NAI HUNNEMAN. Metro Boston Real Estate Market Update Spring/Summer Congress Street Boston MA

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1 NAI HUNNEMAN Metro Boston Real Estate Market Update Spring/Summer 2008 Photo by Derek Szabo Congress Street Boston MA

2 Boston Market Downtown Team Jeffrey Becker David Cooney Jonathan Gifford Christian Gotfredson The slowdown of the U.S. economy has yet to affect Massachusetts, where the state s economy expanded by 3% and added 4,600 jobs in the first quarter of This is especially evident in the Boston office leasing market which experienced yet another two consecutive quarters of increasing rents, decreasing vacancy and over 600,000 SF of positive net absorption. There are several bellwether transactions in progress, including KPMG s 125,000 SF deal at 2 Financial Center, to be delivered in 2009; Bank of America s 250,000 SF lease at 225 Franklin Street, the former State Street Bank space; and J.P. Morgan s six figure lease at Seaport Center, a deal that comes with about $4 million in tax breaks to keep the financial giant in Boston. These transactions should not be jeopardized because of overall economic conditions. All of this activity demonstrates that the financial services industry is still demanding a significant amount of space in downtown Boston. The recent signing of a 450,000 SF lease at Russia Wharf by Wellington Management is one more indicator of this trend. Another local investment firm, Eaton Vance, also expanded its 230,000 SF lease at 2 International Place by another 80,000 SF, taking three additional floors in the building. In 2007 there was one million SF of positive net absorption, 72% of which occurred in the class B market. Comparatively, in the first four months of 2008 there has been 150,000 SF of positive net absorption; this moderate velocity is expected to continue through Tenants will be more cautious with any major moves and will carefully consider their options. They will also likely feel less pressure from landlords, who will turn their focus to retaining existing tenants instead of relying on finding new prospects. Tenant improvement allowances and free rent should be more negotiable. Rents will probably slide back down a bit, but not too drastically given the existing demand. If all the leases cited above are signed, supply will still be limited even as new construction is completed. 15% 12% 9% 6% 3% 0% $50 $40 $30 $20 $10 Overall Class A and B Vacancy (%) 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 Average Asking Class A & B Rental Rate 2Q06 1Q07 2Q07 3Q07 4Q07 1Q08 Class A & B Market Inventory Class B 25% Class A 75% Tenant: Building: Size (SF): Submarket: Wellington Management Russia Wharf, 280 Congress Street, Boston 450,000 Financial District Burns & Levinson LLP 125 Summer Street, Boston 103,000 Financial District Jacobs Engineering Group 343 Congress Street, Boston 50,000 South Station/Fort Point Aberdeen Group Seaport Center, 451 D Street, Boston 26,000 South Station/Fort Point Pepper Hamilton 125 High Street, Boston 25,000 Financial District HNTB 31 St. James Avenue, Boston 21,000 Back Bay

3 Cambridge Market Cambridge Greg Larsen The 2008 Cambridge office market is experiencing the progression of the two major trends of 2007: the Blackstone Effect and the Alexandria Effect. The former has pushed office rents in Cambridge from $40s gross PSF to mid $50s gross PSF in the past 12 months. The Alexandria Effect is the result of Alexandria Realty s acquisition of approximately 13 acres of prime Kendall-to-Lechmere office and lab addresses for the long-term development of a major lab space campus. The prospect of conversion and new development of these properties into Alexandria s core product, which is class A lab space, has already sent lower-priced Cambridge lab and office tenants looking at their next best options. Limited supply, continued growth in the technology and healthcare sectors, and aggressive pricing from landlords has produced an astonishing 60% rental rate increase over the past three years in East Cambridge. Mid and West Cambridge rents increased about 25% during this time. Most of the major deals listed below are renewals, or blend and extend expansions. Tenants relocating to the west and north are decreasing leasing volume in Cambridge. This trend is the big story in the 2008 lab market. A noticeable number of companies have leased much of the existing lab inventory in 10,000 40,000 SF deals along the Route 128 West and Northwest corridors in Watertown, Waltham, Lexington and Bedford. AMAG Pharmaceuticals is rumored to be moving from Cambridge to 56,000 SF at 100 Hayden Avenue in Lexington. Lab rates are still in the mid $30s to mid $40s PSF NNN in the suburbs, compared to predominantly $50s to $60s PSF NNN quoted in East Cambridge. As a result, lab vacancies in Cambridge have risen to 10.5% from 9.6% a year ago. With its constrained supply, the Cambridge market may only be softened by a general economic slump, especially if venture capitalists continue funding. Those tenants that do not need to stay will find alternatives. Other tenants will lock in commitments at the best rates possible, or consider user sales. 15% 12% 9% 6% 3% $50 $40 $30 $20 $10 Overall Class A and B Vacancy (%) 0% 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 Average Asking Class A & B Rental Rate 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 Class A & B Market Inventory Class B 28% Class A 72% Tenant: Building: Size (SF): Submarket: CDM 1 Cambridge Place, Cambridge 180,000 Mid-Cambridge Abt Associates 55 Wheeler Street, Cambridge 125,000 West Cambridge NextJump 1 Kendall Square, Cambridge 22,000 East Cambridge Zipcar 25 First Street, Cambridge 21,100 East Cambridge KlingStubbins 1030 Massachusetts, Avenue, Cambridge 21,000 Mid-Cambridge Ore Pharmaceuticals 38 Sidney Street, Cambridge 19,000 Mid-Cambridge

