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. Although the team’s plans are unclear, it will likely include some redevelopment component given the garage's underutilized FAR. • The southwest portion of Fort Point, encompassing land south of Necco and west of A Street, has become Boston’s hottest life science & development gateway. With Related Beal reportedly in negotiations to acquire 6.5 acres from Procter & Gamble for $ 11.0% more than $200 million. Additionally, GE’s campus (Innovation TOTAL AVAILABILITY Point) including 5 Necco Street and a shovel ready 293,000 SF office/lab development is being hotly pursued by multiple groups. There are also rumors that Tishman is set to acquire development rights to Parkside on A Street for reportedly $300 per FAR, a record for the submarket. • As co-working continues to disrupt the Boston office market, it is interesting to note where the trend is headed. When WeWork initially entered the Boston market, their spaces were tailored # (1,600)SF to small or medium sized tenants looking for flexible leases and flashy working environments. Although the shared space provider 12-MONTH ABSORPTION is maintaining its roots, they are now aggressively pursuing large corporate tenants for Class A tower space as well as enterprise tenants to fulfill their WeWork HQ model which offers full floors or more in traditional class B buildings. This quarter, WeWork capitalized on State Street vacating their longtime home at One Lincoln Street by signing a 250,000 square foot lease; rumors suggest that Salesforce who may reportedly anchor Hine’s South Station development could take down all or a significant portion # $48.76/SF of this new WeWork location during construction. AVERAGE ASKING RATE CLASS B OFFICE
NOTABLE QUARTERLY LEASES
ADDRESS SUBMARKET TENANT SF Center Plaza Financial District GrubHub 75,000 40 Broad Street Financial District PCG 24,700 Center Plaza Financial District Zafgen 17,700 374 Congress Street Seaport Digital Lumens 16,350 280 Summer Street Seaport Climacell 13,550 One Winthrop Square Financial District Dyer Brown 12,000 268 Summer Street Seaport Crayon 8,500 Center Plaza Financial District The Weisscom Group 7,150 332 Congress Street Seaport Zmags Inc 5,850 11 Beacon Street Financial District KIND Inc 5,050
AVERAGE ASKING RATE AVERAGE DIRECT VACANCY BY SUBMARKET BY SUBMARKET
$56.00 20.0%
$51.00 16.0%
$46.00 12.0%
$41.00 8.0% $36.00
4.0% $31.00
$26.00 0.0% 201920182017201620152014201320122011201020092008 201920182017201620152014201320122011201020092008
Financial District Seaport Back Bay OFFICE & LAB DEVELOPMENT PIPELINE
316 NORTHERN AVE PARKSIDE ON A Seaport Seaport
100 CAUSEWAY 88 SEAPORT BLVD North Station Seaport
INNOVATION SQUARE 321 HARRISON AVE Seaport South End
TWO DRYDOCK 115 FEDERAL Seaport Financial District OFFICE REPORT STATS Quarterly 12 Month Office Total Direct Sublease Total Absorption Absorption Average Inventory (SF) Vacancy Availability Availability (SF) (SF) Asking Rate TOTAL A&B 72,116,750 4.8% 1.5% 11.1% 811,594 818,000 $58.18 Back Bay 14,949,250 4.0% 0.8% 6.4% 237,050 214,050 $62.89
Charlestown 2,719,650 0.8% 0.3% 4.4% 50,050 57,250 $43.48
Fenway 1,746,000 4.4% 0.0% 9.4% (1,000) 50,000 $55.92
Financial District 35,439,750 6.1% 2.1% 13.0% 298,700 370,700 $57.53
Midtown 1,961,450 4.4% 0.4% 7.0% 85,900 140,150 $48.73
North Station 3,312,750 2.6% 1.9% 8.1% 23,400 (1,750) $53.77
Seaport 9,105,450 3.7% 1.8% 16.1% 89,200 (42,700) $63.57
South Station 2,882,350 3.6% 0.1% 11.0% 28,300 30,300 $51.45
CLASS A 46,836,500 4.4% 1.4% 11.2% 739,620 819,585 $63.26 Back Bay 11,038,450 3.4% 0.8% 5.6% 297,150 312,500 $67.40
Charlestown 903,750 0.3% 0.9% 4.9% 23,450 44,900 $44.17
Fenway 1,117,650 6.8% 0.0% 14.7% - 1,500 $62.25
Financial District 25,558,900 5.8% 2.0% 13.5% 252,700 271,000 $61.68
Midtown 1,176,200 4.6% 0.2% 6.0% 81,650 141,950 $53.75
North Station 1,407,700 0.5% 2.9% 10.9% 31,450 9,550 $60.13
Seaport 4,279,050 0.9% 0.8% 14.6% 53,200 (11,000) $72.05
South Station 1,354,850 0.0% 0.0% 9.1% - 49,150 $56.75
CLASS B 25,280,200 5.7% 1.7% 11.0% 71,950 (1,600) $48.76 Back Bay 3,910,850 5.9% 1.0% 8.8% (60,100) (98,450) $50.15
Charlestown 1,815,850 1.0% 0.0% 4.2% 26,600 12,300 $43.14
Fenway 628,400 0.2% 0.0% 0.2% (1,000) 48,500 $44.67
Financial District 9,880,850 6.8% 2.4% 11. 5% 46,000 99,750 $46.80
Midtown 785,250 4.1% 0.7% 8.4% 4,250 (1,800) $41.20
North Station 1,905,100 4.2% 1.1% 6.0% (8,100) (11,250) $49.08
Seaport 4,826,400 6.2% 2.6% 17.4% 36,050 (31,700) $56.05
South Station 1,527,500 6.7% 0.1% 12.7% 28,300 (18,850) $46.75 ETHAN ROBERT CONNOR MALONEY Director of Research Analyst 617.951.4160 617.951.4141 [email protected] [email protected]
Lincoln Property Company | 53 State Street, 8th Floor, Boston, MA | 617.951.4100 | LPCBoston.com
Lincoln Property Company’s Boston Office Report is produced by the Boston Office’s research team in collaboration with our Boston Brokerage Group. If you have any questions regarding market conditions and the information found in this report, please contact Ethan Robert.