Boston METRO. Real Estate Market Review. Committed to Boston, Connected to the World. 1 st QUARTER 2013

Transcription

1 METRO Boston Real Estate Market Review 1 st QUARTER 2013 Committed to Boston, Connected to the World. 303 Congress Street Boston, MA

2 Q1/13 Commercial Real Estate Services, Worldwide Congress Street Boston, MA Metro Boston Real Estate Q1/13

3 METRO Boston Real Estate Market Review Table of Contents Office Market Conditions... 2 Boston Office Market... 3 Cambridge Office/Lab Market... 4 Suburban Office Market... 5 Industrial/Flex Market... 6 Investment Market... 7 NAI Hunneman Contacts... 8 Methodology, Definitions & Submarket Map Congress Street Boston, MA Metro Boston Real Estate Q1/13 1

4 Office Market Conditions Rents Rise Across All Submarkets CLASS A & B OFFICE MARKET () () Financial District 41,120,481 4,350, ,418 4,530,800 $ North Station/North End 7,952, ,387 10, ,482 $ South Station/Ft. Point 7,690,284 1,214,492 14,549 1,229,041 $ Charlestown 3,214, ,861 33, ,325 $ Back Bay 14,483, , ,681 1,060,782 $ Downtown Boston 74,462,108 6,984, ,207 7,341,430 $ East Cambridge 12,197,814 1,467,511 73,298 1,540,809 $ Central Cambridge 5,569, ,527 19, ,098 $ West Cambridge 2,211, ,116 25, ,116 $ Cambridge 19,979,566 2,174, ,869 2,292,023 $ Route 128 North 17,507,291 2,294, ,392 2,438,509 $ Route 128 Northwest 14,022,232 2,004, ,248 2,231,219 $ Route 128 West 27,987,389 3,073, ,326 3,345,695 $ Route 128 Southwest 4,991, ,158 44, ,949 $ Route 128 South 10,117,533 2,143,893 46,513 2,190,406 $ Route 128 Loop 74,625,936 10,314, ,270 11,048,778 $ I-495 North 6,855,346 1,534,929 30,448 1,565,377 $ I-495 Northwest 8,807,847 1,549,269 97,667 1,646,936 $ I-495 West 10,577,776 2,349, ,366 2,534,237 $ I-495 Southwest 1,624, ,041 3, ,222 $ I-495 South 1,508, , ,358 $ I-495 Loop 29,373,778 5,847, ,662 6,163,130 $ Metropolitan Boston 198,441,388 25,320,353 1,525,008 26,845,361 $ CLASS A & B OFFICE MARKET : AVAILABLE SUBLEASE SPACE & ASKING RENTS AVAILABLE SUBLEASE SPACE SUBLEASE ASKING RENTS Q Q Q Q Q Q Q Q Downtown Boston 952, ,953 1,044,080 1,114,541 $25.42 $25.03 $25.57 $24.35 Cambridge 654, , , ,404 $30.35 $29.78 $29.33 $28.53 Route 128 Loop 2,131,295 1,989,716 2,044,466 1,769,201 $18.43 $18.00 $18.47 $18.22 I-495 Loop 855, , , ,462 $16.54 $16.82 $16.90 $15.76 Metropolitan Boston 4,593,854 4,325,860 4,699,359 4,116,608 $19.17 $18.88 $19.10 $18.22 CLASS A & B OFFICE MARKET : CHANGES FROM PREVIOUS QUARTER AND PREVIOUS YEAR ASKING RENTS VACANCY RATES NET ABSORPTION Q Q Q Q Q Q Q Q Q Downtown Boston $39.36 $38.56 $ (512,270) 692,668 (455,599) Cambridge $50.12 $47.95 $ (53,708) (88,712) 70,896 Route 128 Loop $22.58 $22.41 $ (445,627) 226,481 (181,193) I-495 Loop $17.97 $17.61 $ (413,683) 44,813 (30,344) Metropolitan Boston $30.97 $30.31 $ (1,425,288) 875,250 (596,240) Source: Co-Star, NAI Hunneman Commercial Company. Prepared: April, 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 Congress Street Boston, MA Metro Boston Real Estate Q1/13

