Cushman & Wakefield today released its third quarter MarketWatch research that tracks the performance of the commercial real estate market in Boston, Cambridge and the suburbs.

In a continuation of a theme we identified last quarter, asking rents in some pockets of Boston have reached historical highs (specifically high-rise class A space in the Financial District and Back Bay). Some landlords are now quoting low $90s PSF asking rents for trophy space. However, we’re still seeing movement on counter proposals. This means that even though asking rents are still high, actual leases continue to be executed under ‘sticker price.’

In Cambridge, the third quarter of 2016 was more of the same – continually rising rents and limited availability. One project we are keeping an eye on is the Volpe site on Broadway. Owned by the Department of Transportation, it is arguably the most sought-after potential development site in the region with – at last count – seven companies making bids on the project.

In the suburbs, new construction is still a headliner, but so is increasing demand for lab space. At last count, more than 20% of demand in 128 Central was for lab space – driven by scarce availability and prohibitively expensive rents in Cambridge.

Boston
- At 335,476 SF YTD, absorption in Boston crossed into positive territory for the first time this year – largely due to the delivery of 378,000 SF of Goodwin Procter’s new space at 100 Northern Avenue in the Seaport.
- While isolated pockets of the city are asking historically high rents, overall asking rents have leveled off. This is especially notable after a 12-month run up (where some segments of Boston spiked 30%).
- One of the most frequently asked questions these days is “What’s GE’s effect on Boston so far?” Because leases take time to negotiate and new construction obviously isn’t built overnight, the answer is that it really is too soon to tell. However, we have noticed an increase in asking rents around GE’s property in Fort Point Channel – rising from the low $40s PSF to the low $50s PSF over the past few months. Whether or not tenants agree to lease space at these prices is yet to be seen.

Cambridge

- In Cambridge, the third quarter of 2016 was more of the same – continually rising rents and limited availability. One project we are keeping an eye on is the Volpe site on Broadway. Owned by the Department of Transportation, it is arguably the most sought-after potential development sites in the region with – at last count – seven companies making bids on the project.

- Not surprisingly, all of the largest deals in Cambridge this quarter were by life science companies: Takeda Pharmaceuticals leased 100,000 SF of former Ariad space at 26 Landsdowne Street; Momenta Pharmaceuticals committed to 81,000 SF on the top floor of 300 Binney Street; and, a well-known life science company is in talks to take 200,000 SF at 100 Binney Street.

- As a result of continued strong demand, lab rents are still climbing. Overall, asking rents for lab space are up over 25% in the past year – averaging over $70 PSF NNN across Cambridge.

- On the capital markets front, 245 First Street joined the ranks of buildings trading over $1,000 PSF. Clarion Partners purchased the 298,000 SF of combined office and lab space for $311M – or $1,045 PSF.

Suburbs
Statistically, the suburbs were quiet this summer. However, it is becoming harder to ignore tenants’ increasingly sophisticated demands for amenities. This means older suburban product is rapidly becoming obsolete. Instead, build-to-suits are the desired options - especially for larger companies. In addition to demand for amenities, an influx of life science tenants priced out of Cambridge is beginning to drive demand in the suburbs.

- As a result, two of the largest suburban leases signed this quarter were Tesaro, Inc. at 1000 Winter Street, Waltham and Ocular Therapeutix at 15 Crosby Drive, Bedford (71,000 SF).
- The Woburn lab market is hot for the second consecutive quarter – specifically 19 Presidential Way. Dimension Therapeutics took 17,000 SF this quarter and Frequency Therapeutics committed to 9,500 SF. They join Metabolix, Wolfe Laboratories and Codiak Biosciences – all of which signed leases this year.

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