Boston Office Market Report

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Boston Office Market Report BOSTON OFFICE MARKET REPORT FIRST QUARTER 2019 HOT START TO THE NEW YEAR FOR BOSTON Setting the tone for 2019, the office market has seen an increase in asking rates and decline in vacancy, both of which are likely to remain the trend through the year with limited availability projected for 2019. Despite limited availability projected for the remainder of 2019, the development pipeline in Boston will bring relief to the tight market in the years to follow. The One Congress Tower, a one million square foot office tower expected to break ground this summer, is one of the major developments that will bring new space to the market when it opens in 2023. The tower has already locked down a major tenant in State Street who will be relocating from their longtime home at One Lincoln Street. On the flip side of that equation, WeWork will backfill a significant portion of State Street’s space at One Lincoln after signing their largest lease yet in Boston at the former financial services giant’s headquarters. On a macro level, the region's demographics and economy have remained solid helping to support and promote Boston's recent expansion. Firmly rooted in education, technology and life sciences, Boston's diverse economic base has submitted strong job growth through increased recruitment and skilled labor retention from the area’s leading universities and institutions. Looking forward, expect durable market conditions and a diversified economy to guide the region's commercial real estate market to a strong performance over the next few years. 3.0% # 3.8% $12B #1 FEBRUARY FEBRUARY MASSACHUSETTS NATIONALLY MASSACHUSETTS NATIONAL ANNUAL (2018) R&D FUNDING UNEMPLOYMENT UNEMPLOYMENT VC FUNDING PER CAPITA CLASS A MARKET ASKING RATE VS. DIRECT VACANCY TRENDS $64.00 16.0% $61.00 14.0% $58.00 12.0% GLOBAL DESTINATION $55.00 10.0% World leader in medical innovation and technological advancement $52.00 8.0% $49.00 6.0% DEMAND PUSHES $46.00 4.0% DEVELOPMENT $43.00 2.0% Significant demand has produced a large development pipeline $40.00 0.0% 201920182017201620152014201320122011201020092008 20072006 201920182017201620152014201320122011201020092008 Average Asking Rate Direct Vacancy (%) TECHNOLOGY & INNOVATION HUB Fortune 500 leaders and 1,900 homegrown startups CLASS B ASKING RATE VS. DIRECT VACANCY NEW LIFE-SCIENCE HUB $49.00 16.0% As Cambridge fills up, life-science tenants look to the Seaport for a new home $45.00 14.0% $41.00 12.0% COWORKING SPACE $37.00 10.0% DISRUPTING MARKET $33.00 8.0% Tenants like flexibility and shorter term commitments $29.00 6.0% $25.00 4.0% TENANTS FAVOR $21.00 2.0% CREATIVE OFFICE $17.00 0.0% Open layouts, contemporary and 20192018201720162015201420132012201120102009200820072006 collaborative environments Average Asking Rate Direct Vacancy (%) DIRECT VACANCY RATE BY SUBMARKET Financial District Midtown Fenway Back Bay Seaport South Station North Station Charlestown 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% QUICK GLANCE MARKET STATS VACANCY SUBLEASE AVAILABILITY 4.8% 1.5% 11.1% ABSORPTION CONSTRUCTION ASKING RATE 818K sf 2.4 MM sf $58.18/sf North Station North End $53.77/SF Beacon Hill Financial District Back Bay $57.53/SF $62.89/SF Midtown $48.73/SF South End South Station $51.45/SF Seaport $63.57/SF CLASS A OFFICE • With limited space available in Cambridge, Boston area life science tenants are beginning to look for new options. It appears 4.4% the Seaport is on track to become the next life science hot-spot. Foundation Medicine signed a sublease for 64,000 square feet DIRECT VACANCY at 121 Seaport and are reportedly circling multiple build-to-suit opportunities for up to 1,000,000 square feet. Additionally, biotech firm Akouos signed a 37,500 square foot lease at the Pappas Commerce Center. Look for more life science tenants to show interest in the Seaport throughout 2019 and beyond. • The start of 2019 was a busy quarter for leasing activity; KPMG renewed their lease at Two Financial Center for 120,500 SF, 1.4% Medidata signed a lease for 117,000 square feet at 50 Post Office Square, DataRobot signed for 57,000 square feet at 225 Franklin SUBLEASE AVAILABILITY Street, and Wayfair took an additional 300,000 square feet at 10 Saint James Avenue from Liberty Mutual. Most notably, State Street is moving out of their longtime location at One Lincoln Street and going to the One Congress tower once it is completed in 2023. State Street signed a 15-year lease for 510,000 square feet at the new tower. A new tower over South Station is also in the pipeline that will add 641,000 square feet of new space to the market, with Salesforce rumored to become the anchor tenant. It is estimated 11.2% that construction on the mixed-use development will begin sometime in 2020. TOTAL AVAILABILITY • As new development continues around the city, established buildings must look to find new ways to attract high quality tenants. Recently, there has been a trend for owners to invest in amenity upgrades in order to attract and retain tenants. At Two Financial Center, KPMG elected to renew their lease for 120,500 square feet with ASB’s plan to renovate the lobby and add high-end roof top space. At 50 Post Office Square, LaSalle invested in a new 3,000 square foot, # 820,000 SF panoramic glass lobby. Shortly after completion, Medidata signed a 117,000 square foot lease bringing occupancy to 100 percent. 