4 Route 128 Market Suburban Team James Boudrot Joseph Flynn Evan Gallagher David Gilkie Stephen James Michael McCarthy The Route 128 office market remains strong as there are few signs of deceleration. There has been over 500,000 SF of positive net absorption in the first quarter of 2008, and vacancy rates dropped another 50 basis points to 12.6% since the end of Average rental rates vary depending on the location and condition of the building, ranging from $17 PSF for older class B space to $40 PSF for newly constructed class A space, but are expected to level off this year. Demand remains constant in this market. Two of the larger tenants in the market are Citizens Bank, seeking up to 200,000 SF in the South Shore area, and VistaPrint, currently in Lexington, looking for at least 400,000 SF of expansion space. The 128 market is still providing rent relief for Boston and Cambridge tenants. Astratech recently moved its Cambridge and Waltham operations to a newly renovated office at 590 Lincoln Street in Waltham. The constant flow of tenants has caused more suburban tenants to look beyond Waltham and Burlington for better deals. This has sustained activity in the 128 Northwest market, where the vacancy rate has dropped from 17.1% in the first quarter of 2007 to 12.7% currently. In Billerica, Parexel signed a 100,000 SF lease at the Fields Office Park, and Soapstone will soon follow with a 60,000 SF lease at 1 Federal Street, also in the same complex. Much of this demand is driven by industries that are minimally affected by the downturn in the nation s economy, including bio-tech and high tech companies that see an opportunity to negotiate for more lease incentives. Tenants will err on the side of caution but for many tenants already in the market that will mean looking at $30 $40 PSF class A space in the suburbs versus $50 $60 PSF class A space in a Downtown tower. The outlook is good for the Route 128 office market in the near future. However, as more companies merge and preemptively downsize, there may be an influx of sublease space which may be the wild card for the latter half of % 20% 15% 10% 5% $30 $25 $20 $15 $10 $5 Overall Class A and B Vacancy (%) 0% 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 Average Asking Class A & B Rental Rate 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 Class A & B Market Inventory Class B 49% Class A 51% Tenant: Building: Size (SF): Submarket: State Street Bank 200 Newport Avenue, Quincy 146, South Parexel 2 Federal Street, Billerica 100, Northwest Astratech 590 Lincoln Street, Waltham 85, West Autodesk 1560 Trapelo Road, Waltham 65, West National Grid 201 Jones Road, Waltham 50, West Concert Pharmaceuticals 1 Ledgemont Center, Lexington 40, Northwest

