Q2 2012 Boston, Massachusetts Office Submarket Trends

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Q2 2012 Boston, Massachusetts Office Submarket Trends

The three adjacent submarkets in the center of the City of Boston account for 42% of the 126 million square feet of general purpose, multi-tenant office space in the metropolitan area. Cambridge, the home of Harvard and MIT, as well as the bio-tech research industry, is another major urban submarket. Suburban submarkets are located at different points along the two circumferential highways, the famous tech Route 128/I-95 closer-in, and Route 495. The most prestigious of these is due west of Boston at the intersection of Route 128 and the Massachusetts turnpike.

CBD/Back Bay

  • The 32.8-million-square-foot CBD submarket has a second quarter 2012 vacancy rate of 13.2%, and an average asking rent of $50.04 psf, the highest among nine submarkets according to Reis.
  • This submarket has turned around in the past three quarters with 426,000 square feet of positive net absorption, including 164,000 in the second quarter, as the vacancy rate fell 50 basis points. Both the average asking rent and the average effective rent rose 0.2% during the quarter, the latter to $40.94 psf. The year-over-year gains are 2.4% and 3.3%, respectively.
  • Although no space is under construction in this submarket, Reis predicts nearly 1 million square feet will be added from 2013 to 2016. The 200,000-square-foot Downtown Crossing project, stalled by the recession and then downsized, is expected to break ground in January 2013 for completion two years later.
  • Jones Lang Lasalle puts the availability rate for 34.5 million square feet in the Financial District at 20.7%, with an average asking rent at $46.60 psf.
  • “While not included in Cushman & Wakefield leasing activity statistics, renewal activity in the CBD comprised much of the occupier activity during the quarter,” according to that source. The largest renewal was for 245,000 by Mintz, Levin, Cohn, Ferris, Glovsky, & Popeo, P.C. at One Financial Center.
  • Cushman & Wakefield reports a vacancy rate of 14.9% for 34 million square feet, and the overall weighted average gross rental rate at $42.67 psf.
  • In the 13.5-million-square-foot Back Bay/Fenway submarket, the vacancy rate is 6.0%, lowest metrowide, and the average asking rent is $49.08 psf, the second highest according to Reis.
  • The vacancy rate edged up 20 basis points during the second quarter, but remains down 50 from a year earlier. The average asking rent rose 1.4% and the average effective rent increased 1.2% to $43.82 psf in the second quarter. The year-over-year increases are 2.6% asking and 2.9% effective.
  • Reis predicts the 590,000-square-foot Liberty Mutual Expansion at Berkley Street and Columbus Avenue will complete construction in June 2013. It is the largest individual building under construction, and accounts for two thirds of the space Reis predicts will complete construction here through 2016. Despite the new supply, the vacancy rate is forecast to remain very low here.
  • Jones Lang LaSalle reports an availability rate of 9.8% and an average asking rent of $50.95 psf for 13 million square feet in the Back Bay.
  • Convexity leased 58,000 square feet in the John Hancock tower according to Cushman & Wakefield. Charles Bank renewed for 31,000 square feet in the same building.
  • For the 7-million-square-foot South Station/Fort Point Channel submarket, Reis reports a vacancy rate of 8.4%, second lowest among the submarkets, and an average asking rent of $37.40 psf.
  • The vacancy rate edged up 20 basis points, but is down 80 from a year earlier. The average asking rent increased 1.9% during the quarter with the average effective rent up 1.5% to $31.30 psf. The respective year-over-year gains are 2.8% and 2.7%.
  • This developing submarket, an expansion of the CBD, continues to generate the most leasing and development interest. The Vertex headquarters, with 1 million square feet in two buildings, is under construction at the Fan Pier for completion in late 2013.
  • The 525,000-square-foot One Channel Center is expected to break ground in December 2012; the 50,000-square-foot Five Channel Center is expected to complete construction this September.
  • Jones Lang LaSalle reports an availability rate of 14.4% and an asking rent of $40.22 psf for its 5.9-million-square-foot Seaport District.
  • ZipCar and LogMeIn are the major tenants of two buildings totaling 352,800 square feet under renovation there according to Cushman & Wakefield. Thompson Reuters renewed for 238,600 square feet of Class B space on Thompson place according to this source.

