Boston Office MarketView

Q3 2013 CBRE Global Research and Consulting

U.S. UNEMPLOYMENT MA UNEMPLOYMENT OCCUPIED SF AVAILABILITY SUBLEASE SF UNDER CONSTRUCTION 7.3% 7.2% 67.7M 15.3% 770K 2.2M

*Arrows indicate change from previous quarter. INCREASED CONSTRUCTION AND INVESTMENT SALES ACTIVITY CONTINUE TO FUEL THE DOWNTOWN OFFICE MARKET

The Downtown Boston Office market kicked off the second half of 2013 with mixed signals. Quick Stats Despite ending the quarter with 374,115 square feet of negative absorption, deal activity remained strong across all submarkets, driven by small to midsize technology requirements. The negative absorption was primarily attributed to companies right-sizing their real estate footprint, Q3 2013 Current YoY QoQ focusing on efficient and technology-savvy workplaces. The overall economy remains strong; Vacancy 8.4% companies continue to hire and several large companies consolidated their footprints without job loss. Overall vacancy rose by 30 basis points to end the quarter at 8.4%; the increase is Lease Rate $45.81 attributed primarily to the CBD, however all of downtown Boston’s submarkets maintained low and healthy vacancy rates. Rents continued to increase, finishing the quarter at $45.81 per Net Absorption (374,115) SF square foot, the highest the market has seen in almost five years. The economic resiliency of Boston has brought the attention of institutional capital, particularly seeking less risk than the investment opportunities during the most recent downturn. As a result, investors are accepting Hot Topics lower returns and confidence in CBD assets is at an all-time high. Demand for quality product is insatiable; as the broader recovery in leasing fundaments spreads, investors are exploring new • PricewaterhouseCoopers pockets of the city in order to deploy capital and achieve marginally better risk-adjusted returns. announced plans to relocate their Boston headquarters to Seaport Square in a ±440,000 square foot Office Vacancy vs. Lease Rate build-to-suit located on a parcel owned by Skanska. Vacancy Rate 8.4% Average Asking Lease Rate $45.81

• Phase I of the “Boston Landing Project” in Brighton broke ground 12% $60 in September. Phase II of the project will include three office buildings totaling 650,000 square feet, in 10% $50 addition to the owner-occupied New Balance headquarters. 8% $40 Lease Rate Per SF ($) • Boston Properties’ Boston Garden development project in North 6% $30 Station is expected to commence in early 2014, including 668,000 Vacancy (%) square feet of office space in 4% $20 addition to retail, residential and hotel space. 2% $10

0% $0 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13

Source: CBRE/New England, Q3 2013

© 2013 CBRE, Inc. Q3 2013 Boston Office | MarketView 2 © 2013 CBRE, Inc. Type Build-to-Suit Renewal New New New New Renewal New New New Renewal Renewal New New New Submarket Seaport CBD North Station/Waterfront Seaport Back Bay CBD CBD Back Bay South Station CBD Seaport Back Bay Fenway Seaport Seaport SF 72,000 48,500 47,700 46,000 41,500 41,500 38,000 29,000 27,700 23,800 23,000 22,600 16,000 340,000 102,000 Build-to-suit activity continued into the third quarter as Skanska new Boston broke ground on PricewaterhouseCoopers’ 340,000 square headquarters. PwC will occupy approximately for 2015 feet of the 440,000 square foot building scheduled Skanska continued to ramp up its presence in the delivery. “L2” in Parcel Seaport with the purchase of Seaport Square plans to construct another 425,000 square foot with September, build-to-suit office tower. Overall activity remained quiet. A few notable leases driving driving notable leases A few remained quiet. activity Overall to relocating Skadden included third quarter in the the market One Beacon Street from Boylston feet at 500 square 47,772 square its lease to 23,796 CBD; BTMU recasting Street in the relocating its Back and Pri-Med Huntington Avenue; feet at 111 portfolio from 101 Properties within the Boston Bay operation feet at 111 Huntington Avenue to 41,500 square Huntington Avenue. in the Back Bay continued to tick upwards Overall asking rents $52.40. Although Class A rents declined in the past quarter to some to $57.15 quarter-over-quarter, slightly from $57.95 in select towers have achieved rents in premier high-rise spaces foot range, mostly from small to mid-sizethe $70-80 per square firms. asking rents in the average quarter, After a quiet second almost 2% in the third quarter while Seaport increased by demand for the vacancy decreased to 6.7%, showing continued “Innovation District.” expanded co-working company, a New York-based WeWork, 51 Melcher Street its presence in Boston by signing a lease at as well as taking in the Seaport District for 48,500 square feet in the South Station 38,000 square feet at 745 Atlantic Avenue continued the inward Partners Polaris submarket. Waltham-based at ONE Marina Park migration trend, taking 16,000 square feet Drive. • • • Seaport • • Address 101 Seaport Square 99 High Street 226 Causeway Street 51 Melcher Street 500 Boylston Street 100 Summer Street 101 Federal Street 101 Federal 111 Huntington Avenue 745 Atlantic Avenue One Financial Center One Financial 281 Summer Street 111 Huntington Avenue 155-201 Brookline Avenue 10-20 Channel Center ONE Marina Park Drive ONE Marina Park

