BOSTON OFFICE MARKET REPORT

BOSTON OFFICE MARKET REPORT FIRST QUARTER 2018

HIGH PROFILE DEALS WITH MORE TO COME As the calendar year turned and some speculated a strong conclusion to 2017 marked by major relocation announcements from Rapid7, PTC and Alexion Pharmaceuticals would carry headlines through early 2018, Amazon, Mass Mutual and Oath felt differently. The latter have all recently been negotiating leases for up to a combined 1.1 million square feet of largely new growth. Beyond these pending deals, the demand pipeline remains full with the likes of Amazon, Wayfair, Apple and all the co-working giants. Although not a new trend to the market, the rise of co-working has become the market disruptor that some landlords have long feared. At the top of most tenants wish lists are creative functionality and flexibility in terms of space use and financial commitments. Large corporate users like Amazon, Microsoft, PayPal and Bank of America have all taken notice and absorbed large swaths of co-working space across the country. Over the past 12 months, the number of corporate users has doubled and their footprint has grown fivefold. Not surprisingly, WeWork recently announced it will be opening new locations in the Back Bay and the Financial District at 501 Boylston Street and 33 Arch Street respectively. The regional demographics and economy have remained strong which has supported and promoted Boston's recent expansion. Firmly rooted in education, technology and life sciences, Boston's diverse economic base has submitted strong job growth through increased recruitment and skilled labor retention from the area s leading universities and institutions. Looking forward, expect durable market conditions and a diversified economy to guide the region's commercial real estate market to a strong performance over the next several years. 3.5% 4.1% # 3.3% 2ND FEBRUARY MASSACHUSETTS UNEMPLOYMENT FEBRUARY NATIONAL UNEMPLOYMENT MA QUARTERLY GDP GROWTH HIGHEST GDP PER CAPITA NATIONALLY

MARKET TRENDS $64.00 CLASS A ASKING RATE VS. DIRECT VACANCY 16.0% $61.00 14.0% $58.00 12.0% GLOBAL DESTINATION $55.00 10.0% World leader in medical innovation and technological advancement $52.00 $49.00 8.0% 6.0% TECHNOLOGY & INNOVATION HUB Fortune 500 leaders and 1,900 homegrown startups $46.00 $43.00 $40.00 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 4.0% 2.0% 0.0% 2017 YTD2018 MARKET RATES KEEP RISING Average Asking Rate Direct Vacancy (%) Demand continued out-pacing supply, contemporary space only COWORKING SPACE DISRUPTING MARKET Tenants like flexibility and shorter term commitments $49.00 $45.00 CLASS B ASKING RATE VS. DIRECT VACANCY 16.0% 14.0% TENANTS FAVOR CREATIVE OFFICE $41.00 $37.00 12.0% 10.0% Open layouts, contemporary and collaborative environments $33.00 8.0% $29.00 6.0% ADAPTIVE REUSE EMERGENCE $25.00 $21.00 4.0% 2.0% When soaring constructions costs meet creative demand $17.00 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 0.0% 2017 YTD2018 Average Asking Rate Direct Vacancy (%)

DIRECT VACANCY RATE BY SUBMARKET Midtown Financial District Back Bay South Station Fenway Seaport Charlestown North Station 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%

QUICK GLANCE MARKET STATS VACANCY 6.0% SUBLEASE 1.6% AVAILABILITY 11.4% ABSORPTION 523K sf CONSTRUCTION 1.9 MM sf ASKING RATE $55.84/sf Beacon Hill North Station $51.03/SF North End Back Bay $60.75/SF Midtown $45.78/SF Financial District $55.77/SF South End South Station $49.46/SF Seaport $59.18/SF

CLASS A OFFICE

While recent indications suggest that Boston may fall short on Amazon's HQ2 selection, Bostonians could look up in 36 months and Amazon will easily have over two million square feet of local office and R&D space. Most recently, the ecommerce titan has been in extensive negotiations with WS Development for a 430,000 square feet build-to-suit at 88 Seaport Boulevard. If Amazon needs space more quickly, as initially outlined in their HQ2 proposal, the company could occupy up to 465,000 square feet at Manulife's 601 Congress Street location within 12 months after the financial services company relocates and consolidates its 1,100 employees to its other locations in the Back Bay. Somewhat ironically with Manulife announcing its relocation out of the Seaport, competitor and Springfield, MA based MassMutual recently disclosed it will build a new facility on the land the company owns in the Seaport's Fan Pier neighborhood. The proposed 300,000 square foot building will cost an expected $240 million and house up to 1,500 employees. It will mark new growth for MassMutual and also accommodate employee relocations from Connecticut and other locations throughout the Mid Atlantic region. North Station's dynamic renaissance, anchored by the Hub on Causeway, and supported by the surrounding brick & beam assets along Canal and Portland Streets have helped offset the city's gravitational pull southeast towards the Seaport and South Station. After last quarter's report that Rapid7 will relocate into 147,000 square feet within the Hub's under construction podium level, new rumors suggest that Oath, a Verizon subsidiary, could take 300,000 square feet or more at the projects proposed tower. The building's tower was recently redesigned to appeal more broadly to today's creative tenancy with a shift away from the more traditional sleek all-glass facade. In other large moves across the city, Nixon Peabody will join Rapid7 when they vacate 100 Summer Street for 105,000 square feet at 53 State Street. Draft Kings will plug another large block in the Back Bay when they relocate from 125 Summer Street into 105,000 square feet at 222 Berkeley/500 Boylston. Not to be forgotten, Government Center marked another big win this quarter with Spotify leasing 75,000 square feet at Center Plaza. The music streaming service provider will consolidate multiple offices across Somerville into the new central location. $ 6.2% DIRECT VACANCY $ 1.4% SUBLEASE AVAILABILITY $ 11.2% TOTAL AVAILABILITY # 847,450 SF 12-MONTH ABSORPTION # $60.87/SF AVERAGE ASKING RATE

