BOSTON OFFICE MARKET REPORT THIRD QUARTER 2018 FALL MARKET CARRYING STRONG MOMENTUM Greater Boston's market showed no signs of weakening during the third quarter by recording strong growth from numerous industry types. The market continued receiving inbound demand as well as converting organic growth into significant expansion. Most notably, Oath's (Verizon) commitment to nearly 440,000 square feet at the Hub on Causeway and Boeing's new 100,000 square foot requirement for an automated-flight center in Cambridge exemplify the market's strength and tenant diversity. 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 several years. # 3.6% 3.6% # $5.2B 2ND AUGUST AUGUST MA YTD (AUG ‘18) NATIONALLY IN MASSACHUSETTS NATIONAL VC FUNDING YTD (AUG ‘18) UNEMPLOYMENT UNEMPLOYMENT VC FUNDING CLASS A MARKET ASKING RATE VS. DIRECT VACANCY TRENDS $64.00 16.0% $61.00 14.0% $58.00 12.0% GLOBAL DESTINATION World leader in medical innovation and $55.00 10.0% technological advancement $52.00 8.0% $49.00 6.0% TOWER SALES $46.00 4.0% RIPPLE EFFECT Will recent Class A Tower sales push $43.00 2.0% rental rates even higher? $40.00 0.0% 201720162015201420132012201120102009200820072006 YTD2018 Average Asking Rate Direct Vacancy (%) TECHNOLOGY & INNOVATION HUB Fortune 500 leaders and 1,900 homegrown startups CLASS B ASKING RATE VS. DIRECT VACANCY BUILD TO SUIT AND SPEC DEVELOPMENT $49.00 16.0% Demand still out-pacing supply, $45.00 14.0% tenants prefer new efficiencies $41.00 12.0% $37.00 COWORKING SPACE 10.0% DISRUPTING MARKET $33.00 8.0% Tenants like flexibility and $29.00 6.0% shorter term commitments $25.00 4.0% TENANTS FAVOR $21.00 2.0% CREATIVE OFFICE $17.00 0.0% 201720162015201420132012201120102009200820072006 YTD2018 Open layouts, contemporary and collaborative environments Average Asking Rate Direct Vacancy (%) DIRECT VACANCY RATE BY SUBMARKET Midtown Financial District Back Bay Fenway Seaport North Station South Station Charlestown 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% QUICK GLANCE MARKET STATS VACANCY SUBLEASE AVAILABILITY 5.8% 1.8% 12.0% ABSORPTION CONSTRUCTION ASKING RATE 862K sf 3.2 MM sf $57.31/sf North Station North End $53.06/SF Beacon Hill Financial District Back Bay $57.00/SF $62.47/SF Midtown $47.79/SF South End South Station $50.75/SF Seaport $60.85/SF CLASS A OFFICE # 5.8% • Strong fundamentals continued during the third quarter despite negative quarterly absorption resulting from the musical chairs DIRECT VACANCY being played amongst some of the city's larger tenants. Space from Boston Consulting Group at One Beacon Street and 53 State Street hit the market following their relocation to 200 Pier 4 in the Seaport. However, on an annualized basis the market maintained nearly 863,000 square feet of positive net absorption and dynamic mixed-use development has brought formerly sleepy Seaport and North Station neighborhoods alive. # 1.7% • On the heels of expansion announcements from Amazon and SUBLEASE AVAILABILITY Wayfair last quarter, Oath (Verizon) confirmed it will be leasing approximately 440,000 square feet at the Hub on Causeway joining Rapid 7. In the heart of Downtown Crossing, Lafayette City Center has reportedly secured significant relocations from Air Worldwide (116,000 square feet) and Community Catalyst (81,000 square feet) # • Burns & Levinson announced it will be vacating 125 Summer 12.3% Street in favor of newly re-stacked space at 125 High Street. The TOTAL AVAILABILITY law firms new offices will span 150,000 square feet. Joining them Downtown will be Spotify, who has leased 74,000 square feet at One Center Plaza. The digital music service will consolidate multiple offices from across Boston's interior markets. Perhaps a result of the extensive lobby and facade improvements, Center Plaza also secured Buildium and RacePoint for 40,000 and 29,050 square feet respectively. 954,150 SF • Shaking off the notion of the summer slump, the investment sales market posted a busy third quarter with several transactions 12-MONTH ABSORPTION closing and a handful of new assets coming to market. In the largest transaction of the quarter, Commonwealth Partners acquired 200 Pier 4 for a staggering $1,208 PSF. At nearly half that value, Heitman purchased 28 State Street for $612 PSF. In addition several premier Class A buildings including 53 State Street, 200 State Street and One Washington are all under contract and expected to close by year's end. # $62.49/SF AVERAGE ASKING RATE CLASS A OFFICE NOTABLE QUARTERLY LEASES ADDRESS SUBMARKET TENANT SF 100 Causeway North Station Oath (Verizon) 