metro boston office… · 303 congress street | boston, ma 02210 | 617.457.3400 | hunnemanre.com...

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

METRO BOSTON OFFICE MARKET REPORT

SECOND QUARTER | 2019

2 | METRO BOSTON OFFICE | Q2 2019

BOSTON OFFICE MARKET OVERVIEW

The Greater Boston office market shows no sign of stopping. The overall

market posted more than 650,000 square feet of positive absorption, which

pushed vacancies down to just 10.6% in the second quarter. Year-to-date,

1.3 million square feet of office space has been absorbed across the metro.

Several major groundbreakings took place during the second quarter. Total

square feet under construction has now surpassed 6.7 million square feet;

reaching levels not seen in almost 20 years. While roughly three-quarters of this

space is committed, some speculative projects are starting to move forward.

Suburban office inventory actually declined during the second quarter as

several properties have been repositioned to lab or demolished. Asking rents

increased by another 2.2% over the quarter, with stronger gains occurring in

select pockets of Cambridge and Boston.

While WeWork continues to dominate headlines, other flexible space operators

are expanding in the Boston market. Most recently, the coworking giant leased

117,000 square feet at 100 Summer Street and leased 28,776 square feet

at the recently renovated One Milk Street. Both locations are slated to open

by the end of this year. Knotel Inc. recently announced plans to expand into

the Boston market and is looking to establish a number of locations over the

next several months. Workbar is adding two more locations as well. The firm

leased 17,600 square feet on the second floor of 24 School Street in Downtown

Crossing and is opening a 6,000-square-foot operation in Norwood. A female-

focused coworking operator, the Wing, just opened its doors at 699 Boylston

Street in the Back Bay as well. There is no question that coworking is changing

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

Several major office developments moved forward during the second quarter

and the planning pipeline continues to grow. One Congress, anchored by State

Street Bank, is the largest office building to break ground in downtown Boston

since 2000. Work began on the 235,000-square-foot 321 Harrison Avenue in the

South End as well as MassMutual’s 310,000-square-foot Seaport headquarters.

The redevelopment of One PO Square and 200 Quannapowitt Parkway in

Wakefield also kicked off in the second quarter. Office construction could

surpass seven million square feet this year as Google’s new office in Cambridge

and Hobbs Brook Management’s 225 Wyman Street development are slated to

get underway in a few months as well.

The risk of recession in the near term remains rather low and this expansion

cycle is about to the become the longest in U.S. history. However, increased

trade protectionism is a growing downside risk to the 2020 outlook.

10.6%

TOTAL VACANCY RATE

656,481Q2 NET ABSORPTION

(SF)

$34.68 ASKING RENT

($/SF)

6,718,764 UNDER CONSTRUCTION

(SF)


BOSTON OFFICE

TOTAL INVENTORY(SF)

TOTAL VACANT(SF)

TOTAL VACANCY RATE

Q2 NET ABSORPTION(SF)

YTD NET ABSORPTION

(SF)

ASKING RENT($/SF)

Class A 50,809,304 3,196,194 6.3% 233,560 313,402 $68.05

Class B 20,576,459 1,503,045 7.3% 155,964 202,705 $54.11

Total 71,385,763 4,699,239 6.6% 389,524 516,107 $63.83

• The Boston market absorbed another 390,000 square feet during the

second quarter as tenants continue to expand downtown. Industrious,

Rapid7, Buildium and Spotify all made major moves this quarter. Vacancies

declined to their lowest levels since 2001, rents maintained their upward

trajectory and the development pipeline is swelling to volumes we haven’t

seen since the Dot Com era.

• Tech companies continue to expand in the Boston market. On the heels of

its recent headquarters move to the Back Bay, Draft Kings needed overflow

space and signed a 5-year lease for 100 desks in flexible space Studio at

125 High Street. Forcepoint recently opened its 53,000-square-foot Cyber

Experience Center at 22 Thomson Place in the Seaport; bringing 300 jobs the

area. DataRobot is taking down another two floors at 225 Franklin Street after

leasing nearly 50,000 square feet in the building earlier this year.

