Mid Cambridge
2,517,470
-
29,426
5,937
1.4%
8,069
8,069
West Cambridge
2,050,570
-
89,288
89,564
8.7%
(51,257)
(51,257)
CAMBRIDGE TOTAL
10,204,588
916,814
155,355
178,077
3.3%
11,430
11,430
Framingham-Natick
4,778,281
-
682,426
62,920
15.6%
15,902
15,902
Inner Suburbs
6,462,589
168,271
473,988
23,535
7.7%
5,239
5,239
Route 128 North
13,776,222
320,672
1,352,666
58,442
10.2%
(65,934)
(65,934)
Route 128 Northwest
13,913,990
-
1,617,437
181,704
12.9%
25,981
25,981
Route 128 South
16,065,407
-
2,027,143
212,363
13.9%
(568,789)
(568,789)
Route 128 West
23,391,168
377,117
2,473,962
220,482
11.5%
168,890
168,890
ROUTE 128 TOTAL
67,146,787
697,789
7,471,208
672,991
12.1%
(439,852)
(439,852)
Route 495 North
13,440,168
-
3,376,636
104,207
25.9%
156,941
156,941
Route 495 Northeast
7,588,559
-
1,337,260
29,799
18.0%
141,088
141,088
Route 495 South
3,334,696
-
611,837
7,935
18.6%
(8,413)
(8,413)
Route 495 West
11,154,324
-
1,917,621
42,718
17.6%
(31,821)
(31,821)
ROUTE 495 TOTAL
35,517,747
-
7,243,354
184,659
20.9%
257,795
257,795
SUBURBAN TOTAL
113,905,404
866,060
15,870,976
944,105
14.8%
(160,916)
(160,916)
MARKET TOTAL
193,975,569
3,340,498
20,654,267
1,733,333
11.5%
74,264
74,264
Seaport South Station
N
METHODOLOGY SOURCE: Co-Star, NAI Hunneman Commercial Company. PREPARED: March 2018.
LIZ BERTHELETTE | Director of Research 617.457.3306 |
[email protected]
DISCLAIMER: The above data is from sources deemed to be generally reliable, but no warranty is made as to the accuracy of the data nor its usefulness for any particular purpose. Average Rental Rates are asking rents on direct space. Vacant space includes both direct and sublease space.
