ROUTE 128 & INTERSTATE 495 SUBURBAN OFFICE MARKET REPORT

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1 ROUTE 128 & INTERSTATE 495 SUBURBAN OFFICE MARKET REPORT FIRST QUARTER 2018

2 STRONG MOMENTUM TO START NEW YEAR Greater Boston s suburban office market encompasses over 107 million square feet and consists of eight major submarkets concentrated along Route 128 and Interstate 495. Immense pressure across the Boston and Cambridge markets has caused tenants to consider suburban locations for rent relief and future growth opportunities, however not all suburban locations are created equally. Today s tenants demand the Downtown amenity package which includes fitness centers & locker rooms, on-site conference & dining facilities as well as surrounding mixed-use vibrancy including food & beverage, entertainment and housing. As Greater Boston s premier suburban market, the Route 128 loop has garnered global recognition for its proximity to urban markets, excellent infrastructure, distinguished tenant base and top quality assets. During the first quarter, leasing velocity maintained its momentum from last quarter with 313,650 square feet of quarterly net absorption which lowered the vacancy rate to 9.7%. Interstate 495, the outer suburban belt, has traditionally served as the back office and corporate campus solution. However, as the eastern Massachusetts landscape has evolved and become more saturated, tenants are looking to I-495 locations for larger blocks of space as well as more economical solutions across all business sectors. Despite a slow first quarter, I-495 s 12-month absorption eclipsed 501,850 square feet which translates into a 15.0% vacancy rate. Looking forward, strong regional macroeconomic indicators coupled with strengthening regional demographics have the Greater Boston suburban real estate market positioned for future growth. Over the next 12 months, watch as both investors and tenants acknowledge the growing spread between Downtown pricing and the suburbs and the market adjusts accordingly. 3.5% 4.1% # 3.3% 2ND FEBRUARY MASSACHUSETTS UNEMPLOYMENT FEBRUARY NATIONAL UNEMPLOYMENT MA QUARTERLY GDP GROWTH HIGHEST GDP PER CAPITA NATIONALLY

3 MARKET TRENDS CLASS A ASKING RATE VS. DIRECT VACANCY $ % VACANCY RATE TO 11.7% Strong demand across submarkets as relief for Downtown/Cambridge $28.50 $27.00 $ % 18.0% 16.0% ASKING RATES RISE AGAIN Inner suburban markets accelerate growth, outer markets steady CONTEMPORARY UPGRADES $24.00 $22.50 $21.00 $19.50 $ Average Asking Rate Direct Vacancy (%) YTD % 12.0% 10.0% 8.0% 6.0% Landlords must adapt and keep common areas & lobbies fresh CREATING A SENSE OF PLACE Open layouts, collaborative environments & unique amenities CLASS B ASKING RATE VS. DIRECT VACANCY LOCATION IS NOT FORGOTTEN Highway access, public transit & parking remain paramount $24.00 $23.00 $22.00 $ % 19.0% 18.0% 17.0% TENANTS FAVOR CREATIVE OFFICE Creating the Downtown feel in a suburban setting $20.00 $19.00 $18.00 $ % 15.0% 14.0% 13.0% INVESTMENT SALES REBOUND $ Average Asking Rate Direct Vacancy (%) 2017 YTD % Watch for a busy year in the suburbs

4 DIRECT VACANCY RATE BY SUBMARKET Route 2 West 495 Northeast Mass Pike 495 South 128 North 128 South Route 3 North 128 West Inner Suburbs 0.0% 4.0% 8.0% 12.0% 16.0% 20.0%

5 SUBMARKET AVERAGE ASKING RATES Rte-2 West $19.99/SF Rte-3 North $21.49/SF 495 North $20.05/SF 128 North $26.77/SF 128 West $32.72/SF I-495/Mass Pike $20.90/SF 128 South $22.35/SF 495 South $20.15/SF

6 CLASS A & B OFFICE ROUTE 128

7 The Route 128 market began the new year on a positive note with strong leasing velocity leading to 313,650 square feet of net absorption. Vacancy dropped to 9.7% which supported asking rate growth and brought the average asking rate into the high $20 s PSF. Generally speaking, the best performing assets cater to modern tenants including: contemporary lobbies & common areas, fitness & dining services and outdoor spaces in addition to upgraded building mechanicals and infrastructure. With great access to the MBTA Orange Line, but often not perceived as a strong office market, Medford recorded two of this quarter s larger leases. Agero, the innovative automobile experience provider, grew within the market announcing a major relocation from One Cabot to a 115,000 square foot build-to-suit at 400 Rivers Edge. Offsetting the vacating Agero was iheartradio who disclosed they will nearly double to 21,500 sqaure feet at One Cabot. To the west of the city, Boston Properties landed Simpson Gumpertz & Herger s 100,000 square foot requirement at the under construction 20 City Point in Waltham. After extensively touring the market and narrowly missing out on space at Boston Landing, SGH committed to the premier Waltham property. Joining SGH in a relocation to Waltham will be Kendall Square based Visterra who has leased 27,000 square feet at Alexandria s 275 Second Avenue which will undergo an office to lab conversion this year. The southern Route 128 market continued gaining ground, however the pace of asking rate growth has not kept up with the west and north markets. At 500 River Ridge in Norwood, Corbus Pharmaceuticals leased 32,000 square feet. The investment sales market came to life this quarter with several notable transactions. Spear Street continued its local buying spree by acquiring the former Reebok HQ in Canton for $88 million or $130 PSF. It remains to be seen whether the they have a tenant in tow or will undertake a large scale multi-tenant lease up strategy. Just around the corner, AEW picked up the newly renovated 101 Station Drive in Westwood for just north of $250 PSF. In Waltham, Jumbo Capital scooped up Stony Brook Office park for just under $300 PSF. $ 9.7% DIRECT VACANCY # 2.6% SUBLEASE AVAILABILITY # 15.4% TOTAL AVAILABILITY # 572,050 SF 12-MONTH ABSORPTION # $27.98/SF AVERAGE ASKING RATE

