Boston Office Market Report

BOSTON OFFICE MARKET REPORT FOURTH QUARTER 2019 FLURRY OF ACTION WRAPS UP STRONG YEAR Long considered one of the nation's most historical and steadfast cities, Greater Boston has undergone an evolution over the past decade and become one of the world's most dynamic gateway cities and top tier investment markets. A global icon for its outstanding research universities, medical centers and technological advancement, Greater Boston's expansion has been fueled by its diverse economy and record setting venture capital and NIH funding. Not only has the local population grown at a rate well above the national average, but the job market has kept pace with the state's unemployment rate measuring below three percent. The marked increase in both population and job growth can largely be attributed to over 40% of students from local universities and colleges that are electing to remain in Boston following graduation. Not surprisingly, Greater Boston's workforce has become one of the nation's most youthful, with 35% of its workers between the ages of 20 and 34 compared to the national average of only 20%. The region's strengthening demographics and economy have promoted a transformative phase across the state that has ushered in new retail, residential and infrastructure development that has not been achieved in decades. 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 several years. <ul style="display: flex;"><li style="flex:1">$11. 5B </li><li style="flex:1">#1 </li></ul>2.9% MASSACHUSETTS UNEMPLOYMENT 3.5% <ul style="display: flex;"><li style="flex:1"></li><li style="flex:1"></li></ul>GREATER BOSTON VC FUNDING (2018) NATIONALLY R&D FUNDING PER CAPITA <ul style="display: flex;"><li style="flex:1">NOVEMBER </li><li style="flex:1">NOVEMBER </li></ul>NATIONAL UNEMPLOYMENT CLASS A ASKING RATE VS. DIRECT VACANCY MARKET TRENDS $70.00 $67.00 $64.00 $61.00 $58.00 $55.00 $52.00 $49.00 $46.00 $43.00 $40.00 16.0% 14.0% 12.0% 10.0% 8.0% GLOBAL DESTINATION World leader in medical innovation and technological advancement 6.0% 4.0% DEMAND PUSHES DEVELOPMENT 2.0% Significant demand has produced a large development pipeline 0.0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 <ul style="display: flex;"><li style="flex:1">Average Asking Rate </li><li style="flex:1">Direct Vacancy (%) </li></ul>TECHNOLOGY & INNOVATION HUB Fortune 500 leaders and 1,900 homegrown startups CLASS B ASKING RATE VS. DIRECT VACANCY NEW LIFE SCIENCE HUB $55.00 $50.00 $45.00 $40.00 $35.00 $30.00 $25.00 $20.00 $15.00 16.0% 14.0% 12.0% 10.0% 8.0% As Cambridge fills up, life science tenants look to the Seaport for a new home COWORKING SPACE DISRUPTING MARKET Tenants like flexibility and shorter term commitments 6.0% 4.0% TENANTS FAVOR CREATIVE OFFICE 2.0% 0.0% Open layouts, contemporary and collaborative environments 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Average Asking Rate Direct Vacancy (%) DIRECT VACANCY RATE BY SUBMARKET Seaport Midtown North Station Financial District South Station Back Bay Charlestown Fenway <ul style="display: flex;"><li style="flex:1">0.0% </li><li style="flex:1">1.0% </li><li style="flex:1">2.0% </li><li style="flex:1">3.0% </li><li style="flex:1">4.0% </li><li style="flex:1">5.0% </li><li style="flex:1">6.0% </li></ul>QUICK GLANCE MARKET STATS <ul style="display: flex;"><li style="flex:1">SUBLEASE </li><li style="flex:1">AVAILABILITY </li></ul>V4AC.A2N%CY <ul style="display: flex;"><li style="flex:1">2.0% </li><li style="flex:1">11. 