metro boston office… · 2019-04-03 · now, demand for urban office space remains on solid...
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303 CONGRESS STREET | BOSTON, MA 02210 | 617.457.3400 | HUNNEMANRE.COM
METRO BOSTON OFFICE MARKET REPORT
FIRST QUARTER | 2019
2 | METRO BOSTON OFFICE | Q1 2019
BOSTON OFFICE MARKET OVERVIEW
The Greater Boston office market experienced one of the strongest first-quarter
expansions in the last 15 years. The overall market posted close to 900,000
square feet in positive absorption, which pushed vacancies down to just
11.2%. On the leasing front, renewals dominated the suburban narrative this
quarter, while large user activity was prevalent in the urban core. State Street
Bank, Wayfair, WeWork, Google and Puma accounted for 1.5 million square
feet in new leasing during the first three months of 2019. The groundbreaking
of Amazon’s build-to-suit in the Seaport pushed total square feet under
construction to 4.7 million. However, 87% of this space is already committed.
Asking rents held steady over the quarter but conditions remain frothy in select
pockets of Cambridge and Boston.
WeWork continues to make waves in the Boston commercial real estate market.
With its recent 241,000-square-foot lease at 1 Lincoln Street, the coworking
giant’s urban footprint is now roughly one million square feet. Though it
remains unconfirmed, a 241,000-square-foot enterprise user is reportedly
expected to commit to the entirety of WeWork’s newest location. Looking
ahead, WeWork has letters of intent out on an additional 1.1 million square feet
throughout the urban markets. 100 Summer Street and 200 Berkeley Street are
two of the large blocks of available space rumored to be associated with the
coworking firm. There is no question that WeWork is changing the commercial
real estate game and its impact on the market bears watching.
Space banking, a trend more commonly associated with the Dot Com boom,
has regained some momentum in Boston. Tight market fundamentals
coupled with rapidly rising rents have tenants taking down more space
than they currently need in anticipation of future growth. These tenants will
then sublease out this underutilized space. PTC and Cengage Learning both
subleased some of their new space in the Seaport over the last few quarters,
and Philips recently put two floors of its future Cambridge Crossing office on
the sublease market. While space banking became quite problematic when the
Dot Com bubble burst, as large swaths of unused office space came back to
market, the trend has been more measured this cycle.
Consensus among most economists is that 2019 will remain a year of growth.
However, uncertainty is weighing on sentiment. A yield-curve inversion (the
10-year versus the 3-month Treasuries), trade conflicts and global economic
instability have emerged as potential economic risks. Many are looking to 2020
as a potential inflection point in what will likely be the longest U.S. economic
expansion in history.
11.2%
TOTAL VACANCY RATE
892,083Q1 NET ABSORPTION
(SF)
$34.00 ASKING RENT
($/SF)
4,747,388 UNDER CONSTRUCTION
(SF)
3 | METRO BOSTON OFFICE | Q1 2019
BOSTON OFFICE
TOTAL INVENTORY(SF)
TOTAL VACANT(SF)
TOTAL VACANCY RATE
Q1 NET ABSORPTION(SF)
YTD NET ABSORPTION
(SF)
ASKING RENT($/SF)
Class A 50,628,250 3,248,700 6.4% 79,842 79,842 $65.97
Class B 20,616,267 1,659,009 8.0% 46,741 46,741 $52.77
Total 71,244,517 4,907,709 6.9% 126,583 126,583 $61.71
• The Boston market was especially dynamic during the first quarter,
as headline-grabbing transactions dominated activity. While market
fundamentals were adversely impacted by John Hancock Financial’s
consolidation, State Street Bank, WeWork and Wayfair all announced major
moves this quarter. Vacancies breached 7% for the first time since 2001,
rents maintained their upward trajectory and the development pipeline is
swelling to levels we haven’t seen since the Dot Com era.
• Several blockbuster leases were executed during the quarter. State Street
Bank announced it plans to anchor HYM’s One Congress Street development,
taking down more than 500,000 square feet and relocating from its long-
time home at 1 Lincoln Street. Accordingly, WeWork swooped in to backfill
a large portion of the State Street space and signed a 250,000-square-foot
lease. KMPG and Foley Hoag renewed their leases at 2 Financial Center and
155 Seaport Boulevard, respectively. Wayfair agreed to sublease more than
300,000 square feet from Liberty Mutual at 10 Saint James Avenue in the Back
Bay and Toast is expanding into 125,000 square feet at 401 Park Street in the
Fenway. Though there are fewer large tenant requirements in the market
now, demand for urban office space remains on solid footing.
