Q2-2018-OfficeReport

Q2

OFFICE STATISTICS SUBURBAN

2018

SUBURBAN

TOTAL INVENTORY (SF)

TOTAL VACANT (SF)

TOTAL VACANCY RATE

Q2 NET ABSORPTION (SF)

YTD NET ABSORPTION (SF)

ASKING RENT ($/SF)

Class A

59,315,665

8,431,291

14.2%

(522,586)

(774,497)

$29.36

Class B

53,941,335

8,988,258

16.7%

(177,276)

(274,742)

$22.45

Vacancy

1,500 CLASS A & B TOTAL

113,257,000

17,419,549

15.4%

(699,862)

(1,049,239)

$25.76

17%

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

1,000

16%

VACANCY & NET ABSORPTION Vacancy

TRENDS • Boston’s urban-to-suburban migration had a material impact on suburban fundamentals during the first half of 2018, with vacancies spiking again in the second quarter. Following Reebok’s recent relocation from its former campus in Canton to the Seaport, the completion of Alexion and PTC’s new office, also in the Seaport, resulted in another several hundred thousand square feet of negative absorption. Dell EMC, Kenexa and Shire vacated large blocks of space in the second quarter as well. 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 lack of large blocks of available space in Cambridge and Downtown could also mitigate recent urbanization trends. • It’s not all bad news for Boston’s suburban office markets. Even with the loss of several major tenants, the Route 128 West submarket remains popular for Class A tenants. Recent leases by Simpson Gumpertz & Heger, Alkermes, Tesaro, and ZoomInfo point to the strength of Core Route 128. Outside of Route 128, Mathworks recently completed an 180,000-square-foot expansion at its Natick Campus, KROHNE completed its new 175,000-square-foot headquarters in Beverley and Allegro Microsystems relocated from Worcester to Marlborough. • Speculative construction in Boston’s suburban office market is leasing up, albeit at a slightly slower pace than the Downtown markets. In Waltham, the Post at 200 Smith Street landed its first major tenant. Deciphera Pharmaceuticals inked a deal for 44,256 square feet of office space in the newly constructed building. Now, 37% of the speculative suburban office construction built since 2016 is occupied. 2013 2013 2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016 2017 2017 • Another large mixed-use development is on the docket for Somerville. Cresset Group recently received approval for Xmbly; a 1.5 million square foot development adjacent to the ever-popular Assembly Row. The site, located along the MBTA’s Orange Line, will include three new commercial buildings. This new economy space will encompass office, lab and R&D uses. • 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 ended the second quarter at $25.76/SF — a 6.3% increase from year-ago levels and 2% above last quarter’s rates.

500

15%

1,500

17%

0

14%

SF (000's)

1,000 -500

16%

13%

500 -1,000

15%

12%

2013

2014

2015

2016

2017

2018

0

14%

Net Absorption

Vacancy

SF (000's)

-500

13%

-1,000

12%

2013

2014

2015

2016

2017

2018

Net Absorption

Vacancy

SUBURBAN RENTS Suburban Rents

10% 15% 20% 25% 30% 35% 0 5% 10 15% 20% 25% 30% 35%

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

Suburban Rents

$10 $15 $20 $25 $30 $35 $40 $0 $5

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 (2014-2018)

Current Rent

Route 495 Northeast

0% 5%

$0 $5

NOTABLE TRANSACTIONS Notable Transactions

L3 Comm.

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 (2014-2018)

Current Rent

Route 495 Northeast

ClearMotion

ZoomInfo

Sovos

Deciphera Pharmaceuticals

25K SF

50K SF

75K SF

100K SF

150K SF

Route 495 North Route 128 West Route 128 North

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