5 Boston Office Market Featured in this Quarter s Hot Spot Index Saw it on the Street: Continued lack of available space and rising rents in the Seaport opens the door for Financial District and Downtown Crossing vacancies to be filled. Financial District landlords looking to attract companies by creating collaborative spaces to fill lower floor vacancies. We continue to see non-city tenants move to Boston to recruit and retain talent. FEATURED PROPERTY Notable Transactions: Life is good: Relocating to 51 Melcher Street 22,000 SF (NAI Hunneman transaction) Carpenter & Co. dual tower development at Christian Science Center Netsuite: Relocating to 51 Melcher Street 33,000 SF Converse: Relocating to Lovejoy Wharf 186,000 SF 867 Boylston Street Back Bay Office Contact: Dan Collins or Steve Cusano CLASS A OFFICE SPACE Financial District 31,133,482 3,525, ,899 3,626,470 $ North Station/North End 1,346,531 1, ,275 $ Seaport 2,005, ,351 5, ,664 $ Charlestown 1,043,771 62,693 10,639 73,332 $ Back Bay 11,906, , , ,822 $ Downtown Boston 47,435,402 4,703, ,532 4,938,563 $ CLASS B OFFICE SPACE Financial District 9,986, ,811 79, ,330 $ North Station/North End 6,606, ,112 10, ,207 $ Seaport 5,684, ,141 9, ,377 $ Charlestown 2,171, ,168 22, ,993 $ Back Bay 2,577, , ,960 $ Downtown Boston 27,026,706 2,281, ,675 2,402,867 $ Source: Co-Star, NAI Hunneman Commercial Company. Prepared: April, 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. 303 Congress Street Boston, MA Metro Boston Real Estate Q1/13 3

6 Cambridge Office / Lab Market Big Jump in Class B Rents Saw it on the Street: Notable Transactions: Demand: Cambridge Class A lab and office combined vacancy is holding steady in the low teens (12.8 at end of Q1) as enough new supply is added to balance absorption. Class B office space is obviously very desirable at 7.6 vacancy as those tenants that decide to remain in Cambridge get used to rates that spiked some $10/SF this past year. rates: East Cambridge Class A asking rates are now $47-61/SF gross. The jump of the better Class B buildings from the low-mid $30s into the low to mid $40s/SF is probably more shocking to those tenants than the Class A rate hikes, which at the moment top out in the high $50s. It is very difficult to find office space in East and Mid-Cambridge in the $30s/SF gross or lower. for existing lab units range from the high $20s to high $30s/SF NNN for existing lab suites in Alewife to $55-60/SF NNN for Class A labs in East Cambridge built from shell with $ /SF landlord build-out allowances. rates: combined (Class A&B) lab and office vacancy at the end of Q1 came in at 11.5, similar to last quarter. A dramatic change is occurring in Alewife, as the 12.6 mid-year 2012 spread between East and West Cambridge vacancy has now been erased! The single biggest reason is Equity s progress in leasing CambridgePark. Cambridge lab vacancy had dipped two points since in 2012 to 9.8, reflecting large deals by Foundation Medicine at 150 Second Street (61,000 SF), Dainippon Sumitomo at 640 Memorial (63,000 SF), Ironwood at 301 Binney (303,000 SF renewal/ expansion), and Alexandria s major scores in leasing significant chunks of 400 Tech Square and the new Ariad build-to-suit at Binney Street (244,000 SF). But with the Pfizer & Vertex Vacancies looming in late 2014 we are currently projecting a 14 to 18 lab vacancy in Cambridge depending on absorption assumptions. MIT is already is poised to take advantage of the demand pressures coming from Kendall Square with its Central Square/CambridgePort projects at 17 Tudor Street and 130 Brookline by creating stunning new office and lab space. Improving another key Central Square block will be Forest City Enterprises expansion of University Park campus to the front door of Mass Ave. with a newly approved 230,000 SF build-to-suit for Millennium/Takeda that will add 20,000 SF of retail and restaurants to the 300 Mass Ave. block. New housing developments and the host of cool new restaurants nearby have been helping Cambridge commercial locations by filling out the 24/7 scene. Examples of residential projects helping key blocks are the 159 First Street 115-unit development linking Kendall to Lechmere and the 32 units added to 100 Pacific Street and 622 Mass Ave. in the Central Square neighborhood. 1/101 Main Street keeps setting the pace for the highest gross office rents in Cambridge as it rapidly fills up with well-known tech players, reportedly averaging in the low $60s gross for their latest deal with MIT in 17,000 SF. New big name tech brands also keep finding their way to the Boston area by starting with Kendall Square offices. Apple recently pitched its tent at the CIC and Facebook is searching for a satellite office of 4-5,000 SF. The question is where will companies like that will be able to grow in the saturated, pricey Kendall market? Undoubtedly the next step for some will be the vacancies around Canal Park where 1, 2 and 10 Canal Park have close to 350,000 SF available and One Rogers/One Charles Park has 60,000 SF in play. The other beneficiary of the pressure from East Cambridge stands to be the next Red Line stop out of Kendall: Central Square/ Cambridgeport. Reminding us of another traditional Cambridge move pattern there is the Vlingo/Nuance expansion from Harvard Square into 30,000 SF at 675 Mass Ave. Equity Office is feeling the love at CambridgePark with a slew of new leases pending, including a new 12,700 SF Regus shared office center opening this summer. CLASS A OFFICE SPACE East Cambridge 10,159,090 1,297,298 34,284 1,331,582 $ Central Cambridge 3,184, , ,704 $ West Cambridge 1,395, , ,192 $ Cambridge 14,738,986 1,857,194 34,284 1,891,478 $ CLASS B OFFICE SPACE East Cambridge 2,038, ,213 39, ,227 $ Central Cambridge 2,385, ,823 19, ,394 $ West Cambridge 816,613 40,924 25,000 65,924 $ Cambridge 5,240, ,960 83, ,545 $ Source: Co-Star, NAI Hunneman Commercial Company. Prepared: April, 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 Congress Street Boston, MA Metro Boston Real Estate Q1/13

