METRO BOSTON OFFICE… · 2019-04-03 · now, demand for urban office space remains on solid footing. • As headcounts continue to grow, small-to-mid-sized technology firms are driving

303 CONGRESS STREET | BOSTON, MA 02210 | 617.457.3400 | HUNNEMANRE.COM

METRO BOSTON OFFICE MARKET REPORT

FIRST QUARTER | 2019

2 | METRO BOSTON OFFICE | Q1 2019

BOSTON OFFICE MARKET OVERVIEW

The Greater Boston office market experienced one of the strongest first-quarter

expansions in the last 15 years. The overall market posted close to 900,000

square feet in positive absorption, which pushed vacancies down to just

11.2%. On the leasing front, renewals dominated the suburban narrative this

quarter, while large user activity was prevalent in the urban core. State Street

Bank, Wayfair, WeWork, Google and Puma accounted for 1.5 million square

feet in new leasing during the first three months of 2019. The groundbreaking

of Amazon’s build-to-suit in the Seaport pushed total square feet under

construction to 4.7 million. However, 87% of this space is already committed.

Asking rents held steady over the quarter but conditions remain frothy in select

pockets of Cambridge and Boston.

WeWork continues to make waves in the Boston commercial real estate market.

With its recent 241,000-square-foot lease at 1 Lincoln Street, the coworking

giant’s urban footprint is now roughly one million square feet. Though it

remains unconfirmed, a 241,000-square-foot enterprise user is reportedly

expected to commit to the entirety of WeWork’s newest location. Looking

ahead, WeWork has letters of intent out on an additional 1.1 million square feet

throughout the urban markets. 100 Summer Street and 200 Berkeley Street are

two of the large blocks of available space rumored to be associated with the

coworking firm. There is no question that WeWork is changing the commercial

real estate game and its impact on the market bears watching.

Space banking, a trend more commonly associated with the Dot Com boom,

has regained some momentum in Boston. Tight market fundamentals

coupled with rapidly rising rents have tenants taking down more space

than they currently need in anticipation of future growth. These tenants will

then sublease out this underutilized space. PTC and Cengage Learning both

subleased some of their new space in the Seaport over the last few quarters,

and Philips recently put two floors of its future Cambridge Crossing office on

the sublease market. While space banking became quite problematic when the

Dot Com bubble burst, as large swaths of unused office space came back to

market, the trend has been more measured this cycle.

Consensus among most economists is that 2019 will remain a year of growth.

However, uncertainty is weighing on sentiment. A yield-curve inversion (the

10-year versus the 3-month Treasuries), trade conflicts and global economic

instability have emerged as potential economic risks. Many are looking to 2020

as a potential inflection point in what will likely be the longest U.S. economic

expansion in history.

11.2%

TOTAL VACANCY RATE

892,083Q1 NET ABSORPTION

(SF)

$34.00 ASKING RENT

($/SF)

4,747,388 UNDER CONSTRUCTION

(SF)


BOSTON OFFICE

TOTAL INVENTORY(SF)

TOTAL VACANT(SF)

TOTAL VACANCY RATE

Q1 NET ABSORPTION(SF)

YTD NET ABSORPTION

(SF)

ASKING RENT($/SF)

Class A 50,628,250 3,248,700 6.4% 79,842 79,842 $65.97

Class B 20,616,267 1,659,009 8.0% 46,741 46,741 $52.77

Total 71,244,517 4,907,709 6.9% 126,583 126,583 $61.71

• The Boston market was especially dynamic during the first quarter,

as headline-grabbing transactions dominated activity. While market

fundamentals were adversely impacted by John Hancock Financial’s

consolidation, State Street Bank, WeWork and Wayfair all announced major

moves this quarter. Vacancies breached 7% for the first time since 2001,

rents maintained their upward trajectory and the development pipeline is

swelling to levels we haven’t seen since the Dot Com era.

• Several blockbuster leases were executed during the quarter. State Street

Bank announced it plans to anchor HYM’s One Congress Street development,

taking down more than 500,000 square feet and relocating from its long-

time home at 1 Lincoln Street. Accordingly, WeWork swooped in to backfill

a large portion of the State Street space and signed a 250,000-square-foot

lease. KMPG and Foley Hoag renewed their leases at 2 Financial Center and

155 Seaport Boulevard, respectively. Wayfair agreed to sublease more than

300,000 square feet from Liberty Mutual at 10 Saint James Avenue in the Back

Bay and Toast is expanding into 125,000 square feet at 401 Park Street in the

Fenway. Though there are fewer large tenant requirements in the market

now, demand for urban office space remains on solid footing.

