BOSTON OFFICE MARKET REPORT THIRD QUARTER 2019 BOSTON MARKET FINISHES UP HOT SUMMER Despite summer coming to a close, Boston’s real estate market remained hot. Over the course of the third quarter, vacancy and availability declined and asking rates continued to increase. Developers continued to look to take advantage of the ongoing demand for space in the city, with several developments due over the next few years which should bring much needed relief to this extremely tight market cycle. A portion of current requirements represent the overflow from the even tighter Cambridge market, with life-science tenants now pursuing alternatives to a Cambridge address. WS Development’s project at 400 Summer Street reflects this new trend, with site work commencing soon, Foundation Medicine has already committed to the entire 16-story building. 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. 2.9% 3.7% $12B #1 AUGUST AUGUST MASSACHUSETTS NATIONALLY MASSACHUSETTS NATIONAL ANNUAL (2018) R&D FUNDING UNEMPLOYMENT UNEMPLOYMENT VC FUNDING PER CAPITA CLASS A MARKET ASKING RATE VS. DIRECT VACANCY TRENDS $70.00 16.0% $67.00 14.0% $64.00 12.0% $61.00 GLOBAL DESTINATION $58.00 10.0% World leader in medical innovation and technological advancement $55.00 8.0% $52.00 6.0% $49.00 DEMAND PUSHES 4.0% $46.00 DEVELOPMENT 2.0% $43.00 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 Midtown Seaport 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 3.8% 1.4% 10.0% ABSORPTION CONSTRUCTION ASKING RATE 1.43MM sf 2.4 MM sf $61.56/sf North Station North End $55.35/SF Beacon Hill Financial District Back Bay $62.82/SF $64.47/SF Midtown $51.43/SF South End South Station $54.35/SF Seaport $64.74/SF CLASS A OFFICE 3.0% • Foundation Medicine confirmed that it plans to lease nearly all of a DIRECT VACANCY 16-story building that will be built at 400 Summer Street in Seaport Square, and consolidate its workforce of about 1,100 at the new headquarters. At 580,000 square feet, it’s the largest office lease signed in Boston since Vertex Pharmaceutical moved to the Seaport five years ago. It continues a wave of huge deals that are triggering the construction of large office buildings across greater Boston. Following the relocation, Foundation Medicine will be able to consolidate all of its employees under one roof including additional room to grow. # 1.5% • With continued life science demand outside of Cambridge, SUBLEASE AVAILABILITY developers are seeking entitled sites to accommodate these new requirements. In July, 105 West First Street, a 1-acre South Boston property that was approved for 250,000 square feet of office and lab space, was sold to Tishman Speyer for over $300/FAR which sets a new high water mark for land in Boston. Also in the Seaport at Skanska's speculative development at Two Drydock, market rumors suggest that the landlord may receive long term commitments from both Shell and MullenLowe which would both be significant market 9.6% relocations. TOTAL AVAILABILITY • Online security firm Rapid7 leased an additional 67,000 square feet at The Hub on Causeway office tower, after moving into its new headquarters in the initial phase of the project’s podium office space in July. The long-term lease for the ninth and tenth floors begins in June 2021 with an initial rental rate of $60/SF NNN. In 2017, Rapid7 leased 157,000 square feet in the office podium building at The Hub. The online security firm will join Verizon in the tower portion when that is completed in Summer 2021. # 1,284,950 SF • Carr Properties increased its ownership stake in One Congress, 12-MONTH ABSORPTION the future one million square foot office tower in Boston that will be home to State Street when complete in 2022. Carr boosted its ownership to 75 percent from 50 percent. The DC based investor has made a strong push into the Boston market over the past 18 months having also acquired 200 State Street and hotly contesting the acquisition of