5% </li></ul>ASKING RATE <ul style="display: flex;"><li style="flex:1">1A.2BS7OMRPTMIONsf </li><li style="flex:1">C2ON.4STRMUCMTIONsf $61.77/sf </li></ul>North End North Station $55.46/SF Beacon Hill Financial District $62.97/SF Back Bay $64.67/SF Midtown $50.98/SF South End South Station $54.58/SF Seaport $65.42/SF CLASS A OFFICE <ul style="display: flex;"><li style="flex:1">•</li><li style="flex:1">Following last quarter's announcement from Foundation Medicine </li></ul>that the Cambridge-grown tenant will relocate into 580,000 square feet at 400 Summer Street in the Seaport, two additional Cambridge tenants noted their expansion plans into Boston. CarGurus has committed to 11 floors or 275,000 square at Samuels' Parcel 12 location in the Back Bay. The air rights project to be constructed above the Mass Pike will be the first of its kind in four decades and create valuable real estate at the intersection of Massachusetts Avenue and Newbury Street.  2.9% DIRECT VACANCY <ul style="display: flex;"><li style="flex:1">•</li><li style="flex:1">Arguably the first, and certainly the largest tenant to make the </li></ul>transition from Cambridge to Boston, Vertex Pharmaceuticals recently disclosed its intention to lease 256,000 square feet at iSQ where Related Beal recently delivered a fully leased phase one to Smart Labs and PureTech Health. The second phase, which is currently under construction, will reportedly be taken down entirely by Vertex. Given the explosive growth potential of life science tenants, having space under construction is crucial and drives many decisions. For Vertex, there are certainly sites available closer to their existing Fan Pier campus, however without permits and shovels in the ground there is an air of uncertainty and a 1-2 year delivery lag which is unacceptable to fast paced life science industry. # 2.3% SUBLEASE AVAILABILITY # 11.9% TOTAL AVAILABILITY <ul style="display: flex;"><li style="flex:1">•</li><li style="flex:1">As recently as 24 months ago, some locals fretted over the Back </li></ul>Bay's future, however the stalwart market proved its merit having absorbed 894,000 square feet over the past years and now measuring a vacancy rate below two percent. Plagued by massive relocations to Downtown and the Seaport, the gaping holes have been backfilled by the likes of Wayfair, Draft Kings, Drift and WeWork. During the fourth quarter, both Draft Kings and Drift expanded by roughly 20,000 square feet each. The market gained additional momentum from the relocation announcement by CarGurus noted above as well as indications from Boston Properties that their redevelopment atop Back Bay Station will likely kickoff in early 2020. # 1,417,950 SF 12-MONTH ABSORPTION <ul style="display: flex;"><li style="flex:1">•</li><li style="flex:1">Strong momentum also swept across the Financial District where </li></ul>annual absorption reached 697,000 square feet. Demolition and construction carried on at One PO Square, which may have contributed to Nelson Mullins Riley & Scarborough's decision to relocate their legal offices to 43,000 square feet at One Financial Center when their lease expires next year. While not relocating, LEK Consulting announced a 15,000 square foot expansion at 75 State Street which brings their operations to roughly 78,000 square feet. # $66.80/SF AVERAGE ASKING RATE CLASS A OFFICE NOTABLE QUARTERLY LEASES <ul style="display: flex;"><li style="flex:1">ADDRESS </li><li style="flex:1">SUBMARKET </li></ul>Seaport TENANT Foundation Medicine Car Gurus SF <ul style="display: flex;"><li style="flex:1">400 Summer Street </li><li style="flex:1">580,000 </li></ul>275,000 265,000 160,000 87,000 68,000 44,000 43,000 20,000 20,000 15,000 Parcel 12 (Mass Ave @ Newbury St) 316-318 Northern Ave (iSQ) 125 Summer Street Back Bay <ul style="display: flex;"><li style="flex:1">Seaport </li><li