12-MONTH ABSORPTION • Market insiders suggest that 75 State Street is likely bringing on a new majority ownership with Allianz and Beacon Capital aligned to take down the tower following the team’s acquisition of neighboring 53 State Street last year. In the Seaport, Invesco closed on their acquisition of 22 Boston Wharf Road, one of Fort Point’s most unique assets with its combination of parking, new construction and creative office. Rounding off this quarter of significant sales, Norges Bank and American Realty Advisors teamed up to buy 121 Seaport # $63.26/SF Boulevard for $455 million, or $1,136/SF. AVERAGE ASKING RATE CLASS A OFFICE NOTABLE QUARTERLY LEASES ADDRESS SUBMARKET TENANT SF 10 Saint James Avenue Back Bay Wayfair 300,000 2 Financial Center Financial District KPMG 120,500 50 Post Office Square Financial District Medidata 117,000 225 Franklin Street Financial District DataRobot 57,000 131 Dartmouth Street Back Bay Industrious 50,000 125 High Street Financial District National Indemnity 30,800 399 Boylston Street Back Bay Reputation Institute 17,000 500 Boylston Street Back Bay Cooley 12,450 60 State Street Financial District Freeman Mathis Gary 12,250 200 Clarendon Street Back Bay Jacobson Family Office 12,000 AVERAGE ASKING RATE AVERAGE DIRECT VACANCY BY SUBMARKET BY SUBMARKET $72.00 18.0% $67.00 15.0% $62.00 12.0% $57.00 9.0% 6.0% $52.00 3.0% $47.00 0.0% $42.00 201920182017201620152014201320122011201020092008 201920182017201620152014201320122011201020092008 Financial District Seaport Back Bay 93 Wood Island 28 1 Airport Community College 28 Lechmere Constitution Wharf Maverick Battery Airport Terminal C 93 Wharf SUMNER TUNNEL 1 LOGAN AIRPORT Science Park North Station LincolnCALLAHAN TUNNEL Wharf Central Union Airport Terminal A Wharf Sargents Wharf 90 Airport Terminal B2 Lewis Kendall/MIT Wharf Haymarket Airport Terminal B1 Charles/MGH LONGELLOW BRIDGE Bowdoin Long Government Center Wharf 15 Court StAquarium State St y a w RECENT n e MASSACHUSETTS 18 Tremont St e r G INSTITUTE OF TECHNOLOGY 3 y d INVESTMENT e Park St 7 Water St n n Rowes e Wharf K Fan MASS AVE BRIDGE e s Pier Boston Downtown o SALES NORTHERN AVE BRIDGE Commons Crossing R Public EVELYN MOAKLEY BRIDGE Pier 4 Garden Boylston South Station Court House Pier 6 TED WILLIAMS TUNNEL Arlington Chinatown Pier 7 Boston University West 90 Copley 22 Boston Wharf Rd Boston University East Boston University Central 20 Tufts Medical Center Blandford ST YAWKEY Kenmore Hynes Convention Ctr HYNES World Trade Center 90 PRUDENTIAL CONVENTION CENTER 90 CENTER Back Bay Silver FENWAY Line PARK 28 Herald ST Way Prudential BOSTON 3 CONVENTION & EXPO CENTER Fenway Back Bay 93 LANDMARK Fens CENTER E.Berkeley ST 1 Symphony Broadway Union Park ST 9 Massachusetts Ave 28 Northeastern Newton ST City Point Museum Of Fine Arts Worcester Square Ruggles Longwood Medical Area Massachusetts Ave 9 Lenox ST Brigham Circle 22 BOSTON WHARF ROAD 15 COURT STREET $178,000,000 ($1,437/RSF) $29,000,000 ($358/RSF) Buyer: Invesco Buyer: KS Partners 18 TREMONT STREET 7 WATER STREET $102,750,000 ($509/RSF) $21,750,000 ($473/RSF) Buyer: Jamestown Recap: Fidelity Investments CLASS B OFFICE • Following a lengthy redevelopment effort which among numerous items included installing a new center core and adding multiple 5.7% floors, Publicis Sapient and WeWork took occupancy of 40 Water Street in the heart of Post Office Square. The beautiful renovation DIRECT VACANCY is setting the bar for excellence in the Jewel Box market. • The investment sales market began the new year on a strong note with a handful of closings and strong investor activity. Jamestown acquired 18 Tremont Street for nearly $103 million or $509 PSF while just around the corner at 15 Court Street, KS Partners paid $29 million or $358 PSF for the Class B asset. In the Seaport, AEW has reportedly emerged victorious for the pursuit of 300 A 1.7% Street at $70.4 million or roughly $630 PSF for the brick & beam asset. As part of the same marketing process, Alexandria RE and SUBLEASE AVAILABILITY National Development have the Necco Street Garage under contract for $81.1 million.
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