CLASS A OFFICE NOTABLE QUARTERLY LEASES ADDRESS SUBMARKET TENANT SF 10 Fan Pier Boulevard Seaport Mass Mutual 300,000 501 Boylston Street Back Bay WeWork 120,000 140 Northern Avenue Seaport Cengage Learning 117,000 53 State Street Financial District Nixon Peabody 105,000 222 Berkeley/500 Boylston Back Bay Draft Kings 105,000 33 Arch Street Financial District WeWork 100,000 3 Center Plaza Financial District Spotify 75,000 100 Northern Avenue Seaport Aptiv 62,000 22 Boston Wharf Seaport Akcea Therapeutics 60,000 75-101 Federal Street Financial District Salsify 50,000 53 State Street Financial District Experian 27,000 888 Boylston Street Back Bay SCS Financial Services 26,000 140 Northern Avenue Seaport Numeric Investors 20,700 AVERAGE ASKING RATE BY SUBMARKET AVERAGE DIRECT VACANCY BY SUBMARKET $70.00 18.0% $65.00 15.0% $60.00 12.0% $55.00 9.0% $50.00 6.0% $45.00 3.0% $40.00 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD2018 0.0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD2018 Financial District Seaport Back Bay

RESEARCH SPOTLIGHT THE COWORKING EFFECT IN THE LAST 12 MONTHS MAP LABELS LOCATIONS WITH MORE THAN 15,000 SF 1,700,000 SF TOTAL COWORKING SPACE IN BOSTON & CAMBRIDGE 775,000 SF 459,450 SF 368,800 SF * AS % OF MEMBERSHIP WHO S TAKING COWORKING SPACE? * 47% Small Business 25% Mobile Corporate Users 20% Freelancers 63,900 SF 32,200 SF 8% Other EXPLOSIVE GROWTH FROM MOBILE CORPORATE USERS 32,150 SF 30,300 SF 18,900 SF

CLASS B OFFICE

With a nearly sub 6.0% vacancy rate, the Class B market has been Boston's hottest asset class for the past 24-36 months. For smaller tenants in the 3,000 to 20,000 range, the Class B market, characterized by buildings with fewer than 12 stories, has long been the only option. However, as a response to the market's torrid run the past three years, tower owners and operators have begun courting these smaller users. Sometimes the outreach is direct through multi-tenanting floors and building out smaller "plug and play" spec suites or more subtle by softening building lobbies and creating more tenant amenities for all tenants to share. In other cases, landlords are bringing in co-working experts like WeWork, Mass Innovation Labs and Cambridge Innovation Center to run the heavy lifting. One thing is clear, tenants have responded favorably to the flexibility and cool factor that coworking environments offer. The Seaport extended its hot streak as Invesco landed another tenant at 25 Thomson Place; this time signing Seismic Software to a nearly 27,000 square foot commitment. At 22 Boston Wharf Road, Akcea Therapeutics recently signed on for 60,000 square feet, where the drug developer with join co-working specialists Industrious who secured 30,000 square feet last quarter. Activity was relatively sluggish across Downtown and North Station with the majority of transactions being smaller renewals. However, looking towards the second part of the year, expect more meaningful movement with tenants facing upcoming lease expirations towards the end of 2018 and into early 2019. Rent growth has shown no indication of slowing and with vacancy exceedingly tight, landlords remain in favorable positions. The investment sales market remained hot with pricing routinely eclipsing past cycle highs. On average, stabilized assets are trading in low to mid 5.0% cap rate range. Most recently, 40 Court Street sold for $54,000,000 or $493 per square foot to a foreign capital source, Exan Capital. Watch for more product to come to the market during the remainder of the year with the availability drought leaving investors hungry for deals. # 5.5% DIRECT VACANCY $ 1.9% SUBLEASE AVAILABILITY # 11.9% TOTAL AVAILABILITY $ (72,500) SF 12-MONTH ABSORPTION # $46.74/SF AVERAGE ASKING RATE

