Savills Studley Research Boston Savills Studley Report Boston office sector Q4 2018 SUMMARY Market Highlights STRONG YEAR FOR LEASING RENT UP SLIGHTLY "Boston was considered a top contender A flurry of mega-leases late in 2018 pushed The average asking rent for Boston/Suffolk for Amazon. Virtually unrivalled annual volume to more than 14.0 msf – a County rose by 4.0% to $48.98. The Class A sharp increase from 2017. asking rent jumped by 5.0% to $58.42. expertise in AI and robotics, world-class universities and a deep tech ecosystem AVAILABILITY RATES DIP SALES DOWN were selling points. Several of the The market's overall availability rate ticked Office property sales during the first eleven down by 10 basis points to 13.7%, driven months of the year totaled $4.6 billion, a region's most ambitious suburban largely by decreasing availability in suburban 38% decrease compared to the first 11 developments now must go back to submarkets. Conditions remain tight in months of 2017. Boston/Suffolk County, with single-digit square one in their search for an anchor availability rates in Back Bay and Seaport. tenant." Savills Studley Research Savills Studley Report | Boston Costs Soar but Rally pushes Office-Using Employment Trends on for Now Millions Boston’s overall economy and office market 0.62 5% continued on a steady path of expansion 0.60 during 2018. The region added nearly 3% 25,000 office-using jobs (a 4.2% increase) 0.58 during the last 12 months. The growth 0.56 1% eclipsed much weaker growth nationally, 0.54 and was more than double Boston’s 1.6% -1% increase in the prior 12 months. 0.52 -3% 0.50 Companies continue to aggressively chase skilled personnel, regardless of cost. Talent 0.48 -5% centers such as Boston have consequently 0.46 thrived even as wages, home prices and -7% 0.44 the cost of doing business soars. A recent 2014 2011 2012 2013 2015 2016 2017 2018 0.42 2009 2010 -9% report from affordable housing developer Boston Office Emp. Boston % Change U.S. (% Annual Change) Winn Companies details how expensive it Source: Bureau of Labor Statistics^ has become to build a home in the Boston region. According to the report, it now costs on average $500,000 to produce a single Class A Availability Rate Trends residential unit in a multifamily development Class A Availability Rate Trends While many tech firms spend with a blind eye to cost, they can not solve the problem 25% of a depleted labor pool. 22.1% 21.5% 20.0% Boston lost out on the Amazon stakes, 20% 20.3% but the region market has captured many corporate tenants and is still seeing 16.6% 14.3% extensive growth. The region ends 2018 15% with even tighter market conditions than this time last year. Vacancy rates are well under 10.0% 5% in Cambridge and surrounding areas. 10% Construction activity is gaining significant momentum in areas such as Waltham, but 6.5% conditions remain tight. Boston ended 2018 5% with an availability rate of 13.7%, a decrease Boston Region Suburban Cambridge Boston/Suffolk of 170 basis points from year-end 2017. Availability rates are in single-digit territory 0% within Boston/Suffolk County, including a Q4 '13 Q4 '14 Q4 '15 Q4 '16 Q4 '17 Q4 '18 8.9% rate in Seaport and 8.0% in the Back Bay. Suburban submarkets in Route 495 corridor remain much softer, exceeding 20% Class A Asking Rent Trends ($/sf) in some areas. Class A Rental Rate Trends $70 Development Spreads, Despite $61.54 Roadblocks $60 $58.42 Development continues to push into a broader geography. The Boston Planning $50 $45.30 and Development Agency approved almost $7 billion in new developments $40 $39.45 $35.29 during 2018. The approval and entitlement process remains a high hurdle to clear $30 in Downtown Boston and Cambridge, $22.64 keeping development activity restrained $24.51 $20 and adding to already significant costs. $18.04 Some suburban areas in the Route 128 and $10 Route 495 Corridors have a bit more land Boston Region Suburban Cambridge Boston/Suffolk and approval is not generally as contentious $0 as in Cambridge or the heart of Boston. Q4 '13 Q4 '14 Q4 '15 Q4 '16 Q4 '17 Q4 '18 Hobbs Brooks Management is about to start demolition on 225 Wyman Street, with 02 Q4 2018 plans to construct a 507,000-sf office or lab building once it secures an anchor tenant. Availability Rate Comparison Overall Rental Rate Comparison This would be the largest office building on Route 128. Also in Waltham, engineering Cambridge 6.6% Back Bay $55.29 firm Simpson Gumpertz & Heger signed a Neighborhoods District 6.7% Financial