Greater Boston MARKETBEAT. Office Q3 2016

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1 GREATER BOSTON OFFICE Economic Indicators Q3 15 Q3 16 MA Employment 3.51M 3.58M MA Unemployment 4.8% 3.9% U.S. Unemployment 5.2% 4.9% Office Market Indicators Q3 15 Q3 16 Overall Vacancy 9.3% 9.7% Net Absorption (YTD) 2.1M 318K Economic Overview On the eve of a presidential election, greater Boston has hit an economic pause. No one knows for sure if we re on the verge of a bubble or mid-way through a long and particularly slow climb though there s certainly no shortage of opinions. A recent article from think tank American Enterprise Institute revealed that the US enters recessions twice as frequently following a presidential election compared to all other years (though the cause is unclear). Meanwhile, headlines touting hiring streaks, low unemployment and gas prices below $2.50 a gallon are daily news. And consumer confidence is apparently at its highest level since 2007 (despite a dip in consumer spending as of August). Under Construction 5.9MSF 4.2MSF Average Asking Rent (Gross) $32.54 $34.45 Overall Net Absorption/Overall Asking Rent GREATER BOSTON OFFICE 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000, Q3 16 Net Absorption, SF Asking Rent, $ PSF $40 $30 $20 $10 Trying to make sense of these conflicting reports is an exercise in futility. Especially since, based on what we re seeing in greater Boston, there s a much less complicated explanation - demographics. The correlation between baby boomers (76 million people born between 1946 and 1964) reaching retirement age and growth of the region s pharmaceutical and biotechnology presence is undeniable. And so is the fact that real estate and recruitment of young people go hand-in-hand evidenced by the arrival of shared space models and skateboarding commuters in the Financial District. No matter how you slice it, we re on the verge of change. Is 128 Central the next Kendall Square? Are the Inner Suburbs poised to become the next Seaport? We re not prepared to issue definitive proclamations quite yet. But we are convinced that, when it comes to real estate, the impact of generational shifts and preferences is effecting more meaningful change than oil prices or consumer confidence. Overall Vacancy 16% 14% 12% Historical Average = 12.0% 10% 8% 6% 4% Q3 16 Outlook As rents level off in Boston, they keep rising in Cambridge - which is rapidly becoming an exclusive town of high credit life science and technology companies. This is mostly because landlords can afford to be choosy and these companies are the only ones who can afford the historically high rents. As a result, the spillover demand for lab space in the suburbs has grown 25% in the past year. What this all means is that change is occurring - across all of the region s markets. We re unsure how it will all play out, but we do anticipate a shift in market fundamentals in the next 12 to 18 months. cushmanwakefield.com 1

2 BOSTON MARKET Market Indicators Overall Vacancy 7.4% 7.0% Net Absorption (YTD) 870K 335K Avg Effective Rent (Gross) $46.61 $50.31 Market Overview At just over 335,000 SF year to date (YTD), absorption in Boston crossed into positive territory for the first time this year largely due to the delivery of Goodwin Procter s new 400,000 SF space at 100 Northern Avenue in the Seaport. Although the law firm announced its intention to relocate from the Financial District in late 2012, it wasn t until the first week of the third quarter that its new space was ready for occupancy. Inventory Breakdown Govt. Center/ North Station 3.3MSF 5.0% Fenway Midtown 2.1 MSF 2.0 MSF Charlestown 1.7 MSF Office space is becoming an increasingly important recruitment tool and the list of downtown tenants opting for new construction continues to grow. This has ignited an arms race for amenities in existing buildings. 53 State Street recently unveiled a newly renovated roof deck while at 100 Federal Street renovations are underway for an enclosed street-level plaza that will include a winter garden. Seaport 8.9 MSF South Station 2.9 MSF Financial District 30.1 MSF As landlords up the ante on enhancements to attract and retain tenants, asking rents in some high-rise trophy buildings (specifically in the Financial District and Back Bay) have reached into the low $90s PSF. This is especially notable because rents in this micro market now exceed historical highs including the run up to the tech bubble in 2000 and the brink of the financial crisis in Class A&B Historical Availabilities and Rents Class A Rent Class B Rent 25% $70 15% 0% 10% Back Bay 12.3MSF Class A Availability Class B Availability Q $50 $20 But, with demand contracting more than 40% since last summer, rents across the rest of the city have leveled off for the second consecutive quarter remarkable because this time last year, we were watching as class B rents jumped 30% in nine months. One of the most frequently asked questions these days is What s GE s effect on Boston so far? The answer is that it really is too soon to tell. However, we have noticed an increase in asking rents around GE s property in Fort Point Channel rising from the low $40s PSF to the low $50s PSF over the past few months. Whether or not tenants agree to lease space at these prices is yet to be seen. Market Highlights The life sciences sector continues to expand in Boston. Decibel Therapeutics signed a lease for 32,000 SF at 1325 Boylston Street in the Fenway this quarter. It will relocate from Cambridge in February America s Test Kitchen announced its intention to move from Brookline into 52,000 SF in the Seaport. cushmanwakefield.com 2

