GREATER MARKET VIEWPOINT

3RD QUARTER 2016 BOSTON The market continued to exhale after tenant movement in the Seaport (Pier 4, 121 Seaport) to creative office space at North Station (Hub on third quarter. Vacancies moved up to 11.1%, a 0.7-percentage-point increase from Causeway) to the redevelopment of 40 Water Street. Additional projects totaling the past quarter and more than two percentage points from the cyclical low set several million SF of new inventory are either proposed or permitted to move at the end of 2015. This slowdown was not unsurprising: tenants continue to forward. GE is the latest to join the development fray, submitting plans for a shuffle space, as tenant migration to the Seaport is having long-lasting impacts on 389,000 SF office headquarters in the Seaport, including 293,000 SF of ground- other submarkets within downtown. No single submarket vastly underperformed, up development to complement the existing Necco buildings on-site. but tenant movement by Steward Health, Houghton Mifflin, Neighborhood Health, • Demand growth is being driven by the TAMI sector. Tech companies in particular, and the FBI all contributed to the sluggishness. While no signs of a recession are some migrating from the ultra-tight Cambridge market or fresh off a round of looming, the property markets may be showing signs of topping out. Landlords venture capital funding, are increasingly drawn to the CBD’s relative value. still hold pricing power, as rents rose again this quarter, and despite the recent Another key factor is the CBD’s transit connectivity—tenants can maintain access increase in vacancy rates, they are in line with the city’s long-term average of 11.1% to the Red Line, which links them to the tech center of Kendall Square. since 1988. After so many big tenant moves throughout the marketplace, it takes time to recalibrate. • Demand is healthy, with over 200 tenants in the market seeking an aggregate of over four million SF of space. Although the median requirement is less than One of the market’s major drivers—healthcare—has especially been on the move. 25,000 SF, some of the larger requirements include: Partners opened its new Assembly Square campus in Somerville this quarter, causing vacancies to rise in downtown, along with vacancy changes from other TENANT SF INDUSTRY healthcare-related movement. Large spaces such as that of Partners are hard to fill Mintz, Levin, Cohn, Ferris, Glovsky, and Popeo 225,000 Legal Services in one fell swoop. Instead, it takes multiple tenants to make up for these moves, and Johnson & Johnson 200,000 Pharmaceutical/Consumer Products right now the market is looking to technology, advertising, media, and information JPMorgan 150,000 Financial Services (TAMI) tenants for help. TAMI firms continue to be prime drivers of demand, but Fleetmatics 100,000 Computer Software/Services they do not benefit the market equally: many are seeking B assets or low-rise Draft Kings 100,000 Daily Fantasy Sports space for their office locations. Statistics in the core submarkets are as follows: VELOCITY MARKET SEGMENT SUPPLY VACANCY RATE* YTD 2016 ABSORPTION • Velocity (signed lease activity) was otherwise light during the quarter, as tenants Back Bay 13,318,940 14.8% (127,668) seemed to be pushing their leasing decisions out into the future. With the Class A 11,288,855 16.0% (308,266) impending election, this isn’t terribly surprising. Class B 2,030,085 8.6% 180,598 • Digitas signed for 200,000 SF at the redevelopment of 40 Water Street. The Financial District 33,817,226 11.1% (785,803) asset, former Fidelity space, will include several new floors and open-air outdoor Class A 27,762,321 11.6% (702,838) space. The firm will be leaving . In a related deal, Teksystems Class B 6,054,905 8.6% (82,965) is also leaving 33 Arch for 1 Fed, where it will double its space. The company Seaport 8,604,191 10.4% 262,545 could not wait around to see whether Digitas would leave its Arch Street space Class A 3,985,295 4.9% 376,138 and was forced to look elsewhere. Class B 4,618,896 15.2% (113,593) • Wayfair continued its leasing binge in the Back Bay with another lease at Copley * includes sublease space Place. With over 400,000 SF of space now, it is becoming one of the city’s largest tenants. SUPPLY AND DEMAND • Red Hat took nearly 40,000 SF of space in the Seaport at 300 A Street, close to GE’s future headquarters. Although its main Massachusetts operations are in • The Back Bay’s newest tower, 888 Boylston, delivered this quarter. Another 1.4 Westford, Red Hat’s expansion in the Seaport allows it to tap into a wider labor million SF remains under construction, from ground-up developments in the pool than its suburban location alone would.

2 Highlighted third quarter transactions include:

TENANT ADDRESS SF SUBMARKET RENTAL RATES DigitasLBi 40 Water Street 200,000 Financial District • Rents continue to push northward, ending the third quarter above the previous Wayfair Copley Place 125,000 Back Bay cyclical peak. America’s Test Kitchen 23 Drydock Avenue 55,000 Seaport • Many submarkets’ rents are well above the last cycle’s highs, with the Financial Red Hat 300 A Street 40,000 Seaport District a laggard. While Financial District direct rents are up nearly 5% over the Teksystems 1 Federal Street 15,000 Financial District past year, they remain about 5% below 2008 levels. • With the growing demand for innovation space, some of the Class B brick-and- ABSORPTION AND VACANCY beam space is priced higher than historically more expensive lower floors in • Absorption was negative for the third straight quarter. towers. • Both Partners and the FBI took occupancy of their new build-to-suits in the Inner • The spread between asking rents in various segments of the market is depicted Suburbs, leaving space behind in Boston. in the following table:

• Vacancies in the Back Bay Class A market are abnormally high, at 16%. They SPACE TYPE RENTAL RANGE/SF were last this high more than a decade ago, in 2005. Such vacancies may finally Class A – High Rise $65 - $85 allow more tenants to find space that has long been hard to come by in the Class A – Mid Rise $55 - $65 market. Class A – Low Rise $48 - $60 • After a very strong 2015, absorption in low-rise space within Back Bay and Class B $38 - $55 Financial District towers has taken a major step back. Combined, this space (below the 20th floor) has posted nearly 800,000 SF of negative absorption LOOKING AHEAD… year-to-date. The largest contributors this quarter were in the Back Bay at 222 Berkeley and 500 Boylston. Meanwhile, across the market, floors above the 20th • GE’s relocation to Boston has the potential to create industry clustering and long- posted more than 100,000 SF of absorption this quarter. Overall, there is equal term growth for the market. vacancy in both low- and high space, each offering 1.9 million SF to tenants. • Continued upward pressure on rents is anticipated over the next 12–24 months, • Even with modest absorption levels over the next few years, the vacancy rate is but growth will be tempered. expected to remain below 11%, as depicted in the following graph: • Strong venture capital and National Institutes of Health (NIH) funding will continue to fuel demand in the CBD as companies remain attracted to Boston’s Forecast | Vacancy & Absorption excellent labor pool, public transit, and innovation environment. 2,500 Forecast 20% • Boston will remain a target for investment capital—both foreign and domestic. 2,000 15% 1,500 8.9% 10.3% • Tenants from outside the market are looking to Boston for space, which could 10% 1,000 quickly turn absorption around. 500 5% 0 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 -500

SF (Thousands) SF -1,000 -1,500 -2,000 -2,500 Total Boston Absorption Total Boston Vacancy Rate

3 4 Wynn Resort in Everett Project Fact Sheet

SPOTLIGHT ON CONSTRUCTION

TRANSFORMATIVE DEVELOPMENT Boston is in the midst of a construction boom. With soaring residential towers, new rooms, infill retail, a $2 billion destination casino, and office development, the market is dynamic, to say the least. Many of these projects are potential game-changers. The center of gravity is shifting across a wider swath of the market, making for more vibrant submarkets. From Somerville to Brighton to the Fenway to downtown, tenants have more Wynn Resort in Everett alternatives than ever and are willing to jump from submarket to submarket, when in past cycles that would not have been viable. Transit is paramount for many of these projects, and that is certainly the case downtown. Boston Properties is aiming to tap into underdeveloped transit nodes at North Station and Back Bay. The REIT is underway on its Hub on Causeway, which will create a mixed-use hot spot centered at the TD Garden. The first phase will be anchored by a Star Market, entertainment venues, and a 175,000 SF creative office development. Putting a modern twist on the open layout environments so popular in cities across the country—in the Meatpacking District or Chelsea in New York or the Seaport in Boston—it will offer tenants brand-new space on top of two transit lines and the commuter rail. This project has the potential to change the fabric of the North Station Submarket, creating a catalyst for future growth. Meanwhile, further down the Orange Line, it has proposed a massive mixed-use The Hub on Causeway development centered on Back Bay Station. This project has yet to break ground, but would feature a large office component. Hines and partner Gemdale Properties plan to break ground in 2017 on their project by South Station, the metro’s heaviest-trafficked transit hub. Once imagined as a large office project, the latest iteration is a mix of product types. That’s a trend here as well as nationally that developers have been keen to focus on, including residential, hotel, and office. The project will also include less parking than initially proposed, which plays into the transit- oriented development so popular in recent years. Other projects include HYM’s Bulfinch Crossing, which will open up Congress Street by replacing the parking garage on the site with a mixed-use project, helping to book end the North Station Submarket; developer Don Chiofaro’s proposal to build on the site of the Harbor Garage; and Millennium Partners receiving the development rights to the Winthrop Square Garage. These are more examples of developers focusing on underused sites, where a higher and better use would transform the area around them. Bulfinch Crossing CAMBRIDGE

The Cambridge office market is essentially full. • With 35 CambridgePark Drive coming off the some time. The vacancy rate in the 10.2 million Tenants continue to fight for space, as the few market this quarter in preparation for a lab SF lab market remains as tight as a drum. Direct options that remain are flying off the market. conversion, office vacancies are nearly as low in vacancies are less than 1%, holding flat during the Vacancies remain near record lows, and developers Alewife as in East Cambridge. This submarket quarter at 0.7%. With vacancies this low, it’s hard cannot bring space to the market fast enough. has been a relief valve for the Cambridge market, for the market to absorb much space at all, and Owners continue to convert offices to lab space to as more housing, higher availability, and more any movement is likely to be quarterly noise until tap into Cambridge’s world-leading life sciences affordable rents have all become lures for tenants. more product comes to market. and R&D status, not to mention capturing higher However, with 125 CambridgePark Drive as the rents. Plans are emerging for more construction, property with the most options, finding space • The Pfizer-anchored 610 Main Street completed though that product is still several quarters away. today is a major challenge for tenants needing full this quarter, driving the bulk of absorption. In the meantime, these tight conditions will keep over 10,000 SF. The multinational pharmaceutical company built landlords in the driver’s seat, and push more firms out four floors at the 273,000 SF building as • Class A rent growth in Alewife has accelerated to neighboring submarkets, such as Lexington, speculative lab space on a sublease basis. Major in the past year, expanding 11%, more than three Watertown, Waltham, or Boston. pharma companies are incubating startups to tap times that of Kendall Square. But the discount into a future drug pipeline, as well as to surround Key statistics at the end of the third quarter include: Alewife offers for taking the Red Line a few extra themselves with talent and innovation. stops is $25/SF, a gap that remains historically SUPPLY SF VACANCY Q3 ABSORPTION • More lab space remains available through MARKET high. With a surge in residential population thanks (000s) RATE (000s) subleasing than is offered directly. That may Total Cambridge* 22,411 2.9% 435 to thousands of being built around this transit stop and the addition of an AC Hotel not last, though, as sublease space flew off the Office 11,282 4.2% 28 (Marriott brand), the submarket is even more market this quarter, with more than 130,000 SF Lab 10,223 1.8% 389 attractive than in previous cycles. absorbed. *Includes R&D space • Asking rents in East Cambridge are at nosebleed • Given the significant barriers to entry and lengthy OFFICE MARKET levels. Landlords are now asking in the mid- development time frames for new construction, it to-upper $70s/SF, with individual spaces even will continue to be a challenge to accommodate • The vacancy rate in the 11.3 million SF office demand. market ticked down more than a full percentage topping $80/SF. point in the third quarter, to 4.2%. That is the • There is 930,000 SF of new space underway, LAB MARKET lowest vacancy in the market since late 2000 with the lone large block of yet-to-be committed at the height of the venture capital-backed tech • Explosive demand and extremely limited options space at 100 Binney Street. Bristol-Myers Squibb boom. have characterized the Cambridge lab market for is anchoring the 418,000 SF building.

6 LOOKING AHEAD… • Both office and lab landlords will remain in the driver’s seat as demand outpaces supply, and there is limited relief on the horizon, particularly in the core Kendall Square market. Many tenants will need to consider alternatives outside of Cambridge. • Expect more forward lease commitments from lab tenants. The lack of immediately available space is forcing them to pursue potential future availabilities. • Market-altering development is waiting in the wings. Beyond the current development pipeline, available sites in East Cambridge are dwindling, with projects such as MIT’s Kendall Square Initiative, the Kendall Square Urban Renewal Plan developed by Boston Properties with Akamai as the anchor, and 50/60 Binney Street the U.S. Department of Transportation’s Volpe Center at least a couple of years away from delivery. Volpe Center is likely to be a $1 billion-plus development. A winning bidder is expected to be announced in the weeks ahead, with a deal in place to start 2017. • Could the Green Line be the next hot spot for Cambridge tech? The North Station area is already teeming with tech firms, while Fenway/Kenmore is becoming more of a focal point for the industry as well. Is Northpoint next? DivcoWest/ HYM’s development has the potential to offer some relief to lab users or those with large space requirements unable to find space in Kendall Square. The extension of the Green Line will connect to a wider labor pool over time.

100 Binney Street

7 SUBURBAN

SUBURBAN OVERVIEW home in Waltham early in the fourth quarter. In Beverly, High Resolution Bio is underway on an 80,000 SF headquarters. These all follow on the heels of The suburban market led the overall Boston market in absorption again in the third construction for Partners, Wolverine, and the FBI this quarter. quarter. New build-to-suit construction was a major factor, as Partners Healthcare in Somerville, Wolverine Worldwide in Waltham, and the FBI in Chelsea all took • Supply growth in the Inner Suburbs will cool, after a staggering 22.7% growth in occupancy in the quarter. Absorption topped 1.5 million SF, only the fourth time it overall inventory last quarter alone. has crossed the million SF mark so far in this real estate cycle. • The suburbs benefit from a diverse tenant mix that is dominated by technology, Aggregate statistics for the office and R&D market are provided below: consumer products, and healthcare companies. High rents and low availability in Cambridge are forcing more biotech/lab users to look to the suburbs as an MARKET AREA SUPPLY SF (000s) VACANCY RATE Q3 ABSORPTION (000s) alternative. Suburban Boston 136,472 16.9% 1,502 Some of the more sizeable tenants in the market with potential requirements over Inner Suburbs 7,190 13.7% 1,104 the next 12 to 24 months include: Route 128 77,673 15.0% 416 TENANT SF INDUSTRY MARKET Route 495 49,682 20.3% 59 Haemonetics 125,000 Medical Devices 128 South Worcester 2,057 20.9% (78) Biogen 112,000 Pharmaceutical 128 Mass Pike Curriculum Associates 100,000 Technology Route 495 North SUPPLY AND DEMAND New England Sports 65,000 Media 128 Mass Pike/ • The suburban office and R&D market totals more than 136 million SF, with Network (NESN) Inner Suburbs performance and product varying according to submarket. Class A properties Microfinancial 50,000 Financial 128 Northwest/ represent nearly a third of the market, and almost 70% are along Route 128. Route 495 North 35,000 Health Care/Medical Tech Route 128 Northwest • Conversions and renovations continue to play a key role in the suburbs. From Arcadia Healthcare the N² Innovation District running along the Newton/Needham line to Union Point in Weymouth, repurposing sites is the name of the game. The economics work VELOCITY with today’s rental rates and capital markets, while the tenant demand for such • Technology continues to be a major driver of leasing. Tesaro renewed and product is there. “Placemaking” remains a theme and key attraction for tenants. expanded along 128 Mass Pike, while Fuze is close to signing in the same • Build-to-suits continue to be a clear driver of the market. SharkNinja is submarket. Kronos’s move from Chelmsford to Lowell will have ripple effects underway on a new headquarters in Needham, Prodrive will be the first major on the 495 North market for several quarters to come. As the quarter came to tenant at Union Point with 300,000 SF-plus, and Clarks is moving into its new a close, Moderna Therapeutics leased the entirety of 100 Upland in Norwood,

8 proving that renovated/repositioned assets are attracting tenants. Within a still • The overall outlook for the Route 495 belt is decidedly positive—while it may healthy venture capital funding environment, future expansion by technology seem slow in coming—as it remains attractive to price-sensitive firms, back- firms is likely while they are flush with cash and hunting for acquisitions. office companies, and larger/expanding tenants unable to find space in the core Some of the larger transactions executed during the quarter included: Route 128 belt and Inner Suburbs. • Availabilities in older properties are elevated. Properties built in the 1980s TENANT SF INDUSTRY ADDRESS continue to struggle, with vacancy rates above 18%. Comparatively, assets built Moderna Therapeutics 185,000 Biotech & Pharmaceutical 100 Upland Drive, Norwood in the 2000s have a vacancy rate closer to 12%: Clearly, landlords with updated, Tesaro 122,000 Biotech & Pharmaceutical 1000 Winter Street, Waltham modern, amenity-rich assets will set themselves apart from the competition. Locus Robotics 45,000 Robotics 301 Ballardvale Street, Wilmington LOOKING AHEAD Enel Green Power 65,000 Renewable Energy 100 Brickstone Square, Andover North America • Landlords south of the city (Quincy/Braintree) may have more room to push Trinity Partners 45,000 Life Science Consulting 230 3rd Ave, Waltham rents, as tenants moving out of Boston are willing to pay higher rates. Overall, well-located assets, both Class A and B, can expect modest rent growth. Endeavor Robotics 35,000 Robotics 19 Alpha Road, Chelmsford • Building owners who provide modernized properties with improved amenities, lobbies, and/or façades should outperform their competition. ABSORPTION AND VACANCY • Leasing remains healthy, but some submarkets, such as 495 West, are seeing • The vacancy rate showed little movement during the third quarter of 2016, slower signings. The process is taking longer than in recent quarters. ending at 16.9%. This is 0.8 percentage points below year-ago levels and at cyclical lows. • Little in the way of speculative ground-up construction is liable to break ground over the next couple of quarters (save for industrial conversions), given the still • The Inner Suburbs led the market this quarter, with completed build-to-suits the extensive list of availabilities over 100,000 SF or more as well as rapidly rising driver. Vacancies did tick up, however, as 80 Guest Street in Brighton delivered construction costs. vacant, pushing vacancies to 13.7%. • The core Route 128 markets posted mixed results. New construction in 128 Mass Pike drove absorption there, which was more than enough to push vacancies down to 13.8%. Meanwhile, 128 Northwest saw vacancies tick up to 17.4%, while 128 South saw vacancies drop more than one percentage point to 12.0% thanks to the Moderna lease.

9 CAPITAL MARKETS

SALE COMPARABLES

OFFICE

535-545 BOYLSTON STREET, BOSTON 1, 2 & 10 CANAL PARK, CAMBRIDGE Buyer John Hancock Buyer Intercontinental Real Estate Price $100,500,000 Price $304,000,000 $/SF $544 $/SF $726

311 SUMMER STREET, BOSTON 93 WORCESTER ROAD, WELLESLEY Buyer Aldualiya AM Buyer Spear Street Capital Price $38,500,000 Price $87,500,000 $/SF $673 $/SF $324

40 BROAD STREET, BOSTON 1 WAYSIDE ROAD, BURLINGTON Buyer Invesco Buyer Piedmont REIT Price $150,000,000 Price $67,400,000 $/SF $560 $/SF $359

147 MILK STREET, BOSTON 10 MAGUIRE ROAD, LEXINGTON Buyer Bentall Kennedy Buyer RJ Kelly Company Price $33,250,000 Price $46,000,000 $/SF $635 $/SF $159

70 FRANKLIN STREET, BOSTON 400 RIVERPARK DRIVE, NORTH READING Buyer Deka Immobilien Buyer Curo Enterprises Price $42,100,000 Price $21,400,000 $/SF $483 $/SF $148