7 Suburban Office Market Amenities In Demand Saw it on the Street: Burlington remains one of the hottest suburban office markets as tenants love the new amenities being brought there. In Waltham, the development of the Polaroid site promises much needed retail along with a Main Street development but that hasn t had an impact on office leasing decisions yet. Rents are continuing a positive upswing. Waltham, Burlington and Lexington remain an affordable lab alternative to Cambridge as evidenced by Intelligent MDX s lease at 285 Bear Hill road.(nai Hunneman Transaction). Alexandria Real Estate Equities is converting the former single story office building to lab space. FEATURED PROPERTY CLASS A OFFICE SPACE Route 128 North 9,118,617 1,108, ,899 1,218,854 $ Route 128 Northwest 8,318, , ,652 1,116,970 $ Route 128 West 15,062,869 1,673, ,240 1,861,703 $ Route 128 Southwest 1,478, ,147 16, ,938 $ Route 128 South 4,745,814 1,266,626 46,513 1,313,139 $ Route 128 Loop 38,724,203 5,196, ,095 5,698,604 $ I-495 North 3,007, ,386 30, ,584 $ I-495 Northwest 3,540, ,516 14, ,283 $ I-495 West 5,049,634 1,038, ,476 1,192,581 $ I-495 Southwest 579,943 53, ,154 $ I-495 South 137,000 1, ,632 $ I-495 Loop 12,314,637 2,246, ,441 2,446,234 $ CLASS B OFFICE SPACE Route 128 North 9,118,617 1,108, ,899 1,218,854 $ Route 128 Northwest 8,318, , ,652 1,116,970 $ Route 128 West 15,062,869 1,673, ,240 1,861,703 $ Route 128 Southwest 1,478, ,147 16, ,938 $ Route 128 South 4,745,814 1,266,626 46,513 1,313,139 $ Route 128 Loop 38,724,203 5,196, ,095 5,698,604 $ I-495 North 3,007, ,386 30, ,584 $ I-495 Northwest 3,540, ,516 14, ,283 $ I-495 West 5,049,634 1,038, ,476 1,192,581 $ I-495 Southwest 579,943 53, ,154 $ I-495 South 137,000 1, ,632 $ I-495 Loop 12,314,637 2,246, ,441 2,446,234 $ New Boston Street Woburn, MA High Visibility Office Contact: Michael McCarthy Notable Transactions: Fresenius Medical signed a 55,000 RSF lease at 950 Winter Street in Waltham. Teleflex Medical signed a 91,000 RSF at 16 Elizabeth Drive in Chelmsford. Flexion Therapeutics signed a 14,000 RSF lease at 10 Mall Road in Burlington. Odysseys Unlimited leased 18,000 SF at One Newton Place. TA s put the building on the market following that lease. Mimecast (34k) and Fresh Tilled Soil (14k) both outgrew spaces at the Waltham Watch Factory and relocated to Riverworks, a similar mill renovation project in Watertown. Trip Advisor committed to 240,000 SF in a new build-to-suit with Normandy in Needham. Source: Co-Star, NAI Hunneman Commercial Company. Prepared: April, 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. 303 Congress Street Boston, MA Metro Boston Real Estate Q1/13 5

