Q2-2018-OfficeReport

Q2

OFFICE STATISTICS DOWNTOWN

2018

DOWNTOWN

TOTAL INVENTORY (SF)

TOTAL VACANT (SF)

TOTAL VACANCY RATE

Q2 NET ABSORPTION (SF)

YTD NET ABSORPTION (SF)

ASKING RENT ($/SF)

Class A

49,426,670

3,253,643

6.6%

728,194

1,009,656

$63.49

Class B

20,979,810

1,757,825

8.4%

21,702

(36,010)

$50.61

Q1 2013

CLASS A & B TOTAL

70,406,480

5,011,468

7.1%

749,896

973,646

$59.25

Total Vacancy

12%

Q1 2013

Total Vacancy TOTAL VACANCY 10%

TRENDS • The second quarter proved to be one of the strongest in Downtown Boston’s recent history. With more than 700,000 square feet in positive absorption, vacancies in the urban core declined by 40 basis points over the quarter and 100 basis points over the year. Delivery of two fully-occupied office developments — 121 Seaport and 22 Boston Wharf Road — drove much of the activity. Following move-ins from Reebok and Amazon earlier this year, net absorption in the Seaport has surpassed 700,000 square feet year-to-date. Demand from out-of-market office users will continue to drive urban fundamentals in the foreseeable future. • Several sizeable users are in the market for new office digs, but availabilities over 100,000 square feet remain limited. State Street Bank (500,000+ SF), Bank of America (500,000+ SF), Salesforce (500,000 SF), Oath (300,000 SF), and Interpublic (280,000 SF) are some of the largest tenants touring the Downtown market. With only nine availabilities 100,000 square feet or more and one over 200,000 square feet, these users will likely turn to new construction to fulfill their requirements. Oath has reportedly signed a commitment at the 650,000-square- foot office tower at Boston Properties’ Hub on Causeway, which hasn’t even begun construction yet, and Epsilon is rumored to be nearing a commitment for 180,000 square feet in the same building. • Boston’s coworking landscape continues to expand. This quarter, WeWork agreed to take down another 90,000 square feet at Related Beal’s Congress Square development, which is slated to come on line later this year. Workbar also recently announced plans for growth in the city. The coworking operator is looking to double its Boston footprint to more than 100,000 square feet by 2019. While the need for flexible, collaborative work environments will likely continue to propel this trend, there is well over one million square feet of coworking space in Downtown Boston. One has to wonder how deep the demand well runs for this type of space. • Wayfair finalized its 395,000-square-foot lease at 222 Berkeley/500 Boylston Street in the Back Bay. The e-commerce giant currently occupies roughly 655,000 square feet across multiple buildings at Copley Place. Despite growing its footprint to more than one million square feet in 2019, Wayfair is expected to continue to expand, and is reported to be in the market for another 250,000-275,000 square feet in the Back Bay. • Rents continue to climb across most submarkets, but slower growth, which is indicative of a cycle’s maturation, has set in. Average asking rents surpassed $59/ SF in the second quarter — a 2.5% increase from year-ago levels. Lease rates were up 1.4% compared to the first quarter as well. Despite the recent flight-to- quality among Downtown office tenants, Class B lease rates are rising at a faster clip, and now have breached $50/SF Downtown.

12% 8%

10% 6%

8%

4%

6%

2%

5-Year Historical Average = 9.1%

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)

g Rent /SF) $63.49 $50.61 $59.25

SF (000s)

2013

2014

2015

2016

2017

2018

Class A

Class B

2013

2014

2015

2016

2017

2018

NOTABLE TRANSACTIONS Notable Transactions

Class A

Class B

Amazon

Wayfair

WeWork

Spotify

BitSight

50K SF

150K SF

250K SF

350K SF

450K SF

Seaport

Back Bay

Financial District

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