• As headcounts continue to grow, small-to-mid-sized technology firms are
driving expansions in Boston, especially in the Financial District. DataRobot
is moving from One International Place and expanding into 57,000 square
feet at 225 Franklin Street. GrubHub is planning to double its footprint and
has leased 75,000 square feet at Center Plaza. Buildium, Cantina, Attivio
and Nexthink have executed leases recently as well.
• With 2.4 million square feet underway, changes are coming to Boston’s
skyline. Work recently began on Amazon’s 430,000-square-foot Seaport
tower. With State Street as an anchor tenant, One Congress is expected to
break ground soon and rumors are swirling around the groundbreaking
of the South Station Tower (with Salesforce as a supposed anchor). The
redevelopment of Hood Park in Charlestown could result in three new
office/lab buildings totaling close to 800,000 square feet. Developers are
likely to move forward with new projects in the coming quarters.
TOTAL VACANCY
NET ABSORPTION
ASKING RENTS
0%
12%
10%
8%
6%
4%
2%
2013 2014 2015 2016 2017 2018 2019
5-YEAR HISTORICAL AVERAGE VACANCY RATES
0
-600
-400
-200
200
400
600
800
1,000
1,200
SQU
AR
E FE
ET(t
hous
and
s)
2013 2014 2015 2016 2017 2018 2019
CLASS A CLASS B
$0
$20
$40
$60
$80
$100
$/SF
CH
ARL
ESTO
WN
MID
TOW
N
NO
RTH
STA
TIO
N
SOU
TH S
TATI
ON
SEA
PORT
FIN
AN
CIA
L D
ISTR
ICT
BAC
K B
AY
FEN
WA
Y/K
ENM
ORE
ASKING RENT RANGE WEIGHTED AVERAGE
4 | METRO BOSTON OFFICE | Q1 2019
CAMBRIDGE OFFICE
TOTAL INVENTORY(SF)
TOTAL VACANT(SF)
TOTAL VACANCY RATE
Q1 NET ABSORPTION(SF)
YTD NET ABSORPTION
(SF)
ASKING RENT($/SF)
Class A 6,928,989 210,013 3.0% (11,468) (11,468) $60.59
Class B 3,427,540 153,151 4.5% (22,101) (22,101) $65.12
Total 10,356,529 363,164 3.5% (33,569) (33,569) $63.11
• Cambridge’s narrative remains the same. Office space is virtually non-
existent here and any movement in the market can impact fundamentals.
While vacancies ticked up slightly during the first quarter, momentum
remains positive here. At 3.5%, rates are well below the market’s historic
average. Developers struggle to keep pace with such frothy demand, and
most leasing activity has been occurring off-market. The lack of available
space makes tracking rent observations difficult, but asking rents in East
Cambridge have topped $100/SF in select spaces.
• Cambridge Crossing is this market’s next big super cluster, and space is
filling up quickly. Following Sanofi’s blockbuster deal for 900,000 square
feet of office and lab space across two buildings, Sage Therapeutics is
reportedly in talks for up to 350,000 square feet of office space within the
development. The pharma company would consolidate its operations,
which totals close to 100,000 square feet. While Cambridge Crossing will
likely continue to attract both office and lab users in the coming years,
commercial availabilities will be scant if the Sage deal is finalized.
• Tenants continued to take down space in new construction as Cambridge’s
supply-demand imbalance leaves few options. Google signed a lease for
336,500 square feet at 325 Main Street, which Boston Properties plans to
redevelop into a new tower for the firm. Google also plans to sublease
177,000 square feet from Akamai while their office is being developed.
Capital One took down three floors at MIT’s 314 Main Street in Kendall
Square, joining Boeing, for a total of 78,300 square feet. Reportedly, the
building has commitments on several other floors as well.
• Developers are getting creative when it comes to adding office space in
Cambridge. New England Development already announced plans to
convert the top floor of the CambridgeSide mall into 140,000 square feet
of office space, and is now proposing another addition. The new project
would involve replacing the mall’s anchor tenants and a parking garage
with 625,000 square feet of office, lab and residential uses. As large users,
like Foundation Medicine and CarGurus, look for space they will likely turn
to relief valve markets like Waltham, Lexington and the Seaport.