8 Industrial / Flex Market Users Become Buyers FEATURED PROPERTY INDUSTRIAL MARKET Industrial Submarket Rate Rate (NNN) Boston Central Core 20,950,240 1,534, $ University Ave Norwood, MA Newly Refurbished Warehouse Contact: Cathy Minnerly Route 128 North 26,867,330 1,822, $6.29 Route 128 Northwest 4,719, , $6.04 Route 128 West 11,246, , $7.19 Route 128 Southwest 11,826, , $5.38 Route 128 South 23,281,521 2,735, $5.06 Route 128 Loop 77,941,775 5,747, $5.90 I-495 North 16,144,798 1,272, $4.75 I-495 Northwest 10,490,268 1,422, $4.43 I-495 West 15,266,937 1,648, $5.08 I-495 Southwest 15,404,454 1,777, $4.33 I-495 South 13,341,206 2,464, $4.78 I-495 Loop 70,647,663 8,585, $4.69 Metropolitan Boston 169,539,678 15,867, $5.70 Saw it on the Street: General activity has regressed since start of Many transactions have not occurred as originally anticipated after a strong end to However, momentum has picked up significantly moving into Q with both tenants and buyers coming back into the market. Strong financing by banks continues to drive a user-friendly market. Many users are becoming buyers because of aggressive packages offered by the banks. Notable Transactions: GrayBar leased 25,000 SF of flex space at 348 University Ave., Westwood Blue Coast Beverages leased 21,000 SF at 45 Scotland Blvd., Bridgewater BridgeMedica leased 41,606 SF at 111 Forbes Blvd., Mansfield Warren Trask Co. acquired 78,150 SF at 63 Bedford Street, Lakeville (NAI Hunneman transaction) FireKing Baking Company acquired 40,250 SF at 101 Campanelli Drive, Braintree FLEX/R&D MARKET Industrial Submarket Rate Rate (NNN) Boston Central Core 6,753, , $17.21 Route 128 North 13,769,839 1,615, $8.62 Route 128 Northwest 9,693,575 1,364, $9.07 Route 128 West 7,228, , $12.09 Route 128 Southwest 5,001, , $8.97 Route 128 South 3,474, , $8.58 Route 128 Loop 39,167,917 4,733, $9.41 I-495 North 7,753,031 1,514, $8.07 I-495 Northwest 5,402, , $8.13 I-495 West 10,813,072 2,472, $6.31 I-495 Southwest 3,935, , $10.87 I-495 South 2,286, , $8.22 I-495 Loop 30,190,299 4,672, $7.83 Metropolitan Boston 76,111,306 9,967, $9.48 Source: Co-Star, NAI Hunneman Commercial Company. Prepared: April, 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. space, vacancy rate values include direct and sublease space. are asking rents on direct space as reported by Costar Congress Street Boston, MA Metro Boston Real Estate Q1/13