• As headcounts continue to grow, small-to-mid-sized technology firms are

driving expansions in Boston, especially in the Financial District. DataRobot

is moving from One International Place and expanding into 57,000 square

feet at 225 Franklin Street. GrubHub is planning to double its footprint and

has leased 75,000 square feet at Center Plaza. Buildium, Cantina, Attivio

and Nexthink have executed leases recently as well.

• With 2.4 million square feet underway, changes are coming to Boston’s

skyline. Work recently began on Amazon’s 430,000-square-foot Seaport

tower. With State Street as an anchor tenant, One Congress is expected to

break ground soon and rumors are swirling around the groundbreaking

of the South Station Tower (with Salesforce as a supposed anchor). The

redevelopment of Hood Park in Charlestown could result in three new

office/lab buildings totaling close to 800,000 square feet. Developers are

likely to move forward with new projects in the coming quarters.

TOTAL VACANCY

NET ABSORPTION

ASKING RENTS

0%

12%

10%

8%

6%

4%

2%

2013 2014 2015 2016 2017 2018 2019

5-YEAR HISTORICAL AVERAGE VACANCY RATES

0

-600

-400

-200

200

400

600

800

1,000

1,200

SQU

AR

E FE

ET(t

hous

and

s)

2013 2014 2015 2016 2017 2018 2019

CLASS A CLASS B

$0

$20

$40

$60

$80

$100

$/SF

CH

ARL

ESTO

WN

MID

TOW

N

NO

RTH

STA

TIO

N

SOU

TH S

TATI

ON

SEA

PORT

FIN

AN

CIA

L D

ISTR

ICT

BAC

K B

AY

FEN

WA

Y/K

ENM

ORE

ASKING RENT RANGE WEIGHTED AVERAGE


CAMBRIDGE OFFICE

TOTAL INVENTORY(SF)

TOTAL VACANT(SF)

TOTAL VACANCY RATE


YTD NET ABSORPTION

(SF)

ASKING RENT($/SF)

Class A 6,928,989 210,013 3.0% (11,468) (11,468) $60.59

Class B 3,427,540 153,151 4.5% (22,101) (22,101) $65.12

Total 10,356,529 363,164 3.5% (33,569) (33,569) $63.11

• Cambridge’s narrative remains the same. Office space is virtually non-

existent here and any movement in the market can impact fundamentals.

While vacancies ticked up slightly during the first quarter, momentum

remains positive here. At 3.5%, rates are well below the market’s historic

average. Developers struggle to keep pace with such frothy demand, and

most leasing activity has been occurring off-market. The lack of available

space makes tracking rent observations difficult, but asking rents in East

Cambridge have topped $100/SF in select spaces.

• Cambridge Crossing is this market’s next big super cluster, and space is

filling up quickly. Following Sanofi’s blockbuster deal for 900,000 square

feet of office and lab space across two buildings, Sage Therapeutics is

reportedly in talks for up to 350,000 square feet of office space within the

development. The pharma company would consolidate its operations,

which totals close to 100,000 square feet. While Cambridge Crossing will

likely continue to attract both office and lab users in the coming years,

commercial availabilities will be scant if the Sage deal is finalized.

• Tenants continued to take down space in new construction as Cambridge’s

supply-demand imbalance leaves few options. Google signed a lease for

336,500 square feet at 325 Main Street, which Boston Properties plans to

redevelop into a new tower for the firm. Google also plans to sublease

177,000 square feet from Akamai while their office is being developed.

Capital One took down three floors at MIT’s 314 Main Street in Kendall

Square, joining Boeing, for a total of 78,300 square feet. Reportedly, the

building has commitments on several other floors as well.

• Developers are getting creative when it comes to adding office space in

Cambridge. New England Development already announced plans to

convert the top floor of the CambridgeSide mall into 140,000 square feet

of office space, and is now proposing another addition. The new project

would involve replacing the mall’s anchor tenants and a parking garage

with 625,000 square feet of office, lab and residential uses. As large users,

like Foundation Medicine and CarGurus, look for space they will likely turn

to relief valve markets like Waltham, Lexington and the Seaport.

