Q1-2018-OfficeReport

Q1

OFFICE STATISTICS DOWNTOWN

2018

DOWNTOWN

TOTAL INVENTORY (SF)

TOTAL VACANT (SF)

TOTAL VACANCY RATE

Q1 NET ABSORPTION (SF)

YTD NET ABSORPTION (SF)

Class A

48,887,186

3,435,560

7.0%

281,462

281,462

Class B

20,978,391

1,803,527

8.6%

(57,712)

(57,712)

Q1 2013

CLASS A & B TOTAL

69,865,577

5,239,087

7.5%

223,750

223,750

Vacancy

12%

Q1 2013

Vacancy TOTAL VACANCY 10%

TRENDS • Large commitments dominate the urban leasing environment as the competition for talent heats up. From innovative companies like Wayfair and Oath to traditional finance firms like MassMutual, tenants are taking down large blocks of space throughout the Downtown markets. The near-term outlook for demand is also positive. Preleasing among new construction is particularly strong and several tenants, including Chewy, LevelUP, and Burns & Levinson, are out with requirements of 50,000 square feet or more. • The Back Bay is finally reaping the rewards of this cycle’s urban office market expansion. Not long ago this submarket was facing high vacancies as tenants left for greener pastures in the Financial District and the Seaport. Strong leasing in this traditional high-rise market has led to a swift decline in vacancies (more than 200 basis points) over the last 12 months. And more growth is on the way. Wayfair is going gangbusters, DraftKings is moving to the neighborhood, WeWork is opening another location, and John Hancock is shifting its headquarters from the Seaport to space they occupy at 200 Berkeley and 197 Clarendon. • Boston’s Seaport is about to get a little more crowded. Amazon announced plans to lease 430,000 square feet, a separate requirement from the much-anticipated HQ2, in a to-be-built office tower at Seaport Square. This move will bring roughly 2,000 additional employees to the area. The e-commerce giant, who recently took occupancy of 150,000 square feet at 253 Summer Street, also has the option to expand into another 610,000 square feet on an adjacent parcel. MassMutual is throwing its hat into the ring as well; bringing 1,000 workers and 300,000 square feet of office space to Fan Pier by 2021. • On the heels of Rapid7’s recent deal, Oath will likely anchor the next office phase at Boston Properties’ Hub on Causeway in North Station. The media subsidiary of Verizon is said to be negotiating a 300,000-square-foot lease at the new development. • Rents continue to climb across most submarkets, but slower growth, which is indicative of a cycle’s maturation, has set in. Average asking rents are flirting with $58.50/SF in the first quarter — a 1.2% increase from year-ago levels. Lease rates were essentially flat compared to the fourth quarter, however. Flight-to- quality among office tenants this cycle is also impacting lease rates. With fewer Class A rent observations in comparison to the overall market, asking rents could decrease despite solid fundamentals.

12% 8%

10% 6%

8%

4%

6%

2%

5-Year Historical Average = 9.2%

4%

0%

2013

2014

2015

2016

2017

2018

2%

0%

2013

2014

2015

2016

2017

2018

NET ABSORPTION Net Absorption

1,000 1,200

Net Absorption

-600 -400 -200 0 1,000 1,200 -600 -400 -200 0 200 40 60 800 200 400 600 800

SF (000s)

#H'(%#$'

SF (000s)

J567 T+'.,2 T)4.), T*1.))

2013

2014

2015

2016

2017

2018

Class A

Class B

2013

2014

2015

2016

2017

2018

NOTABLE TRANSACTIONS Notable Transactions

Class A

Class B

WeWork

Cengage Learning

Nixon Peabody

DraftKings

WeWork

75K SF

90K SF

105K SF

120K SF

135K SF

Back Bay

Seaport

Financial District

2