Statistically, the Back Bay continued to tighten as vacancy Statistically, to 4.7%. decreased by 120 basis points quarter-over-quarter and delivery of Liberty This decline was driven by the completion at 157 Berkeley Mutual’s new 580,000 square foot building its commitment to the Street, as the company continues to expand Back Bay. Investment sales in Boston’s Central Business District have seen Central Business District have Investment sales in Boston’s Equity Office sold their 50% share record-breaking transactions. Stanley for $275 million, Office Square to Morgan in One Post foot based on full equating to approximately $661 per square sold for over building value. In addition, 99 Summer Street Liberty Square sold for $110.8 million ($405 per square foot); 1 50 Congress Street $54.4 million ($345 per square foot); and all densely located in sold for $51 million ($283 per square foot), will continue to As a result, it is expected that landlords the CBD. push rents upwards. Tenants continue to seek value, as indicated by the continued shift to seek value, as indicated by the continue Tenants space (Floors 29+) to low-risein demand from high-rise space A buildings. The gap between low-rise(Floors 1-15) in Class and been steadily declining in recent quarters high-rise vacancy has as tenants relocate to lower and has tightened significantly locations while restructuring their term and floors within existing achieving lower rents. Vacancy in the CBD rose by 130 basis points quarter-over- basis points rose by 130 the CBD in Vacancy rents asking 11.2%. Average quarter at ending the quarter, largest per square foot. The $1.54 to $47.05 increased by within 99 High relocation of the quarter was AIG’s transaction feet. in 102,000 square all business units Street to merge of combined footprint decrease from an original This was a Street and feet between 99 High 317,000 square approximately 100 Summer Street.

Tenant PwC AIG Advisor) (Trip SmarterTravel WeWork Skadden Rapid7 Sherin & Lodgen Pri-Med WeWork Loomis Sayles & Company Loomis DataXu BTMU Harvard Medical Gilbane

Polaris Partners Polaris Transactions of Note Transactions

• Back Bay

• •

• CBD Q3 2013 Boston Office | MarketView 3 $50.45 $27.25 $23.13 $39.86 $27.20 $47.05 $52.40 $41.38 $34.51 $28.15 $50.00 $34.27 $57.15 $43.68 $54.12 $36.56 ($/SF/YR) Creative Office 2013 © 2013 CBRE, Inc. (Gross) $45.81 Avg.Asking Rent , high tech, Source: www.bls.gov 2012 29,854 14,383 24,934 97,336 69,418 12,406 (3,474) Traditional Office Traditional 231,258 314,384 (27,365) (83,126) (37,024) (14,959) (19,632) (766,209) (696,791) (374,115) Quarterly Net Absorption (SF)

