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Boston Office Market Report BOSTON OFFICE MARKET REPORT SECOND QUARTER 2019 BOSTON MARKET ENTERING SUMMER ALREADY HOT Boston is continuing its historic momentum in the second quarter of 2019 with vacancy rates getting even tighter and rents being pushed even further. 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, broke ground this quarter and is projected to be opened 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. The development pipeline is also following a new trend focusing on life science tenants being squeezed out of the even tighter Cambridge market. Most recently Alexandria expanded its main focus and has gone on a run of acquisitions in the Fort Point and South Boston neighborhoods with intentions of creating new cutting-edge lab space. 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% 3.6% $12B #1 MAY MAY 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% 20192018201720162015201420132012201120102009200820072006 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 $55.00 16.0% As Cambridge fills up, life science tenants look to the Seaport for a new home $50.00 14.0% $45.00 12.0% COWORKING SPACE $40.00 10.0% DISRUPTING MARKET $35.00 8.0% Tenants like flexibility and shorter term commitments $30.00 6.0% $25.00 4.0% TENANTS FAVOR $20.00 2.0% CREATIVE OFFICE $15.00 0.0% Open layouts, contemporary and 20192018201720162015201420132012201120102009200820072006 collaborative environments Average Asking Rate Direct Vacancy (%) DIRECT VACANCY RATE BY SUBMARKET North Station Financial District Seaport Midtown South Station Back Bay Charlestown Fenway 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% QUICK GLANCE MARKET STATS VACANCY SUBLEASE AVAILABILITY 4.0% 1.5% 11.1% ABSORPTION CONSTRUCTION ASKING RATE 1.37MM sf 2.4 MM sf $58.93/sf North Station North End $54.98/SF Beacon Hill Financial District Back Bay $58.08/SF $63.38/SF Midtown $50.39/SF South End South Station $53.55/SF Seaport $64.76/SF CLASS A OFFICE • The life science and biotech surge have pushed rents to record highs and vacancies to record lows across Cambridge and Boston. Tenants 3.2% continued being priced and pushed out of Cambridge for locations across the Charles River in Boston. Most recently, Ironwood DIRECT VACANCY Pharmaceuticals announced it will be moving its headquarters from Kendall Square to the Financial District. Ironwood will lease 39,000 square feet at 100 Summer Street through 2030, and the company anticipates moving in by the end of the year. With the property now stabilized, Blackstone is offering 100 Summer Street for sale with pricing expected to hover around $700 PSF. • With a vast 4.5 million square foot life science portfolio across 1.4% Cambridge, Alexandria Real Estate now appears to be doubling down on South Boston and the Fort Point neighborhood. This past SUBLEASE AVAILABILITY quarter, Alexandria partnered with National Development to acquire the 10 Necco Street parking garage for $81.1 million. The property was marketed with upside through the addition of FAR. The same partnership also controls 5 & 15 Necco Street (“The GE Site”) where the team will construct a cutting-edge lab facility. Not to be overshadowed, just around the corner, Alexandria and Anchor Line moved along with their development programming of a 210,000 SF life science property at 99 A Street in South Boston. 10.7% • With tower cranes dotting the sky in every neighborhood, a few TOTAL AVAILABILITY more commercial projects broke ground this quarter which will help provide relief to the Class A market which currently measures a tight 3.2% vacancy rate. In early June, The Fallon Company broke ground at 10 Fan Pier Boulevard in the Seaport where they will construct MassMutual’s new headquarters. Once completed, the new 17-story, 310,000 square foot building will house approximately 1,000 employees. Also in June, HYM Investment Group broke ground on their development of One Congress, the one million square foot # 1,368,900 SF tower that will house State Street’s new headquarters. 12-MONTH ABSORPTION • The second quarter of 2019 was a busy quarter for leasing activity, most notably Bank of America’s 545,000 square foot, 15-year lease renewal at 100 Federal Street in the Financial District. Foley Hoag, a Boston-based law firm, also signed a 15-year lease renewal at 155 Seaport Boulevard in the Seaport for 165,000 square feet. Arclight Capital Partners, a private equity investor, signed a new lease for just over 26,000 square feet at 200 Clarendon Street in the Back Bay. Silversmith Capital Partners, another private equity investor, also # $63.87/SF signed a lease in the Back Bay at 116 Huntington Avenue for 26,000 square feet, bringing the property to 100 percent occupancy. AVERAGE ASKING RATE CLASS A OFFICE NOTABLE QUARTERLY LEASES ADDRESS SUBMARKET TENANT SF 100 Federal St Financial District Bank of America 545,000 155 Seaport Blvd Seaport Foley Hoag 165,000 140 Northern Ave Seaport Cengage 118,000 100 Summer St Financial District WeWork 117,000 Two Drydock Seaport Shell Tech Works 50,000 One Boston Pl Financial District Simon Kuchar 32,000 One Washington Financial District Winn Companies 27,000 200 Clarendon St Back Bay Arclight Capital Partners 26,000 116 Huntington Ave Back Bay Silversmith Capital Partners 26,000 99 High St Financial District WeWork 24,000 AVERAGE ASKING RATE AVERAGE DIRECT VACANCY BY SUBMARKET BY SUBMARKET $78.00 18.0% $72.00 15.0% $66.00 12.0% $60.00 9.0% $54.00 6.0% $48.00 3.0% $42.00 0.0% 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 Aquarium State St y a w n e MASSACHUSETTS e r G INSTITUTE OF TECHNOLOGY 3 10 Post Office Sq y d e Park St n n Rowes e Wharf K Fan MASS AVE BRIDGE e s Pier Boston Downtown o RECENT Commons Crossing R NORTHERN AVE BRIDGE Public EVELYN MOAKLEY BRIDGE Pier 4 Garden INVESTMENT Boylston South Station Court House Pier 6 TED WILLIAMS TUNNEL Arlington Chinatown SALES Pier 7 Boston University West 711 Atlantic Ave 90 Copley Boston University East Boston University Central 20 Tufts Medical Center Blandford ST 300 A 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 5 Channel Center St 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 10 POST OFFICE SQUARE 300 A STREET $238,700,000 ($526/RSF) $70,400,000 ($654/RSF) Recap: NTT & Synergy Buyer: AEW 711 ATLANTIC AVENUE 5 CHANNEL CENTER STREET $68,500,000 ($691/RSF) $26,000,000 ($520/RSF) Buyer: Plymouth Rock Buyer: Westbrook Partners CLASS B OFFICE • As the Boston market continues its upward trend, so does the 5.6% coworking giant WeWork. Having become an established force in DIRECT VACANCY the city, WeWork has diversified its offerings to now include an HQ concept which offers flexibility and privacy for mid-sized companies. The HQ division was very active this quarter leasing three floors at 99 High Street and 99 Chauncy respectively. The company also leased the entire building at One Milk which will arguably become its most visible location. Finally, as their largest transaction of the quarter, WeWork took 117,000 square feet at 100 Summer Street which will host 2,300 desks. Continuing the coworking trend, New 1.6% York-based Knotel which operates a platform similar to the HQ model has leased the top floor of 142 Berkeley Street in the South SUBLEASE AVAILABILITY End. • The investment sales market transitioned into summer with numerous noteworthy transactions. AEW purchased 300 A Street from Bentall Kennedy for $70.4 million, or $654 per square foot. New York-based Westbrook Partners purchased 5 Channel Center Street from CV Properties for $26 million, or $520 per square foot.
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