• Coworking operators are aggressively expanding as well. WeWork added two

new locations to its local footprint: 100 Summer Street and One Milk Street.

Knotel, Workbar and the Wing are also growing their Boston presence.

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

skyline. Work recently began on the one million-square-foot One Congress

Street, anchored by State Street Bank, 321 Harrions Avenue in the South

End, and the 310,000-square-foot MassMutual headquarters in the Seaport.

The redevelopment of Hood Park in Charlestown could result in three

new office/lab buildings totaling close to 800,000 square feet and Oxford

properties announced plans to replace a parking garage at 125 Lincoln

Street with a 625,000-square-foot office tower.

• During the second quarter, Accordia Partners and Ares Management

acquired the 425,000-square-foot office campus, anchored by Santander

Bank, at 2 Morrissey Boulevard in Dorchester for $110 million. The complex

is adjacent Accordia’s redevelopment of the former Bayside Expo Center.

Alexandria and National Development also purchased 5 and 15 Necco

Street from General Electric for $252 million, which includes a fully-

permitted office building. GE signed a 12-year lease for 95,000 square feet

for its permanent headquarters as part of the transaction.

TOTAL VACANCY

NET ABSORPTION

ASKING RENTS

$0

$20$10

$40$30

$60$50

$80$70

$90

$/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

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%

12%

10%

8%

6%

4%

2%

2013 2014 2015 2016 2017 2018 2019

5-YEAR HISTORICAL AVERAGE VACANCY RATES


CAMBRIDGE OFFICE

TOTAL INVENTORY(SF)

TOTAL VACANT(SF)

TOTAL VACANCY RATE


YTD NET ABSORPTION

(SF)

ASKING RENT($/SF)

Class A 6,928,989 215,832 3.1% (5,819) (17,287) $65.50

Class B 3,427,540 152,505 4.4% 646 (21,566) $66.50

Total 10,356,529 368,337 3.6% (5,173) (38,742) $66.04

• 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 second quarter, momentum

remains positive here. At 3.6%, 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.

• While lab users dominated leasing in the Cambridge markets this quarter, a

handful of office transactions did take place in the second quarter. Google

is subleasing 145,000 square feet of Akamai’s space at 150 Broadway in

anticipation of its new office, which is slated to break ground in the coming

quarters. HubSpot also leased another 30,000 square feet at 2 Canal Park.

• Pricing for office assets is quite frothy in Cambridge. Ventas acquired 1030

Massachusetts Avenue for $128 million or $1,645 per square foot.

• 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.

• 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. While the developer has recently decided to revise it’s plan to

add another 600,000 square feet of office and lab space, expect more new

construction to take place here. Boston Properties is also demolishing 325

Main Street and replacing the building with a 417,000-square-foot office,

which will be anchored by Google.

TOTAL VACANCY

LAB VS. OFFICE SUPPLY SHARE

NET ABSORPTION

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 2016 2017 2018 2019

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


SUBURBAN OFFICE

ASKING RENTS

TOTAL INVENTORY(SF)

TOTAL VACANT(SF)

TOTAL VACANCY RATE


YTD NET ABSORPTION

(SF)

ASKING RENT($/SF)

Class A 59,513,001 7,961,208 13.4% 168,850 733,603 $29.33

Class B 54,069,113 7,743,220 14.3% 103,280 127,092 $22.17

Total 113,582,114 15,704,428 13.8% 272,130 860,695 $25.75

• The Suburban office market continued its positive momentum into the

second quarter, with year-to-date net absorption totaling close to 900,000

square feet. Several factors are positively impacting market fundamentals

here. Tenant growth continues to mitigate the impact of tenants migrating

to Boston, while lab conversions and demolitions are taking vacant office

space out of the inventory. As a result, vacancies declined by 100 basis

points of the quarter and at their lowest level in five years. Though recent

performance has been decidedly positive, there may be some headwinds

on the horizon as several large tenants are downsizing their suburban

footprints.

• Suburban leasing activity has been healthy. Raytheon recently leased

134,000 square feet at 300-400 Innovation in Tewksbury and its merger

with United Technologies could result in the need for more office space in

suburban Boston. Computershare, Redfin and Digital Insurance leased a

total of 90,000 square feet at 150 Royall Street in Canton. Citizen’s Financial

Group agreed to anchor the first office building at University Station in

Westwood; consolidating it’s suburban locations into 100,000 square feet.

