ROUTE 128 & INTERSTATE 495 SUBURBAN OFFICE MARKET REPORT THIRD QUARTER 2018
AMENITY RICH LOCATIONS & ASSETS STEAL DEMAND Greater Boston s suburban office and lab market encompasses over 125 million square feet and consist 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. Most recently, the demand for lab space has begun to gain significant momentum across the suburbs. Markets with existing critical mass including Waltham, Lexington and Watertown are the preferred locations. 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 and suburban pricing/ yields and how the market will adjust accordingly. # 3.6% AUGUST MASSACHUSETTS UNEMPLOYMENT 3.6% AUGUST NATIONAL UNEMPLOYMENT # $5.2B MA YTD (AUG 18) VC FUNDING 2 ND NATIONALLY IN YTD (AUG 18) VC FUNDING
MARKET TRENDS CLASS A ASKING RATE VS. DIRECT VACANCY $30.00 22.0% VACANCY RATE TO 12.0% Strong demand across submarkets as relief for Downtown/Cambridge $28.50 $27.00 $25.50 20.0% 18.0% 16.0% CONTEMPORARY UPGRADES Landlords must adapt and keep common areas & lobbies fresh $24.00 $22.50 $21.00 $19.50 14.0% 12.0% 10.0% 8.0% CREATING A SENSE OF PLACE $18.00 2009 2010 2011 2012 2013 Average Asking Rate 2014 2015 2016 2017 Direct Vacancy (%) YTD2018 6.0% Open layouts, collaborative environments & unique amenities LOCATION IS NOT FORGOTTEN Highway access, public transit & parking remain paramount CLASS B ASKING RATE VS. DIRECT VACANCY TENANTS FAVOR CREATIVE OFFICE Creating the Downtown feel in a suburban setting $24.00 $23.00 $22.00 $21.00 20.0% 19.0% 18.0% 17.0% INVESTMENT SALES REBOUND $20.00 $19.00 16.0% 15.0% Watch for a busy year in the suburbs $18.00 14.0% ASKING RATES RISE AGAIN Inner suburban markets accelerate growth, outer markets steady $17.00 $16.00 2009 2010 2011 2012 2013 Average Asking Rate 2014 2015 2016 2017 Direct Vacancy (%) YTD2018 13.0% 12.0%
DIRECT VACANCY RATE BY SUBMARKET Route 2 West 495 Northeast Mass Pike 128 South 128 North Inner Suburbs 128 West 495 South Route 3 North 0.0% 4.0% 8.0% 12.0% 16.0% 20.0%
SUBMARKET AVERAGE ASKING RATES Rte-2 West $19.98/SF Rte-3 North $21.51/SF 495 North $20.11/SF 128 North $27.44/SF 128 West $33.07/SF I-495/Mass Pike $21.14/SF 128 South $22.71/SF 495 South $19.96/SF
CLASS A & B OFFICE ROUTE 128
While most would categorize urbanization as the dominant trend for the past 3-5 years, not all tenants are pursuing urban migration and in fact many prefer the extra space, cost savings and reduced congestion that the suburbs offer in comparison to Downtown locations. That being said, the younger millennial workforce favor the conveniences of cities (restaurants, bars, coffee shops, outdoor seating, etc.) and suburban assets with these amenities located on-site or nearby are out performing the general market. Once again, the suburban lab market posted a busy quarter, largely the result of non-existent availability in Cambridge & Boston.In Waltham, the redeveloped former post office, now known as The POST, has reportedly secured two more large tenants. Boston Dynamics will occupy roughly 200,000 square feet while ElevateBio will separately lease approximately 100,000 square feet. In addition, Zoom Info signed a 73,500 square foot at 170 Tracer Lane where the company will open its new headquarters for 450 employees in early 2019. The Waltham office market also posted a strong quarter with Cambridge Savings Bank signing the largest quarterly deal for 76,000 square feet at 81 Wyman Street. Cambridge Savings Bank will be consolidating back office operations from locations in Cambridge and Arlington into its new Wyman Street location. Activity remained strong across the northern suburbs as well with C4 Analytics relocating from Saugus into 40,500 square feet at 701 Edgewater Drive in Wakefield. The new location will serve as the company s headquarters. In Wilmington, Sovos signed an 8-year lease extension at 200 Ballardvale Street where the global software provider will completely overhaul their 50,000 square feet suite into a state-of-the-art space. The investment sales market flexed its strength this quarter with two large deals exemplifying current market conditions. In Watertown, The Linx, a fully repositioned and 100% leased lab facility was purchased by Clarion Partners for $851 PSF. Similarly, after undergoing an extensive transformation into a creative office property, 89 A Street, the home of Shark Ninja and Steward Healthcare, sold to MET Life for $389 PSF. 10.3% DIRECT VACANCY 1.9% SUBLEASE AVAILABILITY 14.5% TOTAL AVAILABILITY # 276,900 SF 12-MONTH ABSORPTION # $28.44/SF AVERAGE ASKING RATE
