CAMBRIDGE OFFICE & LAB MARKET REPORT FOURTH QUARTER 2017
GLOBAL OFFICE AND LAB DESTINATION As Greater Boston s gateway market, Cambridge is a hub for intellectual capital, innovative minds and technological advancements. The Cambridge market has experienced plunging office & lab vacancy rates and rapidly growing rents which make the market one of the world s premier locations with significant barriers to entry. Demand is largely coming from the expansion of existing tenants, the inward migration from out-of-market users and the explosive growth of the life science industry. The life science sector now constitutes roughly 70% of total demand and has become the most formidable market force, particularly within the lab sector. Looking forward, Cambridge s future remains extremely bright with a high concentration of intellectual and investment capital keeping the market fueled and extreme land constraints placing a cap on future development. 3.6% NOVEMBER MASSACHUSETTS UNEMPLOYMENT 4.1% NOVEMBER NATIONAL UNEMPLOYMENT # 2.9% ANNUAL WAGE GROWTH 2 ND HIGHEST GDP PER CAPITA NATIONALLY
MARKET TRENDS $78.00 OFFICE CLASS A ASKING RATE VS. DIRECT VACANCY 27% $72.00 24% $66.00 21% BOSTON 10TH LARGEST METRO Faster population growth than New York & San Francisco $60.00 $54.00 $48.00 $42.00 18% 15% 12% 9% VACANCY LEVEL AT ONLY 2.4% $36.00 $30.00 6% 3% Strong demand across all submarkets & sectors $24.00 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0% ASKING RATES RISE AGAIN Average Asking Rate Direct Vacancy (%) Demand continued out-pacing supply, modern space rules LIFE SCIENCE SECTION SURGES OFFICE CLASS B ASKING RATE VS. DIRECT VACANCY Now represents over 70% of R&D demand $60.00 18% CREATIVE OFFICE Open layouts, contemporary and collaborative environments $55.00 $50.00 $45.00 16% 14% 12% WHERE IS THE RELIEF? Small and medium size users face historic competition $40.00 $35.00 $30.00 10% 8% 6% INVESTMENT SALES ARE HOT New landlords are paying record pricing $25.00 $20.00 $15.00 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 4% 2% 0% Average Asking Rate Direct Vacancy (%)
DIRECT VACANCY RATE BY SUBMARKET West - Office East - Office Mid - Office West - Lab Mid - Lab East - Lab 0.0% 1.0% 2.0% 3.0% 4.0% 5.0%
CAMBRIDGE OFFICE STATS AT A GLANCE VACANCY = 2.4% ABSORPTION 24,900 sf SUBLEASE 4.2% AVAILABILITY 9.0% ASKING RATE $69.23/sf CONSTRUCTION 2,400,000 sf WEST CAMBRIDGE Office $45.27/SF Lab $56.94/SF NNN MID CAMBRIDGE Office $63.76/SF Lab $76.89/SF NNN EAST CAMBRIDGE Office $80.74/SF Lab $76.93/SF NNN
CLASS A & B OFFICE
With rents in the high $60 s on average and vacancy below 2.5% the Cambridge office market has become prohibitively difficult to maintain a presence. More pointedly, the Kendall Square and Massachusetts Avenue corridors have become heavily saturated with big life science, tech and pharma tenants. Consequently, smaller start-ups and nascent companies are struggling to maintain Cambridge locations and are frequently pursuing periphery urban technology hubs like Somerville, Watertown and Brighton as lower cost alternatives. The East Cambridge office market recorded a handful of transactions including InterSystems 238,000 square foot renewal at One Memorial Drive as well as Facebook s expansion into 132,000 square feet at the under construction 100 Binney Street. Currently occupying a sublease suite, Beigene signed a direct deal at 55 Cambridge Parkway for 15,000 square feet. In Mid Cambridge just beyond Central Square, Morning Bright Investments signed a 66,000 square foot lease at 1000 Massachusetts Avenue. The property, which was only recently acquired by Intercontinental RE was formerly owned and largely