several other Class A properties. # $66.57/SF AVERAGE ASKING RATE CLASS A OFFICE NOTABLE QUARTERLY LEASES ADDRESS SUBMARKET TENANT SF 400 Summer Street Seaport Foundation Medicine 580,000 100 Summer Street Financial District WeWork 117,000 125 High Street Financial District Burns & Levinson 103,000 200 Berkeley Street Back Bay WeWork 87,000 75-81 Arlington Street Back Bay WeWork 68,000 100 Causeway Street North Station Rapid7 67,000 One Beacon Street Financial District Robeco Investment Management 48,900 600 Atlantic Avenue Financial District Harvard Management Company 44,000 101 Huntington Avenue Back Bay Lincoln Financial Group 43,600 225 Franklin Street Financial District Raymond James 25,250 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 Constitution Wharf 28 Lechmere Portfolio Constitution Wharf Maverick Battery Airport Terminal C 93 Wharf SUMNER TUNNEL 1 LOGAN AIRPORT Science Park North Station LincolnCALLAHAN TUNNEL RECENT Wharf Central Union Airport Terminal A Wharf Sargents Wharf 90 Airport Terminal B2 Lewis Kendall/MIT Wharf Haymarket Airport Terminal B1 LONGELLOW BRIDGE INVESTMENT 1 Bulfinch PlaceCharles/MGH Bowdoin Long Wharf Government Center Aquarium y a State St w n e MASSACHUSETTS e r G INSTITUTE OF TECHNOLOGY 3 y d e n Park St n Rowes e Wharf K Downtown Fan MASS AVE BRIDGE 75 State Street SALES e Crossing s Pier Boston o Commons R NORTHERN AVE BRIDGE Public EVELYN MOAKLEY BRIDGE Pier 4 Garden Boylston Chinatown South Station Pier 6 Court House TED WILLIAMS TUNNEL Arlington Pier 7 Boston University West 90 Copley Boston University East Boston University Central Tufts Medical Center 20 Blandford ST YAWKEY Kenmore World Trade Center Hynes Convention Ctr HYNES 90 PRUDENTIAL CONVENTION CENTER 90 CENTER Back Bay Silver FENWAY Line PARK 28 Herald ST Way Prudential BOSTON 40 Channel Center Street3 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 75 STATE STREET CONSTITUTION WHARF PORTFOLIO $635,000,000 ($755/RSF) $114,000,000 ($846/RSF) Buyer: Divco West and Rockpoint Group Buyer: Jamestown 1 BULFINCH PLACE 40 CHANNEL CENTER STREET $39,000,000 ($437/RSF) $18,000,000 ($682/RSF) Buyer: EverWest Investors Buyer: Akelius US CLASS B OFFICE 5.5% DIRECT VACANCY • WeWork has been atop headlines all summer yet again. After taking a significant hit to their valuation due to a lack of potential profits, WeWork has now delayed their initial public offering. Despite turmoil surrounding their business practices, the coworking giant did not slow down locally. WeWork recently leased approximately 87,000 square feet of space at 200 Berkeley Street, with plans to occupy six floors in the 26-story office tower. Currently, coworking 1.3% providers occupy 3.8 million square feet of office space in Boston, Cambridge, and Somerville. WeWork’s latest deal expands their SUBLEASE AVAILABILITY footprint to over 1.6 million square feet. • The investment sales market closed out the summer with three noteworthy transactions. Perhaps drafting off their recent success in West Cambridge, Invesco purchased a stake in the 375,000 square foot property at 88 Black Falcon Avenue from The Davis Companies for just over $150 million. One Bulfinch in North Station was acquired in September by EverWest Investors for $39 million, 10.8% or $437 per square foot. The 89,000 square foot office building is fully leased by Boston Sports Club and the Suffolk County District TOTAL AVAILABILITY Attorney. Lastly, 40 Channel Center Street, a 22,000 square foot office building in the Seaport, was purchased by Akelius for $18 million. • Boston-based law firm Morrison Mahoney signed a lease this quarter for 60,100 square feet at 250 Summer street in the Seaport. In the Financial District, WinnCompanies signed a lease for 27,400 square feet at One Washington Street. WeWork rival Knotel expanded its # 144,500 SF Boston footprint this quarter with a 27,000 square foot lease at 239-245 Causeway Street in the North Station submarket.