TOTAL VACANCY

LAB VS. OFFICE SUPPLY SHARE

NET ABSORPTION

0

200

400

600

800

1,000

SQU

AR

E FE

ET(t

hous

and

s)

2013 2014 2015 2016 2017 2018 2019

DIRECT SUBLEASE

0

100

200

300

-300

-200

-100

SQU

AR

E FE

ET(t

hous

and

s)

2013 2014 2015 2016 2017 2018 2019

34%

36%

40%

38%

42%

44%

46%

48%

OFF

ICE

SHA

RE

OF

SUPP

LY

2012 20142013 2015 2017 2018 2019


SUBURBAN OFFICE

ASKING RENTS

TOTAL INVENTORY(SF)

TOTAL VACANT(SF)

TOTAL VACANCY RATE


YTD NET ABSORPTION

(SF)

ASKING RENT($/SF)

Class A 59,236,293 8,195,581 13.8% 564,753 564,753 $29.18

Class B 54,494,549 8,338,583 15.3% 234,316 234,316 $22.65

Total 113,730,842 16,534,164 14.5% 799,069 799,069 $25.83

• The Suburban office market posted its strongest quarter of net absorption

in more than two years, leading the metro in gains during the first three

months of 2019. Continued growth over the last few quarters has helped

mitigate the impact of tenants migrating to Boston. Core Route 128

submarkets account for the lion’s share of activity and vacancies are

nearing 11% in both the Route 128 West and Northwest regions. Location

and quality are key factors in recent performance as talent retention

weighs heavily on corporate decision makers.

• While development remains focused on the Boston skyline, select projects

are moving forward in the Suburbs. Somerville landed another major

office user: Puma. The shoe company plans to relocate its 150,000-square-

foot North American headquarters to Assembly Row in 2021, jumpstarting

construction on one of the development’s last available parcels. This new

project will include roughly 275,000 square feet of office space. Hobbs

Brook Management is set to replace its long-time headquarters on Wyman

Street in Waltham with a new 500,000-square-foot speculative office and

lab building as well.

• Several large blocks of vacancy are on the horizon. Most recently, Oracle

listed the entirety of 100 Crosby Drive in Bedford and eClinicalWorks put

193,000 square feet on the market at 900 West Park Drive in Westborough.

Computershare will relocate and downsize from 250 Royall Street in

Canton next quarter, Philips will be moving from Andover to Cambridge

is early 2020 and Puma will decamp its long-time Westford home for

Somerville in a few years. Despite recent positive momentum, relocations,

consolidations and right-sizing are still a risk to the Suburban outlook.

• Not all firms are shifting operations downtown. Tesaro (200,000 SF), BAE

Systems (135,018 SF), Clean Harbors (103,500 SF), and Samsonite (96,000

SF) all executed renewals or extensions during the quarter, which points

to the continued desirability of suburban office locations. Comparatively

lower rents, proximity to executive housing and relatively shorter

commutes should encourage demand growth in the coming years,

especially for well-located, highly-amenitized assets.

TOTAL VACANCY

NET ABSORPTION

13%

14%

15%

16%

17%

2013 2014 2015 2016 2017 2018 2019

0

500

1,000

1,500

-1,000

-1,500

-500

SQU

AR

E FE

ET(t

hous

and

s)

2013 2014 2015 2016 2017 2018 2019

$0

$20

$10

$40

$30

$60

$50

$70

$/SF

ROU

TE 4

95 S

OU

TH

ROU

TE 4

95 N

ORT

H

ROU

TE 4

95 N

ORT

HEA

ST

ROU

TE 4

95 W

EST

FRA

MIN

GH

AM

-NA

TIC

K

ROU

TE 12

8 SO

UTH

ROU

TE 12

8 N

ORT

H

ROU

TE 12

8 N

ORT

HW

EST

INN

ER S

UBU

RBS

ROU

TE 12

8 W

EST

ASKING RENT RANGE WEIGHTED AVERAGE


NOTABLE TRANSACTIONS

ONE CONGRESS STREETBOSTON

325 MAIN STREETCAMBRIDGE

10 SAINT JAMES AVENUEBOSTON

1 LINCOLN STREETBOSTON

Company State Street Bank Company Google Company Wayfair Company WeWork

Size 505,980 SF Size 336,500 SF Size 302,000 SF Size 240,900 SF

Submarket Financial District Submarket East Cambridge Submarket Back Bay Submarket Financial District