style="flex:1">Vertex Pharmaceuticals </li></ul><ul style="display: flex;"><li style="flex:1">Klaviyo </li><li style="flex:1">Financial District </li></ul><ul style="display: flex;"><li style="flex:1">Back Bay </li><li style="flex:1">200 Berkeley Street </li><li style="flex:1">WeWork </li></ul>75-81 Arlington Street 600 Atlantic Avenue One Financial Center 222 Berkeley/500 Boylston 222 Berkeley/500 Boylston 75 State Street <ul style="display: flex;"><li style="flex:1">Back Bay </li><li style="flex:1">WeWork </li></ul>Financial District Financial District Back Bay Harvard Management Company Nelson, Mullins, Riley & Scarborough Draft Kings <ul style="display: flex;"><li style="flex:1">Back Bay </li><li style="flex:1">Drift </li></ul><ul style="display: flex;"><li style="flex:1">Financial District </li><li style="flex:1">LEK Consulting </li></ul>AVERAGE ASKING RATE BY SUBMARKET AVERAGE DIRECT VACANCY BY SUBMARKET 18.0% 15.0% 12.0% 9.0% $78.00 $72.00 $66.00 $60.00 $54.00 $48.00 $42.00 6.0% 3.0% 0.0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Financial District <ul style="display: flex;"><li style="flex:1">Seaport </li><li style="flex:1">Back Bay </li></ul>93 Wood Island <ul style="display: flex;"><li style="flex:1">28 </li><li style="flex:1">1</li></ul>Airport Community College Constitution Wharf 28 Lechmere Portfolio Constitution Wharf Maverick Battery Wharf 93 RECENT INVESTMENT SALES 1LOGAN AIRPORT Science Park North Station Lincoln Wharf Union Wharf <ul style="display: flex;"><li style="flex:1">Airport Terminal </li><li style="flex:1">A</li></ul>Sargents Wharf 90 Lewis Wharf Kendall/MIT Haymarket Airport Terminal B1 Charles/MGH Bowdoin Long Wharf Aquarium Government Center State St MASSACHUSETTS INSTITUTE OF TECHNOLOGY 3Park St Rowes Wharf Downtown Crossing F an P ier Boston Commons Public Garden <ul style="display: flex;"><li style="flex:1">Pier </li><li style="flex:1">4</li></ul>Boylston <ul style="display: flex;"><li style="flex:1">Chinatown </li><li style="flex:1">South Station </li></ul><ul style="display: flex;"><li style="flex:1">Pier </li><li style="flex:1">6</li></ul>Court House 100 Summer Street Arlington <ul style="display: flex;"><li style="flex:1">Pier </li><li style="flex:1">7</li></ul>90 Copley ersity East Tufts Medical Center One Marina Park Blandford ST World Trade Center <ul style="display: flex;"><li style="flex:1">Kenmore </li><li style="flex:1">Hynes Convention Ctr </li></ul>HYNES CONVENTION CENTER PRUDENTIAL CENTER 90 90 Back Bay Silver FENWAY PARK Line 28 <ul style="display: flex;"><li style="flex:1">Herald ST </li><li style="flex:1">Way </li></ul>BOSTON CONVENTION EXPO CENTER Prudential 3&Back Bay Fens 93 RK RE.Berkeley ST 1<ul style="display: flex;"><li style="flex:1">Broadway </li><li style="flex:1">Symphony </li></ul>Union Park ST 9Massachusetts Ave 28 7 Elkins Street Northeastern Newton ST City Point Museum Of Fine Arts Ruggles Worcester Square cal Area Massachusetts Ave Lenox ST 100 SUMMER STREET ONE MARINA PARK $806,000,000 ($732/RSF) Buyer: Rockpoint Group $482,000,000 ($980/RSF) Buyer: Clarion Partners CONSTITUTION WHARF PORTFOLIO 7 ELKINS STREET $114,000,000 ($635/RSF) Buyer: Jamestown $28,850,000 ($483/RSF) Buyer: Related Companies CLASS B OFFICE # 6.5% <ul style="display: flex;"><li style="flex:1">•</li><li style="flex:1">Despite all the recent turmoil and uncertainty surrounding WeWork, </li></ul>other co-working brands continued more measured and steady growth. Most notably, Knotel has established their first location in greater Boston at 239 Causeway Street in the thriving North Station submarket. The property, essentially kitty corner to the wildly popular Hub on Causeway destination, will mark