2011 1.3% 1.1% 1.7% 0.4% 0.3% 1.6% 0.0% 0.0% 0.3% 1.2% 1.2% 0.2% 1.2% 1.2% 0.0% 0.2% 1.0% Rate% Sublease 2010

ed by the high tech industry which grew by approximately ed by the high tech industry which grew by 9.2% 5.1% 3.9% 3.8% 8.2% 2.2% 7.7% 4.7% 4.7% 4.7% 7.2% 6.7% 6.2% -using jobs in Greater Boston. Compared to last year, to last year, -using jobs in Greater Boston. Compared 8.4% 12.0% 11.5% 11.2% Rate% Vacancy 2009

6.4% 9.2% 18.3% 12.2% 12.7% 10.4% 14.1% 13.4% 31.4% 15.3% 13.2% 16.4% 13.2% 16.7% 20.4% 12.4% 15.3% Rate% Availability 2008 2007 Rentable Rentable Area (SF) 2,077,588 1,730,367 1,091,648 1,464,525 2,750,750 2,666,281 8,845,112 2,838,573 9,969,713 9,749,606 2,944,905 4,723,612 5,900,207 14,473,218 37,040,705 27,070,992 74,978,767 2006 2005

0% Year-over-Year Employment Growth Boston-Cambridge-QuincyNECTA Year-over-Year Overall Boston Office

Fenway/Kenmore Square Fenway/Kenmore Allston/Brighton/Longwood

Dorchester/South Boston South Station

Class B/C Class A Class A

Class A Back Bay

North Station/Waterfront Class B/C

Market District Central Business Mid-Town

Seaport Class B/C Charlestown/East Boston 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% In August 2013, non-farm employment in the Greater Boston area grew to approximately 1.7 million jobs. Of the total, roughly 205,000 the Greater Boston area grew to approximately 1.7 million jobs. Of the total, roughly In August 2013, non-farm employment in -3.0% -2.0% -1.0% Market Statistics Market architecture and software. These jobs currently account for 12% of the total office architecture and software. These jobs currently in August 2013 and only 2.9% in 2012. L creative office employment grew by 6.1% significant impact on the health of the office market throughout the region. 13.7%, creative office users are having a

jobs were in jobs that occupy creative office space. The jobs are diversified and extend into many industries such as publishing jobs were in jobs that occupy creative office Employment Trends – Creative Office Outpacing the Market – Creative Office Employment Trends Q3 2013 Boston Office | MarketView 4 2013 3Q13 Class B $34.96 Seaport 343,682 SF © 2013 CBRE, Inc. 2Q13 SF 2012 ) Class A $50.38 14,167 1Q13 ( Back Bay 2011 4Q12 Source: CBRE/New England, Q3 2013 Source: CBRE/New England, Q3 2013 SF ) 3Q12 2010 197,776 ( CBD 2Q12 2009 1Q12 4Q11 2008 3Q11 0 500 (500) 1,500 1,000

(1,000) (1,500) $0 (Millions) Feet Square Average Asking Lease Rates Lease Asking Average Absorption (YoY) $60 $50 $40 $30 $20 $10