CLASS A & B OFFICE/LAB ROUTE 128 NOTABLE RECENT LEASES ADDRESS TOWN SUBMARKET TENANT SF 200 Smith Street Waltham 128 West Boston Dynamics 200,000 200 Smith Street Waltham 128 West ElevateBio* 100,000 81 Wyman Street Waltham 128 West Cambridge Savings Bank 76,000 170 Tracer Lane Waltham 128 West Zoom Info 73,500 200 Ballardvale Wilmington 128 North Sovos 50,000 254 Second Ave Needham 128 West Brigham & Women's 47,000 112 Worcester Street Wellesley 128 West Morgan Stanley 42,500 701 Edgewater Wakefield 128 North C4 Analytics 42,500 500 Rivers Ridge Norwood 128 South Corbus Pharmaceuticals* 32,000 100 Summit Drive Burlington 128 North Work Bar 20,500 One Newton Newton 128 West Lumacell 20,000 100 Grossman Drive Braintree 128 South The Boston Herald 13,000 110 Worcester Street Wellesley 128 West Wellesley Bank 11,000 110 Worcester Street Wellesley 128 West Global Advanced Metal 5,000 *lab transaction AVERAGE ASKING RATE BY SUBMARKET AVERAGE DIRECT VACANCY BY SUBMARKET $33.00 27.0% $31.00 24.0% $29.00 21.0% $27.00 18.0% $25.00 15.0% $23.00 12.0% $21.00 9.0% $19.00 6.0% $17.00 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD2018 3.0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD2018 West South North
RECENT INVESTMENT SALES 89 A Street Needham 490 Arsenal Street Watertown 825 Washington St Norwood 720 University Ave Norwood 490 Arsenal Street, Watertown $157,567,600 ($851/RSF) Buyer: Clarion Partners 89 A Street, Needham $96,500,000 ($389/RSF) Buyer: MetLife 825 Washington Street, Norwood $23,500,000 ($255/RSF) Buyer: Thor Equities 720 University Avenue, Norwood $8,500,000 ($113/RSF) Buyer: Hilco RE
CLASS A & B OFFICE INTERSTATE 495
Quarterly performances were mixed across I-495 s submarkets with the net result leading to just over 186,000 square feet of net positive quarterly absorption, which lowered the average vacancy rate 20 basis points to 14.7%. Generally speaking, there are specific micro markets within I-495 s submarkets which tend to outperform market averages. More specifically, buildings must be well located along major roadways with easy access to highways and strategic interchanges. The Route 3 North corridor, which houses some of I-495 s premier technology & defense tenants, recorded strong quarterly activity in Bedford and Billerica. ClearMotion announced it will move its corporate headquarters from Woburn to a currently vacant 122,000 square foot office R&D building at 805 Middlesex Turnpike in Billerica. After an extensive market tour, Novanta ultimately decided to renew its 147,400 square foot lease at 125 Middlesex Turnpike in Bedford. One of I-495 s larger annual lab transactions was signed in Framingham this quarter when Replimune Group committed to 63,300 square feet at 33 New York Avenue where local lab development ace s King Street Properties are converting an existing facility into modern lab space equipped with all the latest bells and whistles. The move is notable for the I-495 Mass Pike submarket with both the quality of tenant and landlord speaking to the viability and hopefully enduring strength of the suburban lab market. 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. $ 14.7% DIRECT VACANCY $ 1.5% SUBLEASE AVAILABILITY $ 18.9% TOTAL AVAILABILITY # 259,350 SF 12-MONTH ABSORPTION # $20.76/SF AVERAGE ASKING RATE