TOTAL VACANCY
LAB VS. OFFICE SUPPLY SHARE
NET ABSORPTION
0
200
400
600
800
1,000
SQU
AR
E FE
ET(t
hous
and
s)
2013 2014 2015 2016 2017 2018 2019
DIRECT SUBLEASE
0
100
200
300
-300
-200
-100
SQU
AR
E FE
ET(t
hous
and
s)
2013 2014 2015 2016 2017 2018 2019
34%
36%
40%
38%
42%
44%
46%
48%
OFF
ICE
SHA
RE
OF
SUPP
LY
2012 20142013 2015 2017 2018 2019
5 | METRO BOSTON OFFICE | Q1 2019
SUBURBAN OFFICE
ASKING RENTS
TOTAL INVENTORY(SF)
TOTAL VACANT(SF)
TOTAL VACANCY RATE
Q1 NET ABSORPTION(SF)
YTD NET ABSORPTION
(SF)
ASKING RENT($/SF)
Class A 59,236,293 8,195,581 13.8% 564,753 564,753 $29.18
Class B 54,494,549 8,338,583 15.3% 234,316 234,316 $22.65
Total 113,730,842 16,534,164 14.5% 799,069 799,069 $25.83
• The Suburban office market posted its strongest quarter of net absorption
in more than two years, leading the metro in gains during the first three
months of 2019. Continued growth over the last few quarters has helped
mitigate the impact of tenants migrating to Boston. Core Route 128
submarkets account for the lion’s share of activity and vacancies are
nearing 11% in both the Route 128 West and Northwest regions. Location
and quality are key factors in recent performance as talent retention
weighs heavily on corporate decision makers.
• While development remains focused on the Boston skyline, select projects
are moving forward in the Suburbs. Somerville landed another major
office user: Puma. The shoe company plans to relocate its 150,000-square-
foot North American headquarters to Assembly Row in 2021, jumpstarting
construction on one of the development’s last available parcels. This new
project will include roughly 275,000 square feet of office space. Hobbs
Brook Management is set to replace its long-time headquarters on Wyman
Street in Waltham with a new 500,000-square-foot speculative office and
lab building as well.
• Several large blocks of vacancy are on the horizon. Most recently, Oracle
listed the entirety of 100 Crosby Drive in Bedford and eClinicalWorks put
193,000 square feet on the market at 900 West Park Drive in Westborough.
Computershare will relocate and downsize from 250 Royall Street in
Canton next quarter, Philips will be moving from Andover to Cambridge
is early 2020 and Puma will decamp its long-time Westford home for
Somerville in a few years. Despite recent positive momentum, relocations,
consolidations and right-sizing are still a risk to the Suburban outlook.
• Not all firms are shifting operations downtown. Tesaro (200,000 SF), BAE
Systems (135,018 SF), Clean Harbors (103,500 SF), and Samsonite (96,000
SF) all executed renewals or extensions during the quarter, which points
to the continued desirability of suburban office locations. Comparatively
lower rents, proximity to executive housing and relatively shorter
commutes should encourage demand growth in the coming years,
especially for well-located, highly-amenitized assets.