• Several large blocks of vacancy are on the horizon. BNY Mellon vacated

roughly 135,000 square feet at 135 Santilli Highway in Everett and State

Street Bank is planning to vacate two full buildings in Quincy: 1200 Crown

Coloy and 200 Newport Avenue. Combined the buildings represent

almost 400,000 square feet of space. 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 outlook.

• Over the quarter, the suburban office inventory declined by nearly 1%

due to lab conversions and demolitions. Examples of buildings moving

to the lab inventory include 20 Maguire Road, 195 West Street and 4

Burlingtons Woods. Landlords will likely continue to implement these

redevelopments in order to tap into the area’s strong life science demand.

Buildings demolished in the second quarter include 100 Endicott Street,

Danvers and 5 Branch Street, Methuen.

TOTAL VACANCY

NET ABSORPTION

$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

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

10%

11%

12%

13%

14%

15%

16%

17%

2013 2014 2015 2016 2017 2018 2019


NOTABLE TRANSACTIONS

100 FEDERAL STREETBOSTON

155 SEAPORT BOULEVARDBOSTON

150 BROADWAYCAMBRIDGE

300-400 INNOVATION DRIVETEWKSBURY

Company Bank of America Company Foley Hoag Company Google Company Raytheon

Size 545,000 SF Size 165,000 SF Size 145,000 SF Size 130,000 SF

Submarket Financial District Submarket Seaport Submarket East Cambridge Submarket Route 495 North

100 SUMMER STREETBOSTON

UNIVERSITY STATIONWESTWOOD

2 WELLS AVENUENEWTON

123 FELTON STREETMARLBOROUGH

Company WeWork Company Citizen’s Financial Group Company Bright Horizons Company Doble Engineering


Submarket Financial District Submarket Route 128 South Submarket Route 128 West Submarket Route 495 West

225 FRANKLIN STREETBOSTON

1 CABOT ROADMEDFORD

100 SUMMER STREETBOSTON

1 BOSTON PLACEBOSTON

Company DataRobot Company Amazon Company Ironwood Pharmaceuticals

Company Simon, Kucher & Partners


Submarket Financial District Submarket Inner Suburbs Submarket Financial District Submarket Financial District


CAPITAL MARKETS

• Second-quarter sales volume in Greater Boston’s office market more than

doubled the previous quarter as blockbuster portfolio deals drove recent

activity. Throughout the metro, $2.4 billion in office assets changed hands

over the quarter with urban transactions accounting for the lion’s share of

deal volume. Pricing continues to climb, particularly for downtown assets,

with the metrowide median price-per-square-foot surpassing $170 in the

second quarter.

• Several large portfolios transacted over the last three months. Harrison

Street and the Bulfinch Companies acquired a ground lease for Osborn

Triangle (three office/lab assets in East Cambridge) for a record-breaking

$1 billion. MIT will retain a minority stake in the transaction. This deal

reaffirms East Cambridge’s cache among institutional investors. Nordblom

Company also sold its Network Drive portfolio in Burlington, totaling

more than 900,000 square feet, for $303 million. Atlantic Management

paid $36 million for Philips Electronics’ four-building campus in Andover.

National Development purchased the GE site in the Seaport for $252

million. The sale includes two renovated buildings, with a long-term lease

commitment with GE, as well as a fully-permitted vacant parcel.

MEDIAN PRICE/SF

TOP Q2 / INVESTMENT SALES

MIT PORTFOLIOCAMBRIDGE

NETWORK DRIVE PORTFOLIOBURLINGTON

10 POST OFFICE SQUAREBOSTON

22 BOSTON WHARF ROADBOSTON

Buyer Harrison Street/The Bulfinch Companies Buyer Starwood Capital Group Buyer NTT Urban Development Buyer Invesco Real Estate