8 CLASS A & B OFFICE/LAB ROUTE 128 NOTABLE RECENT LEASES ADDRESS TOWN SUBMARKET TENANT SF 400 Rivers Edge Medford Inner Suburbs Agero 115, City Point Waltham 128 West Simpson Gumpertz & Heger 100, Winter Street Waltham 128 West Alkermes* 67, Arsenal (LINX) Watertown 128 West Kala Pharmaceuticals* 66, Arsenal (LINX) Watertown 128 West Addgene* 39, Rivers Ridge Norwood 128 South Corbus Pharmaceuticals 32, Second Avenue Waltham 128 West Visterra* 27,000 One Cabot Road Medford Inner Suburbs iheartradio 21, Arsenal Way Watertown 128 West Macrolide Pharmaceuticals* 18, Station Drive Westwood 128 South Mott MacDonald 12, Waverly Oaks Waltham 128 West Veo Robotics* 12, Pleasant Street Watertown 128 West InCrowd 11, Boston Avenue Medford 128 North enevolv 10,000 *lab transaction AVERAGE ASKING RATE BY SUBMARKET AVERAGE DIRECT VACANCY BY SUBMARKET $ % $ % $ % $ % $ % $ % $ % $ % $ YTD % YTD2018 West South North

9 RECENT INVESTMENT SALES Stony Brook Waltham 10 Cabot Road Medford 101 Station Drive Westwood Reebok Campus Canton Reebok Campus, Canton $88,000,000 ($130/RSF) Buyer: Spear Street Stony Brook Park, Waltham $80,058,000 ($296/RSF) Buyer: Jumbo Capital 101 Station Drive, Westwood $53,100,000 ($255/RSF) Buyer: AEW Capital 10 Cabot Road, Medford $24,750,000 ($233/RSF) Buyer: KS Partners

10 CLASS A & B OFFICE INTERSTATE 495

11 Quarterly performances were mixed across I-495 s submarkets with the net result leading to just over 72,550 square feet of negative quarterly absorption. However, over the past 12 months, the market achieved nearly 501,850 square feet of positive absorption which brought the vacancy rate to 15.0%. Generally speaking, I-495 offers less volatility than its more urban counterparts by historically maintaining a 12-18% vacancy rate with average rents in the high teens to mid $20 s for well positioned product. Several leases were signed in the Mass Pike submarket. At 35 Parkwood Drive, a formerly vacant EMC building, ownership has nearly completed their leasing campaign after signing Spring Bank Pharmaceuticals to a 29,850 square foot lease. In Westborough, the Pall Corporation leased 22,800 square feet at 1700 West Park Drive. While in Framingham, Boston Heart Diagnostics committed to 11,000 square feet at 175 Crossing Boulevard. The Route 3 North corridor, which houses some of I-495 s premier technology & defense tenants, recorded strong quarterly activity in Chelmsford. At 300 Apollo Drive, HCL America and US Alliance signed 29,050 and 20,000 square foot leases respectively. In the Northeast submarket, Andover posted strong leasing momentum with Aras Corporation nearly doubling their size to 66,300 square feet during a relocation within Andover Landing into 100 Brickstone Square. At 6 Riverside Drive, Physical Sciences Inc took 33,000 square feet in an expansion aimed to grow its tactical robotics division. The forecast for the Interstate 495 market remains bright particularly as interior suburban locations become more congested and expensive. Across the board, tenants are more real estate conscience than ever before and face the challenge of keeping costs in check while cultivating corporate culture that retains and attracts top talent. # 15.0% DIRECT VACANCY $ 1.8% SUBLEASE AVAILABILITY 20.2% TOTAL AVAILABILITY $ 501,900 SF 12-MONTH ABSORPTION # $20.66/SF AVERAGE ASKING RATE