CLASS B OFFICE NOTABLE QUARTERLY LEASES ADDRESS SUBMARKET TENANT SF 25 Thomson Place Seaport Seismic Software 26,950 Two Boylston Street Midtown Vital Source 15,000 Schrafft's City Center Charlestown Accion Systems 13,500 40 Court Street Financial District Anti-Defamation League 9,500 54 Canal Street North Station Appcues 7,000 179 Lincoln Street Financial District Booking Bug 5,700 111 Devonshire Street Financial District Brooks & DeRensis 5,550 141 Tremont Street Financial District Shavel & Krems 5,450 45 Franklin Street Financial District Bohler Engineering 4,950 One Liberty Square Financial District McCullen Capital 3,500 AVERAGE ASKING RATE BY SUBMARKET AVERAGE DIRECT VACANCY BY SUBMARKET $55.00 20.0% $50.00 $45.00 16.0% 12.0% $40.00 $35.00 8.0% $30.00 4.0% $25.00 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD2018 0.0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD2018 Financial District Seaport Back Bay

RECENT INVESTMENT SALES 40 Court Street 125 Broad Street 41 Winter Street 93 Summer Street 40 Court Street $54,000,000 ($493/RSF) Buyer: Exan Capital 125 Broad Street $14,000,000 ($523/RSF) Buyer: Boston Ventures 41 Winter Street $24,800,000 ($865/RSF) Buyer: Gazit Group 93 Summer Street $25,400,000 ($375/RSF) Buyer: Faros Properties

OFFICE REPORT STATS

Office Total Inventory (SF) Direct Vacancy Sublease Availability Total Availability Quarterly Absorption (SF) 12 Month Absorption (SF) Average Asking Rate TOTAL A&B 71,462,500 6.0% 1.6% 11.4% 522,950 775,000 $55.84 Back Bay 14,949,300 5.4% 1.7% 10.3% 364,000 402,350 $60.75 Charlestown 2,858,650 2.8% 0.7% 8.3% (14,750) (15,950) $42.89 Fenway 1,746,000 4.4% 0.0% 4.4% 6,450 (10,850) $51.67 Financial District 35,439,750 7.1% 1.4% 12.9% 105,150 282,600 $55.77 Midtown 1,999,250 11.3% 0.5% 12.5% 26,200 15,350 $45.78 North Station 3,312,800 2.5% 2.5% 7.7% 26,000 15,750 $51.03 Seaport 8,274,450 3.6% 3.0% 11.8% 80,200 139,750 $59.18 South Station 2,882,400 4.6% 1.0% 8.1% (70,350) (53,950) $49.46 CLASS A 46,005,500 6.2% 1.4% 11.2% 595,350 847,450 $60.87 Back Bay 11,038,450 6.2% 1.8% 11.0% 363,650 405,850 $65.02 Charlestown 903,800 5.3% 0.2% 5.5% - (17,300) $42.93 Fenway 1,117,600 6.9% 0.0% 6.9% - (22,650) $56.50 Financial District 25,558,850 6.9% 1.5% 13.0% 138,900 443,150 $59.66 Midtown 1,176,200 16.7% 0.5% 17.1% 20,150 9,450 $49.75 North Station 1,407,650 1.1% 4.8% 10.0% 20,550 16,300 $58.25 Seaport 3,448,000 0.8% 0.2% 1.8% 85,300 14,550 $69.50 South Station 1,354,850 3.6% 0.9% 4.5% (33,250) (1,850) $55.75 CLASS B 25,457,000 5.5% 1.9% 11.9% (72,450) (72,450) $46.74 Back Bay 3,910,850 3.2% 1.5% 8.1% - (3,550) $48.70 Charlestown 1,954,900 1.6% 0.9% 9.6% (14,750) 1,300 $42.88 Fenway 628,400 7.9% 0.0% 7.9% 6,500 11,800 $43.08 Financial District 9,880,850 7.6% 1.3% 12.5% (33,750) (160,550) $45.69 Midtown 823,050 3.7% 0.4% 5.9% 6,050 5,950 $40.10 North Station 1,905,100 3.6% 0.8% 6.1% 5,450 (1,000) $45.69 Seaport 4,826,450 5.6% 5.1% 19.0% (5,150) 125,200 $51.80 South Station 1,527,550 5.5% 1.2% 11.3% (37,100) (52,100) $43.88

ETHAN ROBERT Director of Research 617.951.4160 erobert@lpc.com MARY PATALITA Associate 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 Boston Brokerage Group. If you have any questions regarding market conditions and the information found in this report, please contact Ethan Robert.