TOTAL VACANCY
NET ABSORPTION
13%
14%
15%
16%
17%
2013 2014 2015 2016 2017 2018 2019
0
500
1,000
1,500
-1,000
-1,500
-500
SQU
AR
E FE
ET(t
hous
and
s)
2013 2014 2015 2016 2017 2018 2019
$0
$20
$10
$40
$30
$60
$50
$70
$/SF
ROU
TE 4
95 S
OU
TH
ROU
TE 4
95 N
ORT
H
ROU
TE 4
95 N
ORT
HEA
ST
ROU
TE 4
95 W
EST
FRA
MIN
GH
AM
-NA
TIC
K
ROU
TE 12
8 SO
UTH
ROU
TE 12
8 N
ORT
H
ROU
TE 12
8 N
ORT
HW
EST
INN
ER S
UBU
RBS
ROU
TE 12
8 W
EST
ASKING RENT RANGE WEIGHTED AVERAGE
6 | METRO BOSTON OFFICE | Q1 2019
NOTABLE TRANSACTIONS
ONE CONGRESS STREETBOSTON
325 MAIN STREETCAMBRIDGE
10 SAINT JAMES AVENUEBOSTON
1 LINCOLN STREETBOSTON
Company State Street Bank Company Google Company Wayfair Company WeWork
Size 505,980 SF Size 336,500 SF Size 302,000 SF Size 240,900 SF
Submarket Financial District Submarket East Cambridge Submarket Back Bay Submarket Financial District
1000 WINTER STREETWALTHAM
455 GRAND UNION BOULEVARDSOMERVILLE
600-800 DISTRICT AVENUEBURLINGTON
700 DISTRICT AVENUEBURLINGTON
Company Tesaro Company Puma Company BAE Systems Company Charles River Develop
Size 200,000 SF Size 149,840 SF Size 135,018 SF Size 123,700 SF
Submarket Route 128 West Submarket Inner Suburbs Submarket Route 128 Northwest Submarket Route 128 Northwest
2 FINANCIAL CENTERBOSTON
42 LONGWATER DRIVENORWELL
314 MAIN STREETCAMBRIDGE
121 SEAPORT BOULEVARDBOSTON
Company KPMG Company Clean Harbors Company Capital One Company Foundation Medicine
Size 118,183 SF Size 103,500 SF Size 78,300 SF Size 64,027 SF
Submarket South Station Submarket Route 128 South Submarket East Cambridge Submarket Seaport
7 | METRO BOSTON OFFICE | Q1 2019
495 NORTH EAST
495 NORTH128 NORTH
128 NORTH WEST
495 SOUTH
FRAMINGHAM/NATICK
495 WEST128 WEST
128 SOUTH
BOSTON METRO OFFICE USING EMPLOYMENT
19.5% — 38.5%13.7% — 19.5%7.7% — 13.7%5.1% — 7.7%
OFFICE USING EMPLOYMENT GROWTH 2010-2017
EMPL
OY
EES
(tho
usa
nds)
0
400
800
1,200
1,600
2,000
1990 20001995 2005 2010 2015
BUSINESS SERVICES INFORMATION FINANCE
RESEARCH SPOTLIGHT
TRENDS IN SF PER OFFICE WORKER
360
370
340
350
380
390
400
410
420
430
200
2
200
1
200
0
1999
1998
200
3
200
4
200
5
200
6
200
7
2017
2016
2015
2014
2013
2012
2011
2010
200
9
200
8
2018
AV
ERA
GE
SF /
OFF
ICE
WO
RK
ER
COMPANIES RIGHT-SIZING
HOTELING
FLEXIBLE WORK SPACE
LOW UNEMPLOYMENT
7 | METRO BOSTON OFFICE | Q1 2019
8 | METRO BOSTON OFFICE | Q1 2019
CAPITAL MARKETS
• While the first quarter of 2019 lacked the blockbuster sales Boston has
become accustomed to, the investment landscape remains incredibly
positive. Throughout the metro, $812 million in office assets changed
hands during the first three months of the year. With several noteworthy
transactions, including 75 State Street, set to close in the coming quarters,
a growing pipeline of sales and increasing pricing, Boston should see
more action over the next year.
• Urban development sites are in high demand. Most recently, the
Skating Club of Boston sold its two-acre Brighton property to the Davis
Companies for $26.25 million and Related Beal is under contract on a 6.5-
acre site owned by P&G in the Seaport. GE has also placed its Seaport
site up for sale after abandoning plans to build the second phase of its
headquarters’ development. The sale includes two renovated buildings,
with a long-term lease commitment with GE, as well as a fully-permitted
vacant parcel.
• In the suburbs, the sales of One Newton Place ($50.75 million) and 4
Burlington Woods ($23.4 million) dominated the investment narrative.
MEDIAN PRICE/SF
TOP Q1 / INVESTMENT SALES
18 TREMONT STREETBOSTON
ONE NEWTON PLACENEWTON
15 COURT SQUAREBOSTON
4 BURLINGTON WOODSBURLINGTON
Buyer Jamestown, L.P. Buyer Saracen Properties/Cadre Advance LLC Buyer KS Partners Buyer GEM Realty Capital, Inc.