District $52.07 110,000-sf lease at 20 CityPoint in Waltham Back Bay 8.0% Cambridge $49.81 and a 14,000-sf lease in the Prudential South Station/Ft Pnt Channel 8.9% Seaport/South Boston $38.29 Tower. The firm will relocate from its office at Route 495 South 9.5% US Index $34.69 41 Seyon Street in Waltham. Worcester 12.1% Neighborhoods District $34.51 Financial District 12.7% Route 128 West $29.48 Bullish on Boston Route 128 North 13.2% Boston Region $29.05 Southern New Hampshire 13.7% Close-in Suburbs North $24.65 In the Financial District, HYM Investment Boston Region 13.7% Route 128 North $23.29 Group and National Real Estate Advisors Close-in Suburbs North 14.1% Route 128 South $21.16 recently secured a major investor at One Route 128 West 15.1% Route 495/Mass Pike West $19.85 Congress. DC-based Carr Properties US Index 17.9% Route 3 North $18.49 acquired a 50% stake in the 1.0-msf Route 128 South 18.5% Route 495 North East $17.48 tower being built at Bulfinch Crossing. Route 495 North East 20.0% Route 495 South $16.33 Construction work should now start in 2019 Route 495/Route 2 West 21.7% Route 495/Route 2 West $15.97 with a completion date of 2022, but the Route 3 North 21.9% Worcester $14.69 partnership will likely await the signing of an Route 495/Mass Pike West 26.5% Southern New Hampshire $14.65 anchor tenant before going vertical. The site 0% 5% 10% 15% 20% 25% 30% $0 $15 $30 $45 $60 will eventually include another 150,000-sf office building and a 200-room hotel topped by 50 condominiums. The complex will Major Transactions be linked via a pedestrian walkway to The Tenant Sq Feet Address Market Area Hub on Causeway, anchored by Verizon. Sanofi 900,000 Cambridge Crossing Cambridge Carr Properties is bullish on Boston. It also Boston Dynamics 175,000 200 Smith St Route 128 West recently acquired 200 State Street, paying Elevate Bio 146,000 200 Smith St Route 128 Corridor $222 million for the 304,000 sf building Gumpertz & Heger 124,000 20 CityPoint & Prudential Tower Route 128 West adjacent to Faneuil Hall Marketplace. Medidata 117,026 110 High St Financial District ezCater 100,000 40 Water St Financial District In a market loaded with talent, Cambridge iTeos Therapeutics 107,000 200 Smith St Route 128 West is the center of the region’s innovation Pioneer Investments 99,000 60 State St Financial District engine. Top life science and biotech firms Avid Technology, Inc. 99,765 75 Network Dr Route 128 North are beating down the submarket’s door as Morrison Mahoney 60,000 250 Summer St Seaport/South Boston they try to tap into top talent in both Kendall Sum of Leases 1,927,791 Square and East Cambridge. Goldfinch Bio was reportedly considering a 40,000-sf to (BGI) unveiled plans for 401 Congress 60,000-sf at Cambridge Crossing campus. Street Goldfinch currently leases just over 14,000 a development is the obstacle. Developers sf at 215 First Street in Kendall Square. are often going into the approval process with a tenant in hand. Boston Properties in November. The tower will be built About the only thing stalling leasing is M&A won unanimous approval for a 18-story on a 1.1-acre surface parking lot next to activity. Shire Plc recently backed out of tower in Kendall Square to be built on the the MBTA World Trade Center Silver Line its 350,000-sf lease and build-out at 500 current site of the MIT Coop bookstore at Station. Kendall Street. The pharmaceutical firm is 325 Main Street. Google will be the likely in the midst of a $62-billion acquisition by anchor tenant. Boston Properties will also Initial plans for 401 Congress Street are Takeda Pharmaceuticals. This opens up a build a new head house for the Kendall running into some opposition. The final rare massive block in the tight market. The Square MBTA station and connect to product will still have to be ironed out. space is likely to garner a lot of interest. Google’s office at 355 Main Street. The Much of the haggling centers around public Following Sanofi's take down of the entirety proposal faced some hotly debated issues, space. Current configurations call for a of Cambridge Crossing, other tenants including the impact of the building on an street level “grand hall” to be occupied by looking for big blocks of space are in a tight adjacent rooftop garden. Boston Properties eateries or non profits. Performance areas spot. Other options, including traditional will remedy this by building a staircase from and two separate civic spaces are planned corporate office spaces, are leasing up the street to the garden.