9 Investment Market First Quarter Slowdown as Market Catches Breath from 2012 Saw it on the Street: Following the flurry of activity that occurred in the fourth quarter of 2012, activity in the first quarter has slowed somewhat. However, with the fluidity of the capital markets and the strong fundamentals in Boston, we have seen a strong continuation of sales. On a macro basis, the yield on 10 year treasuries has inched up, but even with the cap rate compression there has not been a shortage of low cap rate deals. Properties in Boston and other gateway markets are still in high demand for global investors, due to the stable and secure returns they provide. Boston s capital markets in particular have continued to see a compression on cap rates, with core suburban office properties closing the delta with CBD core properties. Multifamily The grand finale of sales that marked the end of 2012 slowed down in the first quarter. A survey of multifamily sales in Q4 (>$1 million) listed 81 transactions and over $598 million in total sales volume. In comparison Q1 had 24 sales worth $165 million. Despite the dramatic difference in transactions, values and cap rates remain relatively the same from Q4 to Q1. Cap rates for quality assets within Route 128 are trading in the cap rate range and in some cases lower. Investor demand is still very strong and we expect the sales volume to increase in Q2 as more property becomes available. Demand continues as low interest rates and market fundamentals remain stable. According to REIS, metro Boston finished the year with its lowest vacancy rate since 2001 and the average effective rent rose to $1,747 per month. Low vacancy and rising rents have been trending for several years as an increased demand for rentals collided with a lack of new supply. Supply, especially around Boston, is growing. Approximately 4,400 units are under construction in Boston, Cambridge, and Somerville and another 8,000 + units are in the planning stages for those cities. METRO BOSTON OFFICE BUILDINGS Year YTD Sales Volume $4,534,772,429 $1,691,771,539 $1,076,074,221 $1,126,648,947 $3,016,896,157 $2,461,141,149 $314,056,694 # of Sales Median Cap Rate Median $/SF $229 $219 $273 $190 $185 $233 $196 METRO BOSTON RETAIL BUILDINGS Year YTD Sales Volume $1,764,083,034 $318,932,859 $113,247,170 $360,822,520 $1,031,562,508 $753,079,081 $58,470,747 # of Sales Median Cap Rate Median $/SF $224 $438 $331 $361 $289 $259 $218 METRO BOSTON INDUSTRIAL / R&D Year YTD Sales Volume $1,276,781,224 $490,462,247 $183,989,137 $429,001,645 $368,513,100 $458,075,916 $98,206,780 # of Sales Median Cap Rate Median $/SF $84 $79 $70 $72 $78 $70 $135 METRO BOSTON MULTIFAMILY Year YTD Sales Volume $2,402,762,216 $546,890,189 $425,930,062 $646,499,625 $1,213,922,556 $1,172,853,950 $116,150,000 # of Sales Median Cap Rate Median $/SF $84 $79 $70 $72 $78 $70 $135 METRO BOSTON TOTALS Year YTD Sales Volume $9,978,398,903 $3,048,056,834 $1,799,240,590 $2,562,972,737 $5,630,894,321 $4,845,150,096 $586,884,221 # of Sales Median Cap Rate Median $/SF $134 $184 $169 $156 $138 $141 $137 Source: Co-Star, NAI Hunneman Commercial Company. Prepared: April, 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. Notes: Survey of arms length sales in MA >$5 million (souce Costar) 303 Congress Street Boston, MA Metro Boston Real Estate Q1/13 7

10 NAI Hunneman Contacts Corporate Stuart Pratt, SIOR, CCIM CEO Mike DiGiano /COO David Finnegan or of Marketing Amy Stewart Graphic Designer Downtown Cambridge Leasing Greg Larsen Senior Vice President Bonny Doorakian Vice President Steve Cusano Jeff Becker Senior Vice President Dan Collins Vice President Ben Sutton Senior Chris Gotfredson Senior Vice President David Cooney Vice President Suburban Office/R&D Leasing/Sales James Boudrot Senior Vice President Michael McCarthy Vice President Jason Rexinis Steve James Brendan Daly Vice President Evan Gallagher Vice President Industrial Leasing/ Sales J.P. Plunkett David Gilkie Senior Vice President Trey Agnew Cathy Minnerly Ovar Osvold Investment Sales David Ross Doug Jacoby Dan McGee Robert Tito Bob Tito Scott Dragos Henry Lieber Mitchell Levey Carl Christie Sean Ryan Gina Barroso Congress Street Boston, MA Metro Boston Real Estate Q1/13

11 Methodology, Definitions and Submarket Map Real Estate Submarket 128 North 128 Northwest 128 West 128 Southwest 495 North 495 Northwest 495 West 495 Southwest 495 South Cambridge Boston MILES Methodology: We have divided the Metro Boston area into four submarkets for office properties: Boston, Cambridge, Route 128 and Route 495. Industrial and Flex/R&D properties are divided into three submarkets: Central Core (Boston, Cambridge, and Inner Suburbs), Route 128 and Route 495. Absorption (Net): The change in occupied space in a given time period. Asking Rate: rate as quoted from each building s owner/management company: for office space, a full-service rate was requested; for lab space, a triple net rate was requested; for retail, a triple net rate was requested; for industrial, a triple net rate basis. Building Class: Class A product is office space of steel and concrete construction, quality tenants, excellent amenities and premium rates. Class B product is office space with fair to good finishes and a wide range of tenants. Cap Rate: The net operating income divided by the sales price or value of a property expressed as a percentage. CBD: Central business district. : currently available for lease directly with the landlord or building owner. Overall : All unoccupied lease space, either direct or sublease. : Arrangement in which a tenant leases rental property to another and the tenant becomes the landlord to the subtenant. Square Footage: Net rentable area considered available for lease; includes sublease space. 303 Congress Street Boston, MA Metro Boston Real Estate Q1/13 9

12 METRO Boston Real Estate Market Review 1 st QUARTER Congress Street Boston, MA Committed to Boston, Connected to the World. Asia Pacific Canada Europe, Middle East and Africa Latin America and the Caribbean United States