CLASS A & B OFFICE INTERSTATE 495 NOTABLE RECENT LEASES ADDRESS TOWN SUBMARKET TENANT SF 125 Middlesex Turnpike Bedford Route 3 North Novanta 147,400 805 Middlesex Avenue Billerica Route 3 North ClearMotion 122,000 33 New York Avenue Framingham 495 Mass Pike Replimune Group* 63,300 165 Forest Street Marlborough 495 Mass Pike Advanced Math 47,000 210 Littleton Road Westford Route 3 North MedAcuity + Carnegie Dartlet 38,000 35 New England Business Andover 495 Northeast Infineon Technologies 22,000 1400 Computer Drive Westborough 495 Mass Pike Northwestern Mutual 8,000 144 Turnpike Road Southborough 495 Mass Pike Alliance Health 7,500 1500 West Park Drive Westborough 495 Mass Pike MAPFRE Insurance 5,500 1500 West Park Drive Westborough 495 Mass Pike Legacy Financial Advisors 4,500 1400 Computer Drive Westborough 495 Mass Pike Tesla Energy Operation 4,300 *lab transaction AVERAGE ASKING RATE BY SUBMARKET AVERAGE DIRECT VACANCY BY SUBMARKET $23.00 34.0% $22.00 30.5% $21.00 27.0% $20.00 23.5% $19.00 20.0% $18.00 16.5% $17.00 13.0% $16.00 9.5% $15.00 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD2018 6.0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD2018 Northeast South Mass Pike
RECENT INVESTMENT SALES 293 Boston Post Road Marlborough 15 Shattuck Road Andover 959 Concord Street Framingham 463 Worcester Street Framingham 293 Boston Post Road, Marlborough $16,400,000 ($86/RSF) Buyer: KS Partners 15 Shattuck Road, Andover $15,000,000 ($162/RSF) Buyer: Menlo Equities 959 Concord Street, Framingham $13,300,000 ($176/RSF) Buyer: Casey & Hayes 463 Worcester Road, Framingham $5,250,000 ($126/RSF) Buyer: A&E Fire Protection
OFFICE REPORT STATS
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 5,033,800 9.6% 2.1% 16.8% (26,250) 85,050 $38.02 ROUTE 128 59,859,100 10.3% 1.9% 14.5% 506,550 276,950 $28.44 128 West 24,692,950 8.5% 2.9% 13.8% 98,950 200,400 $33.07 128 North 18,401,950 10.2% 1.1% 13.1% 225,250 218,350 $27.44 128 South 16,764,150 13.0% 1.5% 17.0% 182,350 (141,800) $22.71 INTERSTATE 495 42,364,050 14.7% 1.5% 18.9% 186,250 259,050 $20.76 495 Mass Pike West 19,041,750 16.2% 2.1% 21.0% (4,850) (112,300) $21.14 495 Route 2 West 6,609,750 19.6% 0.8% 23.2% (30,850) 20,1450 $19.98 495 Northeast 5,721,550 17.3% 1.6% 19.6% 4,650 64,800 $20.11 Route 3 North 6,718,450 7.7% 1.5% 11.5% 72,800 37,650 $21.51 495 South 4,272,600 7.8% 0.2% 13.8% 144,500 248,750 $19.96 CLASS A TOTAL 107,256,950 12.0% 1.8% 16.4% 666,500 621,050 $25.86 Inner Suburbs 2,751,750 5.8% 3.6% 18.4% (12,950) 57,450 $38.79 ROUTE 128 36,953,350 10.1% 2.1% 14.8% 325,150 238,450 $31.85 128 West 15,180,950 7.8% 3.6% 14.2% 13,450 189,250 $37.58 128 North 12,145,250 10.1% 1.2% 13.2% 134,850 236,200 $30.28 128 South 9,627,150 13.6% 1.0% 17.9% 176,850 (186,950) $24.79 INTERSTATE 495 22,709,650 13.5% 2.5% 18.3% 56,300 (74,700) $22.03 495 Mass Pike West 11,595,400 15.4% 3.0% 21.3% (7,150) (137,950) $22.20 495 Route 2 West 2,649,250 11.3% 1.9% 13.9% (14,550) (31,200) $21.38 495 Northeast 3,173,500 20.1% 2.6% 23.9% (33,450) (46,800) $21.00 Route 3 North 3,699,850 5.8% 2.3% 8.8% 3,950 38,050 $23.61 495 South 1,591,650 7.7% 0.0% 14.5% 107,500 103,250 $20.33 CLASS B TOTAL 62,414,750 11.1% 2.3% 16.2% 368,450 221,250 $28.59 Inner Suburbs 2,282,050 14.2% 0.4% 14.8% (13,350) 27,550 $37.36 ROUTE 128 22,905,750 10.7% 1.6% 14.0% 181,400 38,450 $25.10 128 West 9,512,000 9.7% 1.7% 13.3% 85,450 11,150 $29.16 128 North 6,256,700 10.4% 0.8% 12.8% 90,450 (17,850) $23.37 128 South 7,137,050 12.2% 2.1% 15.9% 5,550 45,150 $21.19 INTERSTATE 495 19,654,450 16.0% 0.4% 19.7% 129,950 333,750 $19.55 495 Mass Pike West 7,446,400 17.3% 0.7% 20.7% 2,350 25,650 $19.80 495 Route 2 West 3,960,450 25.1% 0.0% 29.4% (16,350) 51,350 $19.48 495 Northeast 2,548,050 13.9% 0.3% 14.2% 38,100 111,650 $18.57 Route 3 North 3,018,650 10.1% 0.5% 14.9% 68,850 (400) $19.58 495 South 2,680,950 7.9% 0.4% 13.4% 37,000 145,550 $19.88 TOTAL 44,842,250 13.2% 1.0% 16.5% 298,000 399,750 $23.29
ETHAN ROBERT Director of Research O: 617.951.4160 erobert@lpc.com CONNOR MALONEY Analyst 617.951.4141 comaloney@lpc.com Lincoln Property Company 53 State Street, 8th Floor, Boston, MA 617.951.4100 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.