5 Route 495 Market Suburban Team James Boudrot Joseph Flynn Evan Gallagher David Gilkie Stephen James Michael McCarthy The leasing velocity that the Route 495 office market experienced in 2007 has tapered off in the first quarter of The vacancy rate for class A and B space is up from 18.8% in the fourth quarter of 2007 to 19.6% in 2008; rents are down a little from $19.01 PSF to $18.84 PSF; and net absorption is down slightly at negative 75,000 SF. There has also been a small increase in sublease space due to companies consolidating extra space for greater efficiency in anticipation of a slow year. Kronos put 110,000 SF of sublease space on the market at 300 Billerica Road in Chelmsford. In comparison to 2007, the Route 495 area is off to a slow start; however, these numbers are not cause for alarm as the 495 belt has recovered substantially in the past decade from vacancy rates that hovered around 30% in There is also steady organic growth along the 495 North and 495 West corridors. In Tewksbury, AARP Financial renewed and expanded into 18,000 SF at 2 Highwood Drive. Solomon Pond Park in Marlborough has had several lease expansions. Creganna Medical Devices from Ireland leased another 10,000 SF for a total of 20,000 SF, and Blue Cod Technologies grew from 18,500 SF to 31,000 SF. Optos will relocate from 14,477 SF at 155 Northborough Road in Southborough and 7,800 SF at 199 Forest Street in Marlborough to a larger space of 26,648 SF at 67 Forest Street in Marlborough. Larger tenants in the market still have plenty of options in the Route 495 area especially in the North with 190,000 SF existing and 400,000 SF proposed at Cross Point in Chelmsford; 316,000 SF at Brickstone Square in Andover; and 292,000 SF at 4 buildings on Apollo Drive in Chelmsford. Medical device, healthcare, technology and defense companies often prefer these buildings for the ample space and superior amenities. Tenants in the Route 495 market have several luxuries that other markets cannot offer: the best value, most selection, and room for expansion. Demand from organic growth is expected to continue along with demand from sizable users such as Raytheon. These factors, along with limited new construction and no speculative construction, should stabilize the market in % 20% 15% 10% 5% Average Asking Class A & B Rental Rate $30 $25 $20 $15 $10 $5 Overall Class A and B Vacancy (%) 0% 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 Class A & B Market Inventory Class B 50% Class A 50% Tenant: Building: Size (SF): Submarket: Unicare 200 Brickstone Square, Andover 57, North Mayo Clinic 160 Dascomb Road, Andover 55, North Netezza Corporation 26 Forest Street, Marlborough 45, West Brookfield Power 200 Donald Lynch Boulevard, Marlborough 28, West Mitralign Inc. 3 Highwood Drive, Tewksbury 17, Northwest Kimberly-Clark 124 Grove Street, Franklin 15, Southwest

6 Industrial/Flex Market Industrial/Flex Team Peter Benke James Denton Joseph Flynn David Gilkie Mark Gottesman Michael McCarthy The Boston industrial market, which consists of warehouse and manufacturing/distribution buildings, is off to a fair start in Vacancy rates are on par with the end of Leasing activity is up, however with smaller deals, resulting in nearly one million SF of negative net absorption. A majority of this absorption activity is in the Route 128 South submarket. Over 400,000 SF came onto the market at 625 University Avenue in Norwood as Canton-based Reebok plans to consolidate distribution operations in South Carolina; and another 400,000 SF block of warehouse space was added at 560 Oak Street in Brockton. Despite this influx of space, industrial leasing rates have managed to creep up by.11 to an average of $6.34 PSF on a triple net basis. In contrast, flex/r&d market is off to a stronger start with vacancy rates declining yet again from 14.8% to 13.4%. This impressive 140 basis point drop can be attributed to activity in the Route 128 North and Northwest quadrant where GSI Group leased 147,000 SF at 125 Middlesex Turnpike in Bedford, and Nexx Systems has committed to 40,000 SF at 900 Middlesex Turnpike in Billerica. Another factor is an increase in sublease activity, with Zink Imaging leasing 80,000 SF from Affymetrix at 16 Crosby Drive in Bedford, and Olympus NTD agreeing to lease 40,000 SF at 40 Woerd Avenue in Waltham from Cisco. Average rental rates are stable at $10.65 PSF NNN which reflects a minuscule.02 drop from the last quarter. Overall absorption is down at negative 500,000 SF, almost all of which is in the Route 495 North submarket at 1600 Osgood Street in North Andover, where Lucent continues to shrink its space needs. This provides more space opportunities for smaller companies such as Ophir Optronics. The motto for the industrial market continues to be slow and steady, while the flex/r&d market is witnessing more growth as a greater number of high tech and biotech companies require research space, especially as environmental science becomes a more active industry. Initially much of this demand will be for space less than 100,000 SF which will result in less absorption, but rents and vacancy should only waver, stabilizing in the second half of Average Rental Rate (NNN) Average Rental Rate (NNN) $6.50 $6.40 $6.30 $6.20 $6.10 $6.00 $11.00 $10.50 $10.00 $9.50 $9.00 $8.50 Metro Boston Industrial Market 4Q06 1Q07 2Q07 3Q07 2Q07 3Q07 Asking Rent 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 Asking Rent Vacancy Flex vs. Industrial Inventory Flex 30% Vacancy Metro Boston Flex/R&D Market Industrial 70% 11.0% 10.5% 10.0% 9.5% 9.0% 8.5% 16.0% 15.5% 15.0% 14.5% 14.0% 13.5% % Vacant % Vacant Tenant: Building: Property Type Size (SF): Submarket: Wetmore Custom Packaging 326 Ballardvale Street, Wilmington Warehouse 88, North Paradigm/Precision Holdings 1 Second Street, Peabody Warehouse 70, North Premium Power Corp. 87 Concord Street, North Reading Flex/R&D 50, North Graybar, Inc. 265 Ballardvale Street, Wilmington Manufacturing 35, North Verticall 495 Technology Center, Southborough Manufacturing/R&D 35, West Ophir Optronics 1600 Osgood Street, North Andover Flex/R&D 32, North