occupied by Cambridge College who relocated to Hood Park in Charlestown last year. The Chinese investment firm will occupy nearly two thirds of the building and the location will become its US headquarters. The investment sales market remained very active during the fall marketing process with a handful of buildings changing ownership. In Kendall Square, MIT added 139 Main Street to its ever growing portfolio, purchasing the property from longtime owner & occupant, The American Red Cross. Further northwest in Harvard Square, Intercontinental RE acquired 1280 Massachusetts Avenue for nearly $1,050 PSF. Situated directly across from the prestigious Harvard Yard, the premier address is some of the finest office space in Harvard Square. Not to be overshadowed a retail portfolio along Brattle Square fetched $1,745 PSF with retail experts Asana Partners leveraging their expertise and potential additional FAR to soften the heavy price per pound. 2.4% DIRECT VACANCY $ 4.2% SUBLEASE AVAILABILITY #9.0% TOTAL AVAILABILITY $ (27,300) SF 12-MONTH ABSORPTION # $69.23/SF AVERAGE ASKING RATE
CLASS A & B OFFICE NOTABLE QUARTERLY LEASES ADDRESS SUBMARKET TENANT SF One Memorial Drive East Cambridge InterSystems 238,000 100 Binney Street East Cambridge Facebook 132,000 1000 Massachusetts Avenue Mid Cambridge Morning Bright Investments 66,000 784 Memorial Drive Mid Cambridge Harvard University 63,200 21 Erie Street East Cambridge Mass Innovation Labs 52,000 55 Cambridge Parkway East Cambridge Beigene 15,000 One Charles Park East Cambridge Phillips 9,600 One Main Street East Cambridge Morse Corp 5,300 AVERAGE ASKING RATE BY SUBMARKET AVERAGE DIRECT VACANCY BY SUBMARKET $84.00 20.0% $78.00 18.0% $72.00 16.0% $66.00 14.0% $60.00 12.0% $54.00 10.0% $48.00 8.0% $42.00 6.0% $36.00 4.0% $30.00 2.0% $24.00 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 West Mid East
2 ND HALF 2017 INVESTMENT SALES Harvard Square Retail 1280 Massachusetts Ave 139 Main Street 625 Massachusetts Ave 625 Massachusetts Avenue $75,000,000 ($614/RSF) Buyer: Stars Investments Harvard Square Retail $108,000,000 ($1,745/RSF) Buyer: Asana Partners 1280 Massachusetts Avenue $45,150,000 ($1,044/RSF) Buyer: Intercontinental RE 139 Main Street $25,750,000 ($685/RSF) Buyer: MIT
CLASS A & B LAB
The Cambridge lab market has become some of the world s most sought real estate. With a microscopic vacancy rate below 1.0%, market rents and investment sales pricing are pushing historically high. Major life science and pharma users are driving demand. This quarter alone, GlaxoSmithKline, Agios Pharmaceuticals and Rubius Therapeutics all committed to large expansions at existing or new locations across the city. Most notably, Agios Pharmaceuticals, who won drug approvals from the FDA earlier this year, extended its nearly 146,000 square foot lease at 88 Sidney Street and picked up an additional 27,000 square feet at nearby 64 Sidney Street where the company can accommodate additional staff during its ramp up period. Across Kendall Square, Alexandria RE reportedly secured an anchor tenant for the under construction 399 Binney Street. Rumors suggest that Rubius Therapeutics has committed to roughly 45,000 square feet at the new lab building. Approximately 3.5 miles to the northwest, leasing activity remained strong along CambridgePark Drive where GlaxoSmithKline secured 41,500 square feet on the 6th floor of 200 Cambridgepark Drive. In Mid Cambridge, Astellas Pharmaceuticals signed a small 10,000 square foot lease at 1030 Massachusetts Avenue, meanwhile the company made a larger bet in Westborough where they have reportedly signed a 250,000 square agreement, however it remains unclear whether the deal is on a direct basis or a sublease from Bose. Looking forward expect the market to continue performing at an efficient clip, however with several new lab developments scheduled to open over the next 2-3 years, rent growth may be less explosive because the increased supply will ease demand pressure. Development projects to recently break ground include: Alexandria s new 170,000 SF life science building at 399 Binney Street, the Davis Companies 220,000 square foot redevelopment of 35 Cambridgepark Drive and Cambridge Crossing s 250 North Street which is currently slated as a 430,000 square foot versatile office & lab building. $ 0.3% DIRECT VACANCY $ 1.1% SUBLEASE AVAILABILITY $ 2.4% TOTAL AVAILABILITY $ 28,500 SF 12-MONTH ABSORPTION # $75.98/SF AVERAGE ASKING RATE
CLASS A & B LAB NOTABLE QUARTERLY LEASES ADDRESS SUBMARKET TENANT SF 88 Sidney Street East Cambridge Agios Pharmaceuticals 146,000 399 Binney Street East Cambridge Rubius Therapeutics 45,000 200 Cambridgepark Drive West Cambridge GlaxoSmithKline 41,500 64 Sidney Street East Cambridge Agios Pharmaceuticals 27,000 One Kendall Square East Cambridge Catabasis 18,900 325 Vassar Street East Cambridge Adena Health Systems 13,400 1030 Massachusetts Avenue Mid Cambridge Astellas Pharmaceuticals 10,000 AVERAGE ASKING RATE BY SUBMARKET AVERAGE DIRECT VACANCY BY SUBMARKET $78.00 20.0% $73.00 18.0% $68.00 16.0% $63.00 14.0% $58.00 12.0% $53.00 10.0% $48.00 8.0% $43.00 6.0% $38.00 4.0% $33.00 2.0% $28.00 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0.0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 West Mid East
OFFICE & LAB DEVELOPMENT PIPELINE 50-60 BINNEY Lab 145 BROADWAY Office & Lab 100 BINNEY Lab 121 FIRST STREET Office VOLPE CENTER Office & Lab 314 MAIN STREET Office 399 BINNEY Lab 250 NORTH STREET Office & Lab
OFFICE & LAB 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 Cambridge 10,809,850 2.4% 4.2% 9.0% 24,900 (27,350) $69.23 East Cambridge 5,668,350 2.3% 3.4% 8.1% 13,950 (28,500) $80.74 Mid Cambridge 3,135,700 1.1% 1.0% 3.4% (1,700) 5,650 $63.76 West Cambridge 2,005,800 4.4% 11.5% 19.9% 12,700 (4,500) $45.27 CLASS A Cambridge 6,977,500 2.7% 5.8% 10.1% 21,900 (30,900) $74.96 East Cambridge 4,649,500 1.9% 4.1% 7.3% 10,300 (29,550) $82.97 Mid Cambridge 1,224,500 2.0% 0.8% 4.9% 1,450 6,150 $67.90 West Cambridge 1,103,450 6.8% 18.6% 27.3% 10,200 (7,450) $49.06 CLASS B Cambridge 3,832,400 1.8% 1.2% 6.9% 3,000 3,500 $58.79 East Cambridge 1,018,850 4.6% 0.0% 11.8% 3,650 1,100 $70.56 Mid Cambridge 1,911,200 0.5% 1.2% 2.4% (3,150) (500) $61.10 West Cambridge 902,350 1.4% 2.8% 10.9% 2,500 2,950 $40.63 Lab TOTAL A & B Total Inventory (SF) Direct Vacancy Sublease Availability Total Availability Quarterly Absorption (SF) 12 Month Absorption (SF) Average Asking Rate Cambridge 14,109,550 0.3% 1.1% 2.4% (65,650) 28,450 $75.98 East Cambridge 9,107,700 0.2% 1.5% 1.8% (18,750) 18,950 $76.93 Mid Cambridge 4,336,850 0.5% 0.2% 3.0% (4,400) 52,050 $76.89 West Cambridge 665,000 0.8% 2.0% 5.7% (42,500) (42,500) $56.94 CLASS A Cambridge 11,621,450 0.1% 1.1% 2.2% (14,750) 22,950 $77.21 East Cambridge 8,452,750 0.2% 1.6% 1.9% (14,750) 22,950 $77.06 Mid Cambridge 3,039,550 0.0% 0.0% 3.3% - - $78.13 West Cambridge 129,150 0.0% 0.0% 0.0% - - $65.00 CLASS B Cambridge 2,488,150 1.3% 0.9% 3.0% (13,400) 43,050 $70.24 East Cambridge 654,950 0.6% 0.0% 0.6% (4,000) (4,000) $75.25 Mid Cambridge 1,297,250 1.8% 0.6% 2.4% (4,400) 52,050 $74.00 West Cambridge 535,900 0.9% 2.5% 7.1% (5,000) (5,000) $55.00
ETHAN ROBERT Director of Research O: 617.951.4160 erobert@lpc.com MARY PATALITA Associate O: 617.951.4119 mpatalita@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.