Boston, Massachusetts Photo by Dave Desroches, www.desrochesphoto.com

215,000 square feet. High Street and AIG is downsizing its overall footprint by High Street and AIG is downsizing its overall quarter, as PwC will be vacating 360,000 square feet at 125 as PwC will be quarter, Station. The CBD posted the weakest statistics in the third Station. The CBD posted the weakest statistics to 72,000 square feet at 226 Causeway Street in North to 72,000 square feet at 226 Causeway Street SmarterTravel (a TripAdvisor LLC company) will be relocating TripAdvisor (a SmarterTravel will be relocating to 340,000 square feet in the Seaport and will be relocating to 340,000 square feet the third quarter. PricewaterhouseCoopers announced they PricewaterhouseCoopers the third quarter. North Station/Waterfront were the strongest performers in were the strongest North Station/Waterfront 517,158 square feet absorbed so far. The Seaport and 517,158 square feet absorbed so far. However, absorption remains positive year-to-date, absorption remains with However, ended with 374,115 square feet of negative absorption. ended with 374,115 square feet of negative overall Downtown Boston Office market, the third quarter overall Downtown Boston Office market, After three consecutive quarters of positive growth in the After three consecutive quarters of positive quarter to $34.27. rents in the second quarter, asking rents rose 2.7% in the third asking rents in the second quarter, investment sales activity. After a slight dip in Class B CBD After a slight dip in Class B investment sales activity. foot. This push in rents can be attributed to the increase in foot. This push in rents rents rose 3.3% quarter-over-quarter to $50.00 per square rents rose 3.3% quarter-over-quarter in both availability and vacancy in the CBD, Class A asking vacancy in the CBD, in both availability and asking price of $50.00 per square foot. Despite an increase foot. Despite an of $50.00 per square asking price in the Seaport and Back Bay remain well above an average well above an average and Back Bay remain in the Seaport their highest point since the beginning of 2009. Class A rents of 2009. Class point since the beginning their highest a 6.5% increase year-over-year. Overall asking rents are at Overall year-over-year. a 6.5% increase per square foot, almost $1.00 higher than last quarter and than last quarter foot, almost $1.00 higher per square continue to climb, finishing out the third quarter at $45.81 at $45.81 quarter out the third finishing to climb, continue Average asking rents for the overall Downtown Office market Office market overall Downtown rents for the asking Average Average Asking Rents Asking Average Net Absorption Q3 2013 Boston Office | MarketView 5 © 2013 CBRE, Inc.

Normalization base, number and Due to a reclassification of the market, the have been adjusted square footage of buildings of previous quarters vacancy figures for those to match the current base. Availability and quarters. buildings have been adjusted in previous Under Construction by site as evidenced have begun construction Buildings that or foundation work. excavation (Square Feet) Available Area that is either physically vacant or occupied. Available building area Availability Rate divided by the net rentable area. Available square feet Area (Square Feet) Vacant that is physically vacant or immediately Existing building area available. Rate Vacancy area. building feet divided by the net rentable Vacant

Building area not considered vacant. Occupied Area (Square Feet) pipe shafts, vertical ducts, balconies and stairwell areas. pipe shafts, vertical ducts, balconies and stairwell The gross building square footage minus the elevator core, flues, The gross building square footage minus measured by available square feet. Area Net Rentable The change in occupied square feet from one period to the next, as The change in occupied square feet from Net Absorption Includes all competitive buildings in CBRE’s survey set. Includes all competitive buildings in CBRE’s maintenance expenses. Coverage Market and taxes for the property, including utilities, insurance and/or including and taxes for the property, plus estimated average monthly costs of the operating expenses monthly costs of the operating expenses plus estimated average Includes all lease types whereby the tenant pays an agreed rent whereby the tenant pays an agreed rent Includes all lease types Gross Leases the summary. by the sum of the available space with net leases for all buildings in with net leases for of the available space by the sum building by its available space, summing the products, then dividing summing the products, its available space, building by Rate determined by multiplying the asking gross lease rate for each gross lease rate by multiplying the asking determined Rate Average Asking Lease Rate Average DEFINITIONS Q3 2013 Boston Office | MarketView 6 , we © 2013 CBRE, Inc. TWITTER @cbreNewEngland +FOLLOW US +FOLLOW

1 617 912 7001 1 617 912 7041

+ + have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and have not verified it and make no guarantee, warranty or representation about it. It is your responsibility and all rights to the material are reserved and cannot completeness. This information is presented exclusively for use by CBRE clients and professionals be reproduced without prior written permission of the CBRE Global Chief Economist. DISCLAIMER to be reliable. While we do not doubt its accuracy Information contained herein, including projections, has been obtained from sources believed AND CONSULTING RESEARCH GLOBAL and Consulting—a network of which forms part of CBRE Global Research Team, Research This report was prepared by the CBRE U.S. research, econometric forecasting and consulting preeminent researchers and consultants who collaborate to provide real estate market solutions to real estate investors and occupiers around the globe. WWW.CBRE-NE.COM For more information about this Local MarketView, please contact: MarketView, For more information about this Local RESEARCH U.S. Suzanne Duca Director of Research New England Research CBRE, 33 Arch Street, 28th Floor Boston, MA 02110 t: CONTACT GREATER BOSTON SUBMARKETS BOSTON GREATER e: [email protected] f: