Cambridge Office/Lab Marketview
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Cambridge Office/Lab MarketView Q3 2013 CBRE Global Research and Consulting U.S. UNEMPLOYMENT MA UNEMPLOYMENT OCCUPIED SF OFFICE AVAIL LAB AVAIL UNDER CONSTRUCTION 7.3% 7.2% 19.1M 9.9% 15.89% 2M *Arrows indicate change from previous quarter. LARGE TECHNOLOGY AND PHARMACEUTICAL COMPANIES DRIVE GROWTH IN CAMBRIDGE MARKET Office Market Quick Stats Despite starting off the second half of 2013 with a slight rise in vacancy rates, the Cambridge Office market continued to remain resilient as midsize transactions and new tenants entering Q3 2013 Current YoY QoQ the marketplace drove the quarter’s leasing activity. Although vacancy rates rose by 50 basis points to 6.5%, availability decreased by 50 basis points to 9.9%, with the Cambridge Office Office market posting 62,500 square feet of positive absorption overall. Large technology tenants remained active in the third quarter, with Akamai leasing 50,000 square feet of antiquated lab Vacancy 6.5% space at One Kendall Square, Building #600/700. Given the continued rise in rents in the East Cambridge Office market, the net return of converting old lab space into office space is Lease Rate (Gross) $42.81 becoming more attractive and a viable option to landlords, causing deals like Akamai to be a favorable outcome for local landlords. Other large tech tenants on the growth path include Net Absorption 62,502 SF Twitter, expanding its presence in Cambridge by relocating to three floors at 141 Portland Street, totaling 47,600 square feet. Twitter recently submitted plans for an initial public offering Lab that is being projected by analysts to be in the $15-20 billion range. After a wave of biotech Vacancy 7.2% IPOs in 2013, it remains to be seen how the public markets will lend themselves to technology companies, and the effect it may have on the local real estate market going into 2014. Lease Rate (NNN) $51.25 Net Absorption 72,805 SF Office Vacancy Rate vs. Lease Rate Vacancy Rate 6.5% Average Asking Lease Rate $42.81 Gross Hot Topics 15% $50 • Large technology tenants continue to validate the value proposition of East Cambridge by expanding their footprint • Office vs. lab economics have 10% $40 reached an equilibrium – net Lease Rate Per SF ($) returns equal or greater for landlords to convert dated lab space into office • Growth of biotech and Vacancy (%) pharmaceutical companies 5% $30 continues to drive the Cambridge market, both on the office and lab fronts • Ariad expanded its footprint in Cambridge by another 142,000 square feet in the third quarter 0% $20 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. The West Cambridge market continues to benefit from the lack of options and rising rents in East Cambridge. Five of the eight largest office deals in the third quarter occurred in West Cambridge. Noteworthy deals included Boston Scientific’s lease for 20,200 square feet at 125 CambridgePark Drive after the acquisition of Burlington-based Rhythmia Medical. Another validation of West Cambridge came when JoVE signed a lease to relocate from Mid to West Cambridge, expanding by 7,200 square feet for a total of 16,300 square feet at One Alewife Center. In a submarket that was once considered purely a secondary option, West Cambridge has seen 12 notable transactions in 2013 that Q3 2013 have resulted in more than 140,000 square feet of net growth for the submarket. Lab Market Cambridge | Lab activity continues to be healthy with the expansion of existing Cambridge tenants in the third quarter of 2013. Vacancy dropped to 7.2% and availability tightened, dropping by 40 basis points from last quarter to 15.9%. After absorbing the impact of Vertex’s pending departure to Boston last quarter, the lab market posted a solid 72,805 square feet of positive absorption in the third quarter. The lab market was driven by the growth of several homegrown pharmaceutical companies. Most notably, Ariad Pharmaceuticals announced they will expand their B-T-S MarketView commitment by 142,000 square feet at 75/125 Binney Street. Ariad initially signed a lease for 244,000 square feet in the first quarter this year, and with their third quarter expansion will occupy a total of 386,000 square feet when Alexandria Real Estate completes the construction of their building in early 2015. Moderna Therapeutics doubled its footprint in Cambridge, moving from 22,200 square feet at 161 First Street to a 43,700 square feet sublease at 200 Technology Square. This follows their recent partnership with AstraZeneca, who made an unprecedented initial investment of $240 million in Moderna to gain access to their technology, with another $180 million possible upon hitting three undisclosed milestones. Company growth and expansion continues in the Cambridge Lab market as pharmaceutical and biotech companies strategically finance and file for initial public offerings in order to fund clinical trials and continue to fortify their drug development pipeline. Early-stage lab users have been less present, with Manus Biosynthesis’ 11,000 square foot lease at 1030 Massachusetts Ave being one of the only deals over 10,000 square feet during the third quarter. Overall, the lab market in Cambridge remains healthy, although small and midsize requirements are expected to pace the market over the final quarter of 2013. With a number of suitable shell and second-generation options already available in the marketplace, the market continues to brace for the impact of Vertex’s move to Boston at the end of the year and the void that will be left behind. Market Statistics Rentable Area Availability Vacancy Sublease Quarterly Net Avg. Asking Market (SF) Rate % Rate % Rate % Absorption (SF) Rent ($/SF/YR) Cambridge – East 7,288,950 8.7% 5.9% 0.5% 30,392 $48.83 Cambridge – Mid 1,870,936 5.6% 2.4% 3.0% (2,954) $35.66 Cambridge – West 1,927,834 18.5% 12.4% 11.0% 35,064 $33.04 Cambridge Office 11,087,720 9.9% 6.5% 2.7% 62,502 (Gross) $42.81 Cambridge – East 8,123,656 15.8% 7.0% 8.5% 66,359 $52.12 Cambridge – Mid 364,587 35.1% 24.6% 2.8% 25,829 $47.54 Cambridge – West 817,480 8.1% 1.1% 0.0% (19,383) $39.91 2 Cambridge Lab 9,305,723 15.9% 7.2% 7.5% 72,805 (NNN) $51.25 © 2013 CBRE, Inc. Lab Vacancy/Availability & Rent Lab Vacancy/Availability & Rent Cambridge lab availability continues to tighten in the second Vacancy 7.2% Availability 15.9% Lease Rate $51.25 NNN half of 2013 as rates dropped by 50 basis points, averaging $58 23% 15.9% for the quarter, declining from the market highs of the Q3 2013 $56 21% second quarter. Availability still remains relatively high for the Cambridge Lab market due to the Vertex space that came to $54 19% market in the second quarter, but will continue to decrease $52 17% Vacancy/Availability (%) as big blocks of available space are leased over the next few Cambridge | quarters. Asking rents dropped slightly, averaging $51.25 per $50 15% square feet for lab space in the third quarter and also dropping $48 13% Lease Rate per SF ($) year-over-year by $1.44. $46 11% $44 9% MarketView $42 7% $40 5% 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 2Q13 Source: CBRE/New England, Q3 2013 Office Vacancy/Availability & Rent Office Vacancy/Availability & Rent Vacancy ticked back up from last quarter’s decline, increasing Vacancy 6.5% Availability 9.9% Lease Rate $42.81 Gross by 40 basis points as rents remained steady, increasing by $44 20% $0.04 on the dollar. As the demand for office space in the tight East Cambridge market continues, rent growth in the office sector has been outpacing that in the lab sector. Landlords are $41 16% now considering rehabbing obsolete lab space into office space Vacancy/Availability (%) as the demand increases and returns are as equally desirable. $38 12% $35 8% Lease Rate per SF ($) $32 4% $29 0% 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 2Q13 Source: CBRE/New England, Q3 2013 Transactions of Note Tenant Address SF Submarket Type Office One Kendall Square, Building Akamai 51,000 East Cambridge Expansion #600/700 Alexion Pharmaceuticals 55 Cambridge Parkway 50,800 East Cambridge Expansion/Extension Twitter 141 Portland Street 47,600 East Cambridge New Lab Ariad Pharmaceuticals 75/125 Binney Street 142,000 East Cambridge Expansion 3 Ipsen 650 East Kendall (New) 62,600 East Cambridge New Moderna Therapeutics 200 Technology Square (New) 43,700 East Cambridge New © 2013 CBRE, Inc. SPOTLIGHT Q3 2013 INITIAL PUBLIC OFFERINGS — BEST YEAR SINCE 2007 The biotechnology industry has had its best year for initial public offerings since 2007. Globally, there have been 33 biotech companies that have gone public in 2013. Eight of those companies are based in Massachusetts, and more Cambridge | specifically the Cambridge area, impacting both the office and lab markets in a material way. These companies include Acceleron Pharmaceuticals, Agios Pharmaceuticals, Bind Therapeutics, Bluebird Inc., Enanta Pharmaceuticals, Epizyme, Foundation Medicine, and TetraPhase Pharmaceuticals , with several more preparing to file. This IPO activity has a tangible correlation to the Cambridge real estate market with a number of local tenants transacting MarketView over the course of 2013. Namely, Foundation Medicine tripled its real estate footprint in Cambridge in the second quarter, shortly after announcing its plans to go public. Bluebird Inc. took more space in the second quarter as well, moving to 43,000 square feet at 150 Second Street, which represented an expansion of 25,000 square feet.