1000 WINTER STREETWALTHAM

455 GRAND UNION BOULEVARDSOMERVILLE

600-800 DISTRICT AVENUEBURLINGTON

700 DISTRICT AVENUEBURLINGTON

Company Tesaro Company Puma Company BAE Systems Company Charles River Develop


Submarket Route 128 West Submarket Inner Suburbs Submarket Route 128 Northwest Submarket Route 128 Northwest

2 FINANCIAL CENTERBOSTON

42 LONGWATER DRIVENORWELL

314 MAIN STREETCAMBRIDGE

121 SEAPORT BOULEVARDBOSTON

Company KPMG Company Clean Harbors Company Capital One Company Foundation Medicine


Submarket South Station Submarket Route 128 South Submarket East Cambridge Submarket Seaport


495 NORTH EAST

495 NORTH128 NORTH

128 NORTH WEST

495 SOUTH

FRAMINGHAM/NATICK

495 WEST128 WEST

128 SOUTH

BOSTON METRO OFFICE USING EMPLOYMENT

19.5% — 38.5%13.7% — 19.5%7.7% — 13.7%5.1% — 7.7%

OFFICE USING EMPLOYMENT GROWTH 2010-2017

EMPL

OY

EES

(tho

usa

nds)

0

400

800

1,200

1,600

2,000

1990 20001995 2005 2010 2015

BUSINESS SERVICES INFORMATION FINANCE

RESEARCH SPOTLIGHT

TRENDS IN SF PER OFFICE WORKER

360

370

340

350

380

390

400

410

420

430

200

2

200

1

200

0

1999

1998

200

3

200

4

200

5

200

6

200

7

2017

2016

2015

2014

2013

2012

2011

2010

200

9

200

8

2018

AV

ERA

GE

SF /

OFF

ICE

WO

RK

ER

COMPANIES RIGHT-SIZING

HOTELING

FLEXIBLE WORK SPACE

LOW UNEMPLOYMENT



CAPITAL MARKETS

• While the first quarter of 2019 lacked the blockbuster sales Boston has

become accustomed to, the investment landscape remains incredibly

positive. Throughout the metro, $812 million in office assets changed

hands during the first three months of the year. With several noteworthy

transactions, including 75 State Street, set to close in the coming quarters,

a growing pipeline of sales and increasing pricing, Boston should see

more action over the next year.

• Urban development sites are in high demand. Most recently, the

Skating Club of Boston sold its two-acre Brighton property to the Davis

Companies for $26.25 million and Related Beal is under contract on a 6.5-

acre site owned by P&G in the Seaport. GE has also placed its Seaport

site up for sale after abandoning plans to build the second phase of its

headquarters’ development. The sale includes two renovated buildings,

with a long-term lease commitment with GE, as well as a fully-permitted

vacant parcel.

• In the suburbs, the sales of One Newton Place ($50.75 million) and 4

Burlington Woods ($23.4 million) dominated the investment narrative.

MEDIAN PRICE/SF

TOP Q1 / INVESTMENT SALES

18 TREMONT STREETBOSTON

ONE NEWTON PLACENEWTON

15 COURT SQUAREBOSTON

4 BURLINGTON WOODSBURLINGTON

Buyer Jamestown, L.P. Buyer Saracen Properties/Cadre Advance LLC Buyer KS Partners Buyer GEM Realty Capital, Inc.