Price $990,000,000 Price $302,720,000 Price $238,716,700 Price $178,200,000

Total SF 677,000 Total SF 922,244 Total SF 453,150 Total SF 123,875

Price/SF $1,625 Price/SF $328 Price/SF $527 Price/SF $1,439

Cap Rate - Cap Rate - Cap Rate - Cap Rate -

SALES VOLUME($)

NUMBER OF TRANSACTIONS

TOTAL SF

MEDIAN($/SF)

MEDIAN CAP RATE

$2.4B 90 5.5M $171 6.3%

SALES VOLUME

4-Quarter Moving Average

$0

$200

$400

$600

$800

DO

LLA

RS

(mill

ions

)

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

SUBURBAN URBAN

DO

LLA

RS

(mill

ions

)

$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


TOTAL INVENTORY

(SF)

UNDER CONSTRUCTION

(SF)

DIRECT VACANT

(SF)

SUBLEASE VACANT

(SF)

TOTAL VACANCY

RATE

Q2 NET ABSORPTION

(SF)

YTD NET ABSORPTION

(SF)

ASKING RENT ($/SF)

Back Bay 14,059,831 - 463,302 49,344 6.3% 108,450 335,432 $67.93

Charlestown 2,589,875 50,000 35,097 15,629 2.0% (7,041) 3,291 $39.61

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

Financial District 35,813,446 1,050,000 2,556,332 246,695 7.8% 58,784 248,165 $64.62

Midtown 2,117,611 233,901 98,932 7,973 5.0% (40,068) (33,417) $45.04

North Station 2,862,338 1,628,200 97,841 31,840 4.5% 155,576 149,760 $51.35

Seaport 11,094,573 1,064,369 929,388 74,842 9.1% 103,526 (286,652) $64.10

South Station 1,174,568 - 55,024 - 4.7% 11,297 22,854 $54.81

Boston Total 71,385,763 4,026,470 4,275,916 423,323 6.6% 389,524 516,107 $63.83

East Cambridge 5,894,888 1,261,048 53,227 3,624 1.0% 3,943 (4,705) $84.87

Mid Cambridge 2,538,270 - 47,953 16,214 2.5% 1,950 (12,142) $70.52

West Cambridge 1,923,371 - 146,060 101,259 12.9% (11,066) (21,895) $57.71

Cambridge Total 10,356,529 1,261,048 247,240 121,097 3.6% (5,173) (38,742) $66.04

Framingham-Natick 4,624,266 - 829,125 22,066 18.4% (26,948) (66,907) $24.31

Inner Suburbs 6,465,044 391,215 729,612 18,802 11.6% (130,953) (158,007) $35.21

Route 128 North 13,671,976 364,301 1,346,309 123,442 10.8% (52,563) 24,657 $23.84

Route 128 Northwest 13,383,313 - 1,111,003 108,608 9.1% 123,546 398,228 $31.55

Route 128 South 16,120,180 - 2,077,625 139,991 13.8% 75,072 (10,772) $26.06

Route 128 West 22,987,721 676,000 2,351,096 282,999 11.5% (86,048) 209,668 $37.36

Route 128 Total 66,163,190 1,040,031 6,886,033 655,040 11.4% 60,010 621,781 $30.37

Route 495 North 13,294,555 - 2,954,489 122,882 23.1% 103,774 52,090 $19.32

Route 495 Northeast 8,520,815 - 1,295,551 12,230 15.3% 112,772 124,314 $20.19

Route 495 South 3,292,373 - 345,369 4,788 10.6% 18,079 50,312 $19.98

Route 495 West 11,221,871 - 1,784,220 44,221 16.3% 135,426 237,112 $20.59

Route 495 Total 36,329,614 - 6,379,629 184,121 18.1% 370,021 463,828 $19.87

Suburban Total 113,582,114 1,431,246 14,824,399 880,029 13.8% 272,130 860,695 $25.75

Market Total 195,324,406 6,718,764 19,347,555 1,424,449 10.6% 656,481 1,338,060 $34.68

OFFICE RECAP

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

METHODOLOGY

Source: Co-Star, Hunneman. Prepared: June 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]

JAMES FIFTALSenior Research Analyst

[email protected]

metro boston office… · 303 congress street | boston, ma 02210 | 617.457.3400 | hunnemanre.com...

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