Q1-2018-OfficeReport

Q1

OFFICE STATISTICS SUBURBAN

2018

SUBURBAN

TOTAL INVENTORY (SF)

TOTAL VACANT (SF)

TOTAL VACANCY RATE

Q1 NET ABSORPTION (SF)

YTD NET ABSORPTION (SF)

Class A

59,081,606

7,958,514

13.5%

(246,271)

(246,271)

Vacancy

Class B

54,823,798

8,856,567

16.2%

85,355

85,355

2013 2013 2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016 2017 2017

1,500

17%

CLASS A & B TOTAL

113,905,404

16,815,081

14.8%

(160,916)

(160,916)

1,000

16%

VACANCY & NET ABSORPTION 500

15%

TRENDS • Suburban office vacancies spiked in the first quarter of 2018 as Reebok’s former headquarters hit the leasing market. Barring this event, market conditions have otherwise been positive with expansions coming from owner-users and in-place tenants. While office-users continue to migrate towards urban locales, demand for build-to-suits has helped drive activity in Boston’s suburban markets. Similar to Downtown, rents continue to rise, but growth is waning. Looking ahead, the suburbs will remain on solid footing despite continued migration to the urban center. Pockets along Route 495 may continue to contend with higher-than- average vacancies and struggle with lease-up, but adaptive reuse projects could help mitigate these risks. • The sale of Reebok’s former headquarters in Canton following its recent relocation to Boston’s Seaport neighborhood generated several hundred thousand square feet of negative absorption in the Route 128 South office market this quarter. Spear Street Capital purchased the 600,000+-square-foot campus for $88 million or $129 per square foot. While this site presents an interesting redevelopment opportunity, the new owner is planning to lease out the space. • Move-ins from Raytheon, Digital Federal Credit Union, Digital Guardian, and ServiceNow contributed to strong net absorption in markets like Route 128 West and Route 495 North. In addition to the Reebok space, Comverse Technology also vacated roughly 78,000 square feet at 200 Quannapowitt Parkway in Wakefield this quarter. • Office users are flocking to build-to-suit construction in Boston’s suburbs. Following Simpson Gumpertz & Heger’s 110,000-square-foot lease at the soon-to-be-built 20 CityPlace in Waltham, Alkermes recently confirmed its plans for growth. The drugmaker inked a deal for more than 200,000 square feet of new office space in Waltham; expanding its footprint to nearly 400,000 square feet here by 2020. Agero, Inc. also signed a lease for 115,000 square feet for a new headquarters at River’s Edge in Medford. The roadside assistance company will relocate from nearby One Cabot Road. Q1 2017 Q2 2017 Q3 2017 Q4 2017 • Asking rents have been expanding rapidly in select suburban submarkets, but overall growth will likely wane as this current cycle matures. Demand for space within Route 128 and the Inner Suburbs has led to above-average gains over the past three years, with cumulative rent growth reaching 20-30% in some submarkets. Speculative construction in key markets, like Route 128 West, has also been driving higher rents. Average suburban asking rents are nearing $25.50/ SF in the first quarter — a 6% increase from year-ago levels. Lease rates were essentially flat compared to the fourth quarter, however.

1,500 0

17%

14%

1,000

16%

-50

13%

-1,000

12%

500

15%

2013

2014

2015

2016

2017

2018

Absorption

Vacancy

0

14%

-500

13%

-1,000

12%

2013

2014

2015

2016

2017

2018

Net Absorption

Vacancy

SUBURBAN RENTS Suburban Rents

10% 15% 20% 25% 30% 35%

$10 $15 $20 $25 $30 $35 $40

Asking Rent ($/SF) 0% 5%

$0 $5

tion

,271) $28.86 ,355 $22.42 ,916) $25.43

InnerSuburbs

Route 128 West

Route 495 West

Route 128 North

Route 495 North

Route 128 South

Route 495 South

Framingham-Natick

Route 128 Northwest Rent Growth (2014-Q1 2018)

Current Rent

Route 495 Northeast

NOTABLE TRANSACTIONS Notable Transactions

Alkermes

Agero, Inc.

Everbridge

Collegium Pharmaceuticals

MKS Instruments

25K SF

75K SF

125K SF

175K SF

225K SF

Route 128 West Inner Suburbs Route 128 Northwest Route 128 South Router 495 Northeast

6

rket conditions have otherwise