Knotel's first foray into Boston. The 26,000 square foot space will hopefully be the first of many, with Knotel executives reportedly having identified other locations across the Back Bay and South End which will likely become additional outposts in 2020. DIRECT VACANCY # 1.5% <ul style="display: flex;"><li style="flex:1">•</li><li style="flex:1">The Seaport continued its poll position as the rent market leader </li></ul>with average asking rents reaching $60.00 per square foot. Rents are up 22% from three years ago despite vacancy ticking up to roughly 10% following a few musical chair relocations. This quarter, Motif signed a 10,600 square foot lease at 27 Drydock Avenue, Dimella Shafer relocated into 13,800 square feet at 24 Farnsworth Street and Bynder moved into 8,900 square feet at 321 Summer Street from 24 Farsnworth Street. SUBLEASE AVAILABILITY  10.7% <ul style="display: flex;"><li style="flex:1">•</li><li style="flex:1">Having purchased 451 D Street last year, Related Beal, who </li></ul>have quickly become one of the larger Life Science landlords in the Seaport, are working diligently to implement a selective lab conversion plan into the creative office building. The team recently secured three life science leases totaling 22,000 square feet. Silicon Laboratories took 11,000 square feet, Stevanato Group signed for 6,000 square feet and Elektrofi leased 5,000 square feet. The conversion serves as a relief valve for non blue chip lab tenants seeking asylum from Cambridge's stranglehold. TOTAL AVAILABILITY # 144,800 SF <ul style="display: flex;"><li style="flex:1">•</li><li style="flex:1">The Investment Sales market across the Class A & B markets </li></ul>performed very well with several large transactions crossing the finish line before year's end. In the Seaport, the building that kicked of Fan Pier's success, One Marina Park, was sold by its original developers, the Fallon Company and Barings, to Clarion Partners for $482 million or roughly $1,000 per square foot. In the Financial District, Rockpoint Group acquired 100 Summer Street from Blackstone for $806 million or $732 per square foot. Presumably having worked out the ground lease details, Carr Properties and Starwood reportedly have 60 State Street under contract for $620 million or $680 per square foot. 12-MONTH ABSORPTION # $52.48/SF AVERAGE ASKING RATE CLASS B OFFICE NOTABLE QUARTERLY LEASES <ul style="display: flex;"><li style="flex:1">ADDRESS </li><li style="flex:1">SUBMARKET </li></ul>North Station Financial District Seaport TENANT Knotel SF 239 Causeway Street 101 Arch STreet 24 Farnsworth Street 451 D Street 27,000 18,600 13,800 11,000 10,600 9,600 8,900 6,800 6,500 6,000 Hopper Dimella Shafer Silicon Laboratories Motif Seaport 27 Dry Dock Avenue 38 Chauncy Street 321 Summer Street 15 Court Square 18 Tremont Street 451 D Street Seaport Financial District Seaport Sungage Bynder Financial District Financial District Seaport TAC Document Technologies Stevanato Group <ul style="display: flex;"><li style="flex:1">AVERAGE ASKING RATE </li><li style="flex:1">AVERAGE DIRECT VACANCY </li></ul><ul style="display: flex;"><li style="flex:1">BY SUBMARKET </li><li style="flex:1">BY SUBMARKET </li></ul>20ꢀ0ꢁ ꢂꢃꢀ0ꢁ ꢂ2ꢀ0ꢁ 8ꢀ0ꢁ $ꢀꢃꢁ00 $ꢄꢀꢁ00 $ꢄꢃꢁ00 $4ꢀꢁ00 $4ꢃꢁ00 $ꢂꢀꢁ00 $ꢂꢃꢁ00 $2ꢀꢁ00 4ꢀ0ꢁ 0ꢀ0ꢁ 2008 2009 20ꢃ0 20ꢃꢃ 20ꢃ2 20ꢃꢂ 20ꢃ4 20ꢃꢄ 20ꢃꢀ 20ꢃꢅ 20ꢃ8 20ꢃ9 2008 2009 20ꢂ0 20ꢂꢂ 20ꢂ2 20ꢂꢆ 20ꢂ4 20ꢂꢅ 20ꢂꢃ 20ꢂꢄ 20ꢂ8 20ꢂ9 <ul style="display: flex;"><li style="flex:1">Financial District </li><li style="flex:1">Seaport </li><li style="flex:1">Back Bay </li></ul>OFFICE & LAB DEVELOPMENT PIPELINE <ul style="display: flex;"><li style="flex:1">316 NORTHERN AVE </li><li style="flex:1">PARKSIDE ON A </li></ul><ul style="display: flex;"><li style="flex:1">Seaport </li><li style="flex:1">Seaport </li></ul><ul style="display: flex;"><li style="flex:1">100 CAUSEWAY </li><li style="flex:1">88 SEAPORT BLVD </li></ul><ul style="display: flex;"><li style="flex:1">North Station </li><li style="flex:1">Seaport </li></ul><ul style="display: flex;"><li style="flex:1">400 SUMMER STREET </li><li style="flex:1">321 HARRISON AVE </li></ul><ul style="display: flex;"><li style="flex:1">Seaport </li><li style="flex:1">South End </li></ul><ul style="display: flex;"><li style="flex:1">TWO DRYDOCK </li><li style="flex:1">115 FEDERAL </li></ul><ul style="display: flex;"><li style="flex:1">Seaport </li><li style="flex:1">Financial District </li></ul>OFFICE REPORT STATS Quarterly Absorption (SF) 12 Month Absorption (SF) Total Inventory (SF) Direct Vacancy Sublease Availability Total Availability Average Asking Rate Office TOTAL A&B Back Bay 72,133,100 14,949,300 2,735,650 1,746,0000 35,439,750 1,961,450 4.2% 1.9% 0.6% 0.0% 5.0% 5.4% 5.3% 5.5% 4.6% 2.0% 2.1% 1.3% 5.1% 2.0% 0.3% 2.2% 2.4% 0.5% 11.5% 5.3% 5.1% (235,350) 21,250 3,450 1,273,200 561,150 54,100 $61.77 $64.67 $44.92 $56.16 $62.97 $50.98 $55.46 $65.42 $54.58 Charlestown <ul style="display: flex;"><li style="flex:1">Fenway </li><li style="flex:1">5.1% </li><li style="flex:1">-</li><li style="flex:1">75,950 </li></ul>Financial District Midtown 14.9% 6.9% 8.0% 16.3% 3.7% (71,750) (18,900) 21,500 (163,600) (27,250) 697,200 66,400 North Station Seaport <ul style="display: flex;"><li style="flex:1">3,313,150 </li><li style="flex:1">(67,950) </li></ul>(112,650) (1,050) 9,105,450 <ul style="display: flex;"><li style="flex:1">2,882,400 </li><li style="flex:1">South Station </li></ul><ul style="display: flex;"><li style="flex:1">CLASS A </li><li style="flex:1">46,836,500 </li></ul>11,038,450 903,750 2.9% 1.2% 1.3% 0.0% 4.1% 6.7% 4.0% 0.3% 1.9% 2.3% 2.5% 1.4% 7.9% 2.3% 0.3% 2.5% 1.3% 1.0% 11.9% 5.4% 7.5% 21,750 11, 500 (8,500) -1,417,950 539,700 14,050 $66.80 $68.97 $46.00 $62.25 $67.15 $55.50 $60.88 $72.40 $58.25 Back Bay Charlestown <ul style="display: flex;"><li style="flex:1">Fenway </li><li style="flex:1">1,117,650 </li><li style="flex:1">7.9% </li><li style="flex:1">75,000 </li></ul>Financial District Midtown 25,558,900 1,176,200 1,407,700 4,279,050 1,354,850 15.7% 7.5% 32,750 (15,550) 27,500 - 698,750 57,250 North Station Seaport <ul style="display: flex;"><li style="flex:1">7.3% </li><li style="flex:1">(18,550) </li></ul><ul style="display: flex;"><li style="flex:1">76,750 </li><li style="flex:1">14.8% </li></ul><ul style="display: flex;"><li style="flex:1">0.0% </li><li style="flex:1">South Station </li><li style="flex:1">(25,950) </li><li style="flex:1">(25,950) </li></ul><ul style="display: flex;"><li style="flex:1">CLASS B </li><li style="flex:1">25,296,600 </li></ul>3,910,850 1,831,850 628,400 6.5% 3.9% 0.3% 0.0% 7.5% 3.5% 6.3% 10.1% 6.9% 1.5% 0.8% 1.3% 0.0% 1.2% 0.3% 2.0% 3.3% 0.1% 10.7% 4.8% 4.0% 0.0% 12.9% 6.0% 8.6% 17.6% 7.0% (257,050) 9,700 (144,798) 21,450 40,050 -$52.48 $52.52 $44.39 $45.33 $52.15 $44.20 $51.45 $59.23 $51.33 Back Bay Charlestown Fenway 11,950 - Financial District Midtown 9,880,850 785,250 (104,500) (3,350) (6,050) (163,600) (1,250) (1,500) 9,150 North Station Seaport 1,905,450 4,826,400 1,527,500 (49,450) (189,400) <ul style="display: flex;"><li style="flex:1">24,950 </li><li style="flex:1">South Station </li></ul>ETHAN ROBERT Director of Research 617.951.4160 <a href="mailto:[email protected]" target="_blank">[email protected] </a>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.

Boston Office Market Report

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