7 Investment Market Investment Team Gina Barroso Carl Christie David Ross Daniel McGee Robert Tito The malaise of the overall economy can be most felt in the investment sales market, where it feels like activity has come to a standstill compared to the velocity of recent years. Securitized lenders that repackaged commercial property loans into CMBS (commercial mortgage backed securities) funded many of these 2006 and 2007 transactions. But after the severity of the credit crisis was revealed in the second half of 2007, they were unable to provide such ready financing. This has set the stage for alternate financing sources often through banks and insurance companies with lengthy underwriting periods. As it is more difficult for buyers to obtain loans, transaction volume is down, and there is greater bid gap between of buyers and sellers. Nationally there have been twice as many new offerings as there were closings in the first quarter of However, Boston s investment sales market is faring better than most. Factors that are contributing to this are the strong leasing fundamentals of the office market, with stable rental rates and low vacancy rates; the numerous institutions of higher education as student housing is viewed as a stable multifamily investment; and the continued redevelopment of older malls and construction of new lifestyle centers that indicate that the retail market is still moving. Another hopeful sign is that although the 10-year treasury rates are down 125 basis points from a year ago, cap rates have not increased as much as expected will most likely be a slow year for investment sales. Buyers will have to jump through many more hoops to obtain financing, active lenders have time to cherry pick who to allocate loans to, and sellers are not yet willing to compromise too much on pricing. Sellers are choosing to terminate the deal or pull a property off the market if their expected price is not met. This is not a bad choice for office and multi-family property owners in Boston where leasing rates are still very healthy and apartment rents are strong. 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0 $500 $400 $300 $200 $100 Cap Rates 12 Month Average 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 Office CBD Office Suburb Flex/R&D Warehouse Retail Multi-family Price $/Square Foot 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 Office CBD Office Suburb Flex/R&D Warehouse Retail Multi-family Major Sale Transactions Building Submarket Property Type SF or units Price $/SF or unit 53 & 75 State Street, Boston* Financial District Office - CBD 1,908,000 $477,000,000 $510 Windsor Gardens, Norwood 128 South Multi-family 900 $160,950,000 $178,833 The Loop, Methuen 495 North Retail 338,034 $91,000,000 $269 Rivertech Park, Billerica 128 North Manufacturing 285,772 $45,200,000 $158 Highlands at Faxon Woods, Quincy 128 South Multi-family 196 $34,300,000 $175, Westminster Street, Providence RI Providence, RI Office CBD 350,000 $33,200,000 $95 Locke Drive Technology Park, Marlborough 495 West Flex/R&D 295,700 $29,100,000 $98 Abt Associates HQ, Cambridge Cambridge Office - CBD 125,000 $24,500,000 $196 Five Burlington Woods, Burlington 128 North Office -Suburban 106,000 $21,300,000 $201 Town Lyne Village & Camelot, Clinton Worcester Multi-family 193 $16,500,000 $85, Summer St, Boston Fort Point/Seaport Office - CBD 54,000 $14,250,000 $ N. Washington Street, Boston North Station/North End Office - CBD 53,000 $11,700,000 $ Concord St, Framingham 128 West Office -Suburban 75,601 $9,300,137 $123 Oak Ridge, Foxboro 128 South Multi-family 61 $7,150,000 $117,213 *Transaction represents the acquisition of a 49% minority interest with buyer already holding a 51% interest

8 NAI HUNNEMAN Methodology / Definitions / Submarket Map 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. Average Asking Rental Rate Rental rate as quoted from each building s owner/management company: for office space, a full service rate was requested; for retail, a triple net rate requested; for industrial, a NNN basis. Building Class Class A product is office space of steel and concrete construction, quality tenants, excellent amenities & 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 Direct Vacancy Space currently available for lease directly with the landlord or building owner. Overall Vacancy All unoccupied lease space, either direct or sublease. Sublease Arrangement in which a tenant leases rental property to another, and the tenant becomes the landlord to the subtenant. Total Square Footage Net rentable area considered available for lease; includes sublease space. 303 Congress Street Boston MA