Price $102,750,000 Price $50,750,000 Price $29,000,000 Price $23,413,351
Total SF 202,033 Total SF 172,705 Total SF 81,000 Total SF 104,835
Price/SF $509 Price/SF $294 Price/SF $358 Price/SF $223
Cap Rate - Cap Rate - Cap Rate 5.0% Cap Rate -
SALES VOLUME($)
NUMBER OF TRANSACTIONS
TOTAL SF
MEDIAN($/SF)
MEDIAN CAP RATE
$812M 63 1.9M $164 6.8%
SALES VOLUME
$0
$200
$400
$600
$800
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
SUBURBAN URBAN
DO
LLA
RS
(mill
ions
)D
OLL
AR
S(m
illio
ns)
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$4,000
$3,500
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
SUBURBAN URBAN
4-Quarter Moving Average
9 | METRO BOSTON OFFICE | Q1 2019
TOTAL INVENTORY
(SF)
UNDER CONSTRUCTION
(SF)
DIRECT VACANT
(SF)
SUBLEASE VACANT
(SF)
TOTAL VACANCY
RATE
Q1 NET ABSORPTION
(SF)
YTD NET ABSORPTION
(SF)
ASKING RENT ($/SF)
Back Bay 14,097,979 - 572,152 48,944 4.4% 226,982 226,982 $65.85
Charlestown 2,589,875 50,000 40,934 2,751 1.7% 10,332 10,332 $38.53
Fenway/Kenmore 1,673,521 - 40,000 - 2.4% 76,674 76,674 $70.00
Financial District 35,813,446 750,000 2,560,687 298,124 8.0% 189,381 189,381 $62.19
Midtown 2,117,611 - 51,706 14,131 3.1% 7,651 7,651 $43.99
North Station 2,681,284 808,054 97,330 6,873 3.9% (5,816) (5,816) $51.09
Seaport 11,096,233 749,369 980,883 126,873 10.0% (390,178) (390,178) $61.15
South Station 1,174,568 - 66,321 - 5.6% 11,557 11,557 $54.47
Boston Total 71,244,517 2,357,423 4,410,013 497,696 6.9% 126,583 126,583 $61.71
East Cambridge 5,894,888 1,261,048 37,831 22,963 1.0% (8,648) (8,648) $78.20
Mid Cambridge 2,538,270 - 46,963 19,154 2.6% (14,092) (14,092) $68.69
West Cambridge 1,923,371 - 150,131 86,122 12.3% (10,829) (10,829) $57.56
Cambridge Total 10,356,529 1,261,048 234,925 128,239 3.5% (33,569) (33,569) $63.11
Framingham-Natick 4,624,266 - 77,577 21,466 17.3% (14,759) (14,759) $24.17
Inner Suburbs 6,465,044 391,215 598,659 18,802 9.6% (27,054) (27,054) $34.02
Route 128 North 14,107,289 - 1,761,194 75,176 13.0% 93,351 93,351 $24.99
Route 128 Northwest 13,531,719 - 1,460,980 84,931 11.4% 274,679 274,679 $31.80
Route 128 South 16,043,404 61,702 2,144,029 86,957 13.9% (85,844) (85,844) $25.97
Route 128 West 23,248,432 676,000 2,344,053 262,969 11.2% 400,089 400,089 $37.94
Route 128 Total 66,930,844 737,702 7,710,256 510,033 12.3% 682,275 682,275 $30.49
Route 495 North 13,288,300 - 3,051,427 129,688 23.9% (51,654) (51,654) $19.53
Route 495 Northeast 7,908,144 - 1,371,923 12,230 17.5% 76,342 76,342 $20.18
Route 495 South 3,292,373 - 363,448 4,788 11.2% 32,233 32,233 $19.60
Route 495 West 11,221,871 - 1,924,134 39,733 17.5% 101,686 101,686 $20.48
Route 495 Total 35,710,688 - 6,710,932 186,439 19.3% 158,607 158,607 $19.94
Suburban Total 113,730,842 1,128,917 15,797,424 736,740 14.5% 799,069 799,069 $25.83
Market Total 195,331,888 4,747,388 20,442,362 1,362,675 11.2% 892,083 892,083 $34.00
OFFICE RECAP
303 CONGRESS STREET | BOSTON, MA 02210 | 617.457.3400 | HUNNEMANRE.COM
METHODOLOGY
Source: Co-Star, Hunneman. Prepared: March 2019.
Disclaimer: The above data is from sources deemed to be generally reliable, but no warranty is made as to the accuracy of the data nor its usefulness for any particular purpose.
Average Rental Rates are asking rents on direct space. Vacant space includes both direct and sublease space.
LIZ BERTHELETTEDirector of Research
JOEY BIASIResearch Analyst