440,000 125 High Street Financial District Burns Levinson 150,000 Lafayette Corporate Financial District AIR Worldwide 116,000 179 Lincoln Street South Station SmartSheet 62,000 33 Arch Street Financial District Puma (WeWork) 60,000 iSQ Seaport Seaport PureTech Health 51,000 110 High Street Financial District Metidata 50,000 600 Atlantic Ave Financial District Harvard Management Co 43,900 125 High Street Financial District Hogan Lovells 41,300 Center Plaza Financial District Buildium 40,000 Center Plaza Financial District RacePoint 29,050 Innovation & Design Seaport Living Proof 27,500 225 Franklin Street Financial District Patient Ring 27,600 2 International Place Financial District Anchor Capital 13,300 200 State Street Financial District 360 PR 11,800 AVERAGE ASKING RATE AVERAGE DIRECT VACANCY BY SUBMARKET BY SUBMARKET $72.00 18.0% $67.00 15.0% $62.00 12.0% $57.00 9.0% $52.00 6.0% $47.00 3.0% $42.00 0.0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD2018 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD2018 Financial District Seaport Back Bay 28 State Street RECENT INVESTMENT 200 Pier 4 SALES CLASS A 501 Boylston 451 D Street 28 State Street 200 Pier 4 Boulevard $417,600,000 ($612/RSF) $450,000,000 ($1,208/RSF) Buyer: Heitman Buyer: Commonwealth Partners 451 D Street 501 Boylston Street $276,000,000 ($579/RSF) $290,900,000 ($954 /RSF) Buyer: Related Beal Recap: Norges Bank (49.9%) CLASS B OFFICE # 5.8% • The rise and popularity of coworking space has been well documented and its true implications are not yet known. DIRECT VACANCY WeWork continued their market disruption this quarter by leasing roughly 32,300 square feet inside one of the Seaport's newest residential buildings, The Benjamin. The space will house roughly 550 desks and compete with the newly opened Industrious location down the street at 22 Boston Wharf Road. In related WeWork news, Puma recently announced that they will become the coworking giant's latest corporate tenant, occupying 60,000 square feet at 33 Arch Street. WeWork also # 2.0% announced their next location at 501 Boylston Street in the Back Bay which will span roughly 120,000 square feet. SUBLEASE AVAILABILITY • In the outer reaches of the Seaport, at 88 Black Falcon, Delphi Automotive leased 23,000 square feet and became the latest technology and autonomous vehicle company to enter the local market. Across the way at the Innovation and Design Building, haircare product developer, Living Proof, announced they will be relocating from their current Cambridge headquarters into 11. 6% 27,500 square feet sometime early next year. TOTAL AVAILABILITY • In North Station, the Suffolk District Attorney renewed their 80,000 square foot lease at One Bulfinch. Just around the corner, news was recently announced that Carr Investments and National Real Estate Advisors have ventured with HYM Investments for the capitalization of One Congress's one million square foot office development. The project will likely begin construction shortly and hopes to draft off the recent leasing success of new construction across the city. (91,150) SF 12-MONTH ABSORPTION • The investment sales market volume slowed down; however, deals are achieving strong pricing which is expected to continue pushing rental rates. Most recently, 211 Congress Street was sold off market to Drucker Associates for roughly $717 PSF. Transaction volume is expected to increase by year end with several new opportunities coming to market recently including 18 Tremont Street, 51 Sleeper Street, 300 A Street and 22 Boston Wharf Road. # $47.89/SF AVERAGE ASKING RATE CLASS B OFFICE NOTABLE QUARTERLY LEASES ADDRESS SUBMARKET TENANT SF 501 Boylston Street Back Bay WeWork 120,000 Innovation & Design Seaport Living Proof 27,600 40 Broad Street Financial District PPL 24,750 38 Chauncy Street Financial District Starry 20,620 2 Boylston Street Midtown VitalSource 15,000 255 State Street Financial District Boston Financial 12,000 699 Boylston Street Back Bay The Wing 10,000 55 Court Street Financial District Venture Lane 9,800 38 Chauncy Street Financial District Annikissam 9,500 22 Batterymarch Street Financial District PS260 7,400 201-207 South Street South Station Carbon Black 7,300 54 Canal Street North Station Ripply and Bloom 7,000 18 Tremont Street Financial District Aviro Al 6,800 225 Friend Street North Station Brunner Cott 6,600 AVERAGE ASKING RATE AVERAGE DIRECT VACANCY BY SUBMARKET BY SUBMARKET $55.00 20.0% $50.00 16.0% $45.00 12.0% $40.00 8.0% $35.00 4.0% $30.00 $25.00 0.0% 2008 2009 2010 2011 2012 2013 2014