3 CAMBRIDGE MARKET Office Market Indicators Overall Vacancy 3.9% 1.5% Net Absorption (YTD) 565K 266K Avg. Effective Rent (Gross) $68.54 $81.00 Laboratory Market Indicators Overall Vacancy 3.2% 4.1% Net Absorption (YTD) 381K -62K Avg. Effective Rent (NNN) $64.67 $77.00 Cambridge Inventory 9.7 MSF 11.1 MSF Lab Office Market Overview The Cambridge market is as tight as ever. With the combined availability rate of both office and lab product at 5.2%, space is as it has been for some time extremely limited. However, we did see a number of large deals this quarter led by the life science sector. Takeda Pharmaceuticals leased 100,000 SF at 26 Landsdowne Street space previously leased by Ariad Pharmaceuticals. Momenta Pharmaceuticals took 81,000 SF on the top floor of 300 Binney Street. And also on life science row, Johnson & Johnson committed to 200,000 SF at 100 Binney Street. Cambridge is obviously space constrained and its limited development options are highly coveted. One that we re keeping our eye on is The Volpe National Transportation Systems Center - a 14-acre site owned by the US Department of Transportation. It is arguably the most sought after site in the region with at last count seven companies making bids on the project. Located just steps from the Kendall/MIT MBTA stop, there is not a more desired location for Boston s life science and technology companies. On the capital markets front, 245 First Street became yet another building to trade for over $1,000 PSF. The 298,000 SF of combined office and lab space sold for $311 million or $1,045 PSF this quarter. The building joins One Memorial Drive and One Kendall Square as recent Cambridge properties to trade above the $1,000 PSF benchmark. Direct Available vs. Sublease Available 2,000,000 Sublease Office Direct Office Sublease Lab Direct Lab 1,500,000 Lab space is commanding average asking rents of $78 PSF NNN, escalating 3% a year. We do not expect rent growth to subside anytime soon - especially with continued strong demand for lab space in Cambridge. In the office sector, asking rents for premier space are approaching $85 PSF gross. We would not be surprised if this number eclipses $100 PSF by the end of next year. Square Feet 1,000, ,000 Market Highlights Akamai, one of Cambridge s largest homegrown tech firms and one of its best success stories has committed to its hometown for the long haul as it plans a build-to-suit with Boston Properties for 400,000 SF at 11 Cambridge Center cushmanwakefield.com 3

4 SUBURBAN MARKET Office Market Indicators Overall Vacancy 11.5% 12.9% Net Absorption (YTD) 669K -282K Avg. Effective Rent (Gross) $27.89 $30.35 R&D Market Indicators Overall Vacancy 13.6% 12.8% Net Absorption (YTD) 455K 472K Avg. Effective Rent (NNN) $14.45 $14.82 Office and R&D Inventory 81.6 MSF 46.0 MSF Office R&D Market Overview The suburbs were relatively quiet over the summer months. Year to date overall absorption totaled 189,373 SF at the end of the third quarter with large deals being statistically erased by equivalent new availabilities. As in Cambridge, third quarter leasing activity was driven by life science tenants: Tesaro leased 115,000 SF at 1000 Winter Street, Waltham and Ocular Therapeutix, Inc. committed to 71,000 at 15 Crosby Drive, Bedford. While Cambridge s spillover demand from life science companies is beginning to drive activity in 128 Central, the recurring theme in the northern suburbs is flight to quality. This year we have seen tenants staying true to their northern homes, but move within the submarket to buildings with amenities such as retail, restaurants and green space. Kronos is the most notable firm to make the transition committing to 436,000 SF of amenity-laden space at Crosspoint in Lowell last quarter. Another company making the move to an amenity rich area is Enel Green Power. The renewable energy company will relocate from Andover Tech Center into 65,000 SF at 100 Brickstone Square (also in Andover). Another bright spot in the suburbs is the lab market specifically in Woburn. Dimension Therapeutics signed a 17,000 SF lease at 19 Presidential Way. This is in addition to Metabolix, Inc. committing to 30,000 SF there earlier this year. Square Feet Direct Availability vs. Sublease Availability 20,000,000 Sublease Office Direct Office Sublease R&D 15,000,000 10,000,000 Direct R&D Outlook Based on recent trends, we are anticipating a slowdown of both rent growth and leasing activity until next fall. Nearly 20% of inventory in 128 Central has traded hands in the last 18 months - and some new landlords are still raising asking rents. As suburban tenants are faced with downtown asking rents, many of them are declining deals and instead opting for actual downtown addresses. The only way to break this stalemate is for landlords to pull back on rents. 5,000, A review of current suburban leases revealed that a significant number are scheduled to expire next year. Whether these tenants opt to renew or relocate will largely depend on rent movement in the coming months. cushmanwakefield.com 4