Price $102,750,000 Price $50,750,000 Price $29,000,000 Price $23,413,351

Total SF 202,033 Total SF 172,705 Total SF 81,000 Total SF 104,835

Price/SF $509 Price/SF $294 Price/SF $358 Price/SF $223

Cap Rate - Cap Rate - Cap Rate 5.0% Cap Rate -

SALES VOLUME($)

NUMBER OF TRANSACTIONS

TOTAL SF

MEDIAN($/SF)

MEDIAN CAP RATE

$812M 63 1.9M $164 6.8%

SALES VOLUME

$0

$200

$400

$600

$800

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

SUBURBAN URBAN

DO

LLA

RS

(mill

ions

)D

OLL

AR

S(m

illio

ns)

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$4,000

$3,500

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

SUBURBAN URBAN

4-Quarter Moving Average


TOTAL INVENTORY

(SF)

UNDER CONSTRUCTION

(SF)

DIRECT VACANT

(SF)

SUBLEASE VACANT

(SF)

TOTAL VACANCY

RATE

Q1 NET ABSORPTION

(SF)

YTD NET ABSORPTION

(SF)

ASKING RENT ($/SF)

Back Bay 14,097,979 - 572,152 48,944 4.4% 226,982 226,982 $65.85

Charlestown 2,589,875 50,000 40,934 2,751 1.7% 10,332 10,332 $38.53

Fenway/Kenmore 1,673,521 - 40,000 - 2.4% 76,674 76,674 $70.00

Financial District 35,813,446 750,000 2,560,687 298,124 8.0% 189,381 189,381 $62.19

Midtown 2,117,611 - 51,706 14,131 3.1% 7,651 7,651 $43.99

North Station 2,681,284 808,054 97,330 6,873 3.9% (5,816) (5,816) $51.09

Seaport 11,096,233 749,369 980,883 126,873 10.0% (390,178) (390,178) $61.15

South Station 1,174,568 - 66,321 - 5.6% 11,557 11,557 $54.47

Boston Total 71,244,517 2,357,423 4,410,013 497,696 6.9% 126,583 126,583 $61.71

East Cambridge 5,894,888 1,261,048 37,831 22,963 1.0% (8,648) (8,648) $78.20

Mid Cambridge 2,538,270 - 46,963 19,154 2.6% (14,092) (14,092) $68.69

West Cambridge 1,923,371 - 150,131 86,122 12.3% (10,829) (10,829) $57.56

Cambridge Total 10,356,529 1,261,048 234,925 128,239 3.5% (33,569) (33,569) $63.11

Framingham-Natick 4,624,266 - 77,577 21,466 17.3% (14,759) (14,759) $24.17

Inner Suburbs 6,465,044 391,215 598,659 18,802 9.6% (27,054) (27,054) $34.02

Route 128 North 14,107,289 - 1,761,194 75,176 13.0% 93,351 93,351 $24.99

Route 128 Northwest 13,531,719 - 1,460,980 84,931 11.4% 274,679 274,679 $31.80

Route 128 South 16,043,404 61,702 2,144,029 86,957 13.9% (85,844) (85,844) $25.97

Route 128 West 23,248,432 676,000 2,344,053 262,969 11.2% 400,089 400,089 $37.94

Route 128 Total 66,930,844 737,702 7,710,256 510,033 12.3% 682,275 682,275 $30.49

Route 495 North 13,288,300 - 3,051,427 129,688 23.9% (51,654) (51,654) $19.53

Route 495 Northeast 7,908,144 - 1,371,923 12,230 17.5% 76,342 76,342 $20.18

Route 495 South 3,292,373 - 363,448 4,788 11.2% 32,233 32,233 $19.60

Route 495 West 11,221,871 - 1,924,134 39,733 17.5% 101,686 101,686 $20.48

Route 495 Total 35,710,688 - 6,710,932 186,439 19.3% 158,607 158,607 $19.94

Suburban Total 113,730,842 1,128,917 15,797,424 736,740 14.5% 799,069 799,069 $25.83

Market Total 195,331,888 4,747,388 20,442,362 1,362,675 11.2% 892,083 892,083 $34.00

OFFICE RECAP

303 CONGRESS STREET | BOSTON, MA 02210 | 617.457.3400 | HUNNEMANRE.COM

METHODOLOGY

Source: Co-Star, Hunneman. Prepared: March 2019.

Disclaimer: The above data is from sources deemed to be generally reliable, but no warranty is made as to the accuracy of the data nor its usefulness for any particular purpose.

Average Rental Rates are asking rents on direct space. Vacant space includes both direct and sublease space.

LIZ BERTHELETTEDirector of Research

[email protected]

JOEY BIASIResearch Analyst

[email protected]

Documents

METRO BOSTON OFFICE… · 2019-04-03 · now, demand for urban office space remains on solid footing. • As headcounts continue to grow, small-to-mid-sized technology firms are driving