Cushman & Wakefield today released its year-end MarketWatch research that tracks the performance of the commercial real estate market in Boston, Cambridge and the suburbs.
In Boston, Reebok’s commitment to the Seaport was headlining news, while the disconnect between rents and availability in Back Bay went largely unnoticed. At over 20%, the availability rate in what once was Boston’s most coveted submarket is the highest it has been since 1989. Interestingly, asking rents are also they highest they’ve ever been (approaching $70 PSF for class A).
In Cambridge, 2016 was more of the same – continually rising rents and limited availability – particularly in the lab sector. Despite these tight conditions, large deals are still being executed. Akamai announced that it will consolidate multiple offices into a 450,000 SF build-to-suit at 145 Broadway. And Baxalta (recently acquired by Shire) will lease the entirety of 500 Kendall Street.
Driven in large part by high prices and limited availability in Cambridge, the suburbs experienced a surge in demand from the life science sector this year. At last count, Cushman and Wakefield was tracking over 750,000 SF in new suburban life sciences leases in the past 12 months.
Boston
At 265,779 SF YTD, absorption in Boston was essentially flat for the year.
- The largest pocket of positive absorption was the delivery of Goodwin’s new office at 100 Northern Avenue in the Seaport - 516,000 SF of occupied space.
- At the other end of the spectrum, availability in the Back Bay now stands over 20.0%. Large new availabilities this year include:
- 148,000 SF at 500 Boylston (formerly occupied by Houghton Mifflin)
- 175,000 SF at 222 Berkeley (formerly occupied by Liberty Mutual and Houghton Mifflin)
- 135,000 SF at Copley Place (sublease space offered by State Street)
- 140,000 SF at 399 Boylston (formerly occupied by Natixis)
- Approaching $70 PSF, average asking rents in Back Bay are also historically high. Given the neighborhood’s fundamentals, we expect rents in certain buildings to level off and begin to decline in the next 12 months.
- Citywide (and metrowide, for that matter) concession packages are growing – predominantly due to rising construction and relocation costs. However, the capital gap between what landlords are offering and what it actually takes to move is still increasing.
- As a result, we expect many large users will opt to renew rather than relocate in the coming year.
Cambridge
- At 3.0% and 3.2% respectively, both the office and lab market in Cambridge are still prohibitively tight – with asking rents reaching into the $80s and $90s PSF.
- Lab rents for executed leases are now starting at $80 PSF NNN – escalating 3% per year over the life of the lease. These lab rents represent a 25% increase over this time last year.
- In the office sector, some tenants have received proposals in the mid $80s PSF. This represents a 35% increase in office rents over the past 12 months. As a result, many Cambridge tenants are exploring downtown and inner suburban options for rent relief.
Suburbs
- At over 800,000 SF YTD, suburban R&D absorption was the strongest it has been since 2007. This is significantly attributable to the growth in demand for lab space from companies displaced or priced out of Cambridge. Significant deals of the year include:
- Moderna Therpautics taking 200,000 SF at 100 Upland Drive, Norwood
- Tesaro taking 115,000 SF at 1000 Winter Street, Waltham
- Ocular Therapeutix’s 70,000 SF lease at 15 Crosby Drive, Bedford
- Shire’s 177,000 SF deal at 45-55 Hayden Avenue, Lexington
- On the flip side, office absorption in the suburbs totaled negative 37,000 SF for the year. Similarly to Back Bay, there has been a disconnect between rising asking rents and slowing demand for existing suburban office space (exclusive of new construction). As landlords raise rents, many suburban tenants have opted for space downtown.
- However, a recent Cushman & Wakefield analysis of existing suburban office buildings revealed that in the coming year, the number of leases set to expire is 200% greater than the average over the past five years. What this means is that the suburban office market is set to experience a significant amount of movement – those tenants who don’t opt for renewals will begin flooding the market in the next 12 to 18 months.