5 BOSTON AVAILABILITY AVAILABLE (OFFICE) Back Bay 52 12,332,624 2,500, % 1,040, % -445,805 0 $61.59 $67.80 Charlestown 14 1,748, , % 63, % 177,705 0 $30.18 $34.00 Fenway 24 2,130, , % 6, % 212,004 0 $34.00 N/A Financial District ,081,701 3,946, % 2,329, % 92,037 0 $48.78 $50.98 Government Center/North Station 35 3,307, , % 136, % -1,750 0 $43.36 $48.10 Midtown 21 2,012, , % 63, % 8,226 0 $39.02 N/A Seaport 51 8,904,369 1,312, % 703, % 294, ,000 $44.37 $59.76 South Station 10 2,897, , % 72, % -1,193 0 $36.17 $56.11 Totals ,413,956 8,968, % 4,415, % 335, ,000 $50.31 $56.51 CAMBRIDGE OFFICE AVAILABILITY AVAILABLE Laboratory Key Lease Totals Transactions Q ,718, , % 398, % -62,009 0 $66.60** $75.05** (OFFICE) Alewife/West Cambridge 15 1,715, , % 64, % 31,546 0 $48.07 $48.47 East Cambridge 42 6,733, , % 68, % 163,270 0 $68.99 $72.30 Mass Ave Corridor 32 2,696, , % 35, % 70, ,000 $61.05 $67.36 Office Totals 89 11,144, , % 167, % 265, ,000 $60.86 $62.89 CAMBRIDGE LABORATORY AVAILABILITY AVAILABLE Alewife/West Cambridge ,297 38, % 38, % 40,125 0 $48.89** N/A (LAB) East Cambridge 27 5,691, , % 210, % -63,698 0 $74.28** $76.33** Mass Ave Corridor 32 3,505, , % 149, % -38,436 0 $71.51** $72.00** SUBURBS AVAILABILITY AVAILABLE (OFFICE) 128 Central ,775,336 6,915, % 3,977, % 41, ,000 $33.01* $38.23* 128 North ,380,651 2,371, % 1,243, % 333,396 0 $21.94* $25.14* 128 South ,592,362 2,338, % 1,511, % 295,077 0 $20.93* $22.27* 3/24 South 31 1,874, , % 128, % 55,163 0 $20.50* $26.99* Metrowest 66 4,200, , % 540, % -61,276 0 $25.84* $27.42* 495 West ,168,178 3,538, % 2,053, % -458,431 0 $19.01* $20.42* 495 North ,745,866 10,028, % 6,310, % 209,866 0 $18.78* $21.28* 495 South 54 3,879, , % 307, % -218,016 0 $18.76* $20.19* Inner Suburbs 60 5,970, , % 366, % -7, ,000 $30.62* $31.31* Overall Totals 1, ,588,207 27,707, % 16,440, % 189, ,000 $24.76* $28.06* Suburban statistics include both office and R&D unless otherwise specified. *Average of office rents only. **Lab rents quoted on NNN basis. Office Asking Rents are Full Service (FS) Copyright 2016 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources considered to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy. cushmanwakefield.com 5

6 KEY LEASE TRANSACTIONS Q PROPERTY SF TENANT TRANSACTION TYPE SUBMARKET 140 Northern Avenue, Boston 201,700 Boston Consulting Group Relocation Seaport 100 Upland Drive, Norwood 200,400 Moderna Therapeutics Relocation 128 South 1000 Winter Street, Waltham 115,600 Tesaro, Inc. Relocation 128 Central 15 Crosby Drive, Bedford 70,700 Ocular Therapeutix, Inc. Relocation 128 Central 200 Crossing Blvd, Framingham 55,300 Globoforce Reocation Metrowest 20 Forest Street, Marlborough 50,100 Whole Foods Market Relocation 495 West KEY SALES TRANSACTIONS Q PROPERTY SF SELLER/BUYER PRICE SUBMARKET 245 First Street, Cambridge 298,000 Jamestown/Clarion Partners $311.2 M East Cambridge Boylston Street, Boston 182,332 Clarion Partners/John Hancock $100.5 M Back Bay 1 Wayside Road, Burlington 188,000 Grammercy Property/Piedmont REIT $67.4 M 128 Central Ashley E. Lane Vice President, Research Ashley.Lane@cushwake.com Matthew B. Smith Senior Research Analyst Matthew.Smith@cushwake.com Travis A. Crocker Research Analyst Travis.Crocker@cushwake.com About Cushman & Wakefield Cushman & Wakefield is a global leader in commercial real estate services, helping clients transform the way people work, shop, and live. The firm s 43,000 employees in more than 60 countries provide deep local and global insights that create significant value for occupiers and investors around the world. Cushman & Wakefield is among the largest commercial real estate services firms in the world with revenues of $5 billion across core services of agency leasing, asset services, capital markets, facilities services (branded C&W Services), global occupier services, investment management (branded DTZ Investors), tenant representation and valuations & advisory. To learn more, visit or on Twitter. cushmanwakefield.com 6