10 MULTIFAMILY INDUSTRIAL

480 MAIN AT MALDEN SQUARE, MALDEN 150 DEPOT STREET, BELLINGHAM Buyer DSF Advisors Buyer Bentall Kennedy Price $73,750,000 Price $25,500,000 $/Unit $378,205 $/SF $110

LOFTS AT PERKINS PARK, LOWELL University of Massachusetts Lowell Buyer 3 DISTRIBUTION CENTER DRIVE, LITTLETON $61,500,000 Price Buyer Gramercy Property Trust $267,391 $/Unit Price $39,800,000 $/SF $89 AVALON SHREWSBURY Buyer Audubon Capital Partners Price $60,500,000 326 BALLARDVALE STREET, WILMINGTON $/Unit $240,079 Buyer RJ Kelly Company Price $11,600,000 SCHOOLHOUSE AT LOWER MILLS, DORCHESTER $/SF $109 Buyer GEBSCO Realty Holdings Price $19,050,000 $/Unit $307,258 360 CEDAR HILL STREET, MARLBOROUGH 29-35 TEMPLE STREET, BOSTON Buyer Stockbridge Buyer Torrington Properties Price $11,800,000 Price $12,000,000 $/SF $98 $/Unit $250,000

11 MARKET SNAPSHOT CONTACT: Q3 2016 STATISTICS | OFFICE AND R&D / CLASS A AND CLASS B Aaron Jodka

SQUARE FEET (SF) DIRECT SF SUBLEASE SF Q3 2016 YTD Director of Research MARKET VACANCY* SUPPLY AVAILABLE AVAILABLE ABSORPTION ABSORPTION +1 617 330 8059 [email protected] BOSTON 64,901,625 6,408,275 771,102 11.1% (152,816) (548,093) Back Bay 13,318,940 1,541,158 434,419 14.8% (66,701) (127,668) Financial District 33,817,226 3,612,936 136,991 11.1% (31,172) (785,803) Charlestown 2,815,898 90,315 0 3.2% 87,861 31,119 To be placed on our mailing list, please visit Crosstown 1,025,000 57,631 0 5.6% (4,331) (4,331) www.colliers.com/boston/insights/requestmarketreport Fenway/Kenmore 2,007,348 47,678 0 2.4% 36,716 194,896 North Station 2,065,004 167,592 25,871 9.4% (48,898) (104,338) Seaport 8,668,192 781,550 158,984 10.9% (91,359) 284,206 South Station 1,184,017 109,415 14,837 10.5% (34,932) (36,174) CAMBRIDGE 22,410,961 315,388 343,785 2.9% 435,054 722,301 Alewife Station/Route 2 2,621,909 98,105 24,034 4.7% (34,639) 27,091 East Cambridge 17,889,557 191,783 290,678 2.7% 466,067 682,252 Harvard Square/Mass Ave 1,899,495 25,500 29,073 2.9% 3,626 12,958 Colliers International SUBURBS 136,601,452 20,185,169 2,949,475 16.9% 1,502,051 1,945,052 160 Federal Street Inner Suburbs 7,189,831 743,336 239,251 13.7% 1,104,002 951,436 Boston, MA 02110 Route 128 North 8,427,892 1,538,943 43,094 18.8% 66,512 345,869 www.colliers.com Route 128 Northwest 22,977,253 3,529,951 478,071 17.4% (206,728) (202,255) Route 128 Mass Pike 29,111,141 2,951,139 1,066,045 13.8% 347,165 59,070 Route 128 South 17,156,374 1,818,968 235,814 12.0% 209,138 139,330

Route 495 North 26,383,224 5,434,122 261,931 21.6% (8,178) 712,135 The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we Route 495 West 18,821,850 3,340,720 308,159 19.4% (23,257) 19,705 cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers Route 495 South 4,476,704 444,806 271,130 16.0% 90,914 16,353 are encouraged to consult their professional advisors prior to acting on any of the material contained in this report. This publication is the copyrighted property of Worcester 2,057,183 383,184 45,980 20.9% (77,517) (96,591) Colliers International and/or its licensor(s).

MARKET TOTALS 223,914,038 26,908,832 4,064,362 13.8% 1,784,289 2,119,260 ©2016 Colliers International. All rights reserved.

*including sublease space