12 CLASS A & B OFFICE INTERSTATE 495 NOTABLE RECENT LEASES ADDRESS TOWN SUBMARKET TENANT SF 100 Brickstone Square Andover 495 Northeast Aras Corporation 66,300 6 Riverside Drive Andover 495 Northeast Physical Sciences 33, Parkwood Drive Hopkinton 495 Mass Pike Spring Bank Pharma 29, Apollo Drive Chelmsford Route 3 North HCL America 29, West Park Drive Westborough 495 Mass Pike Pall Corporation 22, Apollo Drive Chelmsford Route 3 North US Alliance 20,000 One Cabot Road Hudson 495 Mass Pike Vision Government Services 16, Turnpike Road Southborough 495 Mass Pike Virtusa Corporation 12, Crossing Boulevard Framingham 495 Mass Pike Boston Heart Diagnostics 11, Turnpike Road Southborough 495 Mass Pike AnchorOps 10,700 3 Speen Street Natick 495 Mass Pike DTR Advertising 8, New England Business Andover 495 Northeast Encompass Home Health 5,100 AVERAGE ASKING RATE BY SUBMARKET AVERAGE DIRECT VACANCY BY SUBMARKET $ % $ % $ % $ % $ % $ % $ % $ % $ YTD % YTD2018 Northeast South Mass Pike

13 RECENT INVESTMENT SALES 133 Littleton Road Westford 150/200 Donald Lynch Marlborough Crosspoint Tower Lowell 1 Clarks Hill Framingham Cross Point Towers, Lowell $227,200,000 ($178/RSF) Buyer: Cross Harbor 133 Littleton Road, Westford $19,050,000 ($297/RSF) Buyer: MB Real Estate Healthcare 150 & 200 Donald J Lynch, Marlborough $13,068,985 ($104/RSF) Buyer: Minardi Metrowest Properties 1 Clarks Hill, Framingham $4,150,000 ($41/RSF) Buyer: Yaro Enterprises

14 OFFICE REPORT STATS

15 Office TOTAL A&B Total Inventory (SF) Direct Vacancy Sublease Availability Total Availability Quarterly Absorption (SF) 12 Month Absorption (SF) Average Asking Rate Inner Suburbs 5,033, % 1.2% 12.3% 45,350 (40,550) $37.19 ROUTE ,859, % 2.6% 15.4% 313, ,050 $ West 24,692, % 3.6% 15.2% 185,500 78,350 $ North 18,401, % 1.5% 15.0% 94,050 52,050 $ South 16,764, % 2.3% 16.2% 34, ,650 $22.35 INTERSTATE ,364, % 1.8% 20.2% (72,550) 501,850 $ Mass Pike West 19,041, % 2.5% 22.3% (151,950) (62,050) $ Route 2 West 6,609, % 0.9% 25.5% 7, ,900 $ Northeast 5,721, % 1.3% 18.8% 99, ,750 $20.05 Route 3 North 6,718, % 1.8% 12.5% (27,050) (103,250) $ South 4,272, % 0.3% 16.5% (1,000) 169,450 $20.15 CLASS A TOTAL 107,256, % 2.2% 17.1% 286,450 1,033,300 $25.52 Inner Suburbs 2,751, % 2.2% 10.4% 34,350 (41,450) $37.83 ROUTE ,953, % 3.1% 15.5% 238, ,250 $ West 15,180, % 4.2% 14.4% 93, ,150 $ North 12,145, % 1.8% 15.5% 106, ,150 $ South 9,627, % 3.0% 17.2% 38, ,950 $23.97 INTERSTATE ,709, % 2.9% 20.7% (221,250) (98,100) $ Mass Pike West 11,595, % 3.9% 23.5% (166,750) (208,500) $ Route 2 West 2,649, % 2.3% 20.6% 17,200 (4,650) $ Northeast 3,173, % 1.4% 23.5% (75,650) 59,250 $20.92 Route 3 North 3,699, % 2.6% 10.0% 18,650 (10,400) $ South 1,591, % 0.2% 20.0% (14,650) 66,200 $21.00 CLASS B TOTAL 62,414, % 3.0% 17.2% 52, ,750 $28.13 Inner Suburbs 2,282, % 0.0% 14.5% 10,950 1,000 $36.64 ROUTE ,905, % 1.7% 15.3% 74,750 4,750 $ West 9,512, % 2.6% 16.5% 91,900 (97,850) $ North 6,256, % 0.9% 13.9% (12,850) (105,100) $ South 7,137, % 1.4% 14.9% (4,400) 207,700 $21.12 INTERSTATE ,654, % 0.4% 19.5% 148, ,950 $ Mass Pike West 7,446, % 0.3% 20.3% 14, ,450 $ Route 2 West 3,960, % 0.1% 28.7% (9,550) 255,600 $ Northeast 2,548, % 1.1% 13.0% 175, ,500 $18.57 Route 3 North 3,018, % 0.8% 15.5% (45,700) (92,850) $ South 2,680, % 0.3% 14.5% 13, ,250 $19.86 TOTAL 44,842, % 1.1% 17.1% 234, ,550 $23.10

16 ETHAN ROBERT Director of Research O: MARY PATALITA Associate O: Lincoln Property Company 53 State Street, 8th Floor, Boston, MA LPCBoston.com Lincoln Property Company s Boston Office Report is produced by the Boston Office s research team in collaboration with our Suburban Brokerage Group. If you have any questions regarding market conditions and the information found in this report, please contact Ethan Robert.