Cambridge

  • Reis reports a 10.0% vacancy rate, $40.99 psf average asking rent, in the 13.6-million-square-foot Cambridge/Charlestown/Somerville submarket.
  • The vacancy rate fell 40 basis points during the second quarter and is down 60 from a year earlier. The average asking rent decreased 0.2% during the quarter, with the average effective rent slipping 0.1% to $34.71 psf. The year-over-year gains are still 1.9% and 2.8%, respectively.
  • A 250,000-square-foot owner-occupied building for the Broad Institute is under construction for delivery in early 2014. The 230,000-square-foot Six Ten at MIT is also under construction. Reis does not expect more than a small amount of multi-tenant space to come on line before 2015.
  • Jones Lang LaSalle reports an availability rate of 14.9% and an asking rent of $44.04 psf in Cambridge.
  • “Scarcity of space, especially for larger users, has led to an abundance of construction activity,” according to Cushman & Wakefield. “Currently, 497,000 square feet of office space is under development in three buildings, all of which have been pre-leased.”
  • This source reports a 300,000-square-foot renewal and expansion by Google at 3, 4, & 5 Cambridge Center.

Route 128 North

  • In the 22.2-million-square-foot North Shore/Route 128 North submarket, the vacancy rate is 22.8%, highest among the submarkets, and the average asking rent is $21.94 psf, the second lowest in Greater Boston according to Reis.
  • Neither the vacancy rate nor the average asking rent changed in the second quarter, and the average effective rent was also stable at $17.71 psf. The year-over-year rent changes were positive at 2.1% asking and 2.0% effective, but the vacancy rate is 130 basis points higher than a year earlier on 258,000 square feet of negative net absorption over four quarters.
  • Despite high vacancy, this submarket is expected to see more than 1 million square feet of new space added through 2016, the most among the submarkets. Included are 200,000 square feet under construction in two phases at the Riverwalk Mill project in Lawrence, expected to complete construction in October. In Medford, 35,000 square feet at the 200 Boston Avenue Expansion is expected to complete construction in January 2013.
  • Cushman & Wakefield reports a vacancy rate of 13.9% and an overall weighted gross rental rate of $20.19 psf for 21.8 million square feet in its 128 North submarket.
  • “Growing Technology occupiers with large space requirements chose the northern Suburban submarkets over the more crowded urban markets during the second quarter,” according to this source. Strong leasing “fueled 128 North’s positive absorption of 385,387 square feet to-date.”
  • “Green Mountain Coffee Roaster’s lease of 424,000 square feet at 43-63 South Avenue in Burlington was the largest reported deal in Greater Boston,” according to Cushman & Wakefield. “This lease includes 75,000 square feet of existing R&D space and 390,000 of new office construction.”
  • Other leases cited by this source include 62,800 square feet by Sybase at Burlington Office Park II, 44,400 by Veracode, also in Burlington, and 48,900 by American Renal Associates in Beverly.

West

  • For the 8.2-million-square-foot West/MassPike/Route 128 submarket, Reis reports a vacancy rate of 11.8%, the lowest in the suburbs, and an average asking rent of $30.33 psf, the highest suburban rent.
  • The vacancy rate decreased 100 basis points on 82,000 square feet of net absorption, and is down 300 from a year earlier on plus 247,000 square feet of absorption. Both the average asking rent and the average effective rent increased 0.3% during the second quarter, the latter to $26.02 psf. Rents are up 1.3% asking and 1.4% effective from a year earlier.
  • Reis expects the 130,000-square-foot 105 Cabot Street in Needham, now under construction for delivery in mid-2013, to be the only space added in this submarket through 2016.
  • For its Route 128/Mass Pike submarket, Jones Lang LaSalle reports an availability rate of 20.5% and an average asking rent of $28.16 psf.
  • New York Life leased 99,100 square feet at Waltham Weston Corporate Center according to Cushman & Wakefield. The MA School of Professional Psychology leased 83,350 square feet in Newton.
  • The 5.7-million-square-foot Framingham/West Suburban submarket has a vacancy rate of 20.5%, second highest among the submarkets, and an average asking rent of $23.29 psf, according to Reis.
  • The vacancy rate decreased 10 basis points during the quarter and is down 70 from a year earlier. Both the average asking rent and the average effective rent slipped 0.1% during the second quarter and is up 0.3% from a year earlier. The effective average is $19.00 psf.
  • The 176,000-square-foot building II of the Mathworks Inc. project will complete construction in November. It is the only space expected to be added in this submarket through 2016.
  • Jones Lang LaSalle reports an availability rate of 25.4%, and an average asking rent of $18.53 psf, for its 495/Mass Pike submarket.
  • “Fidelity sold 716,000 square feet at 300 & 400 Puritan Way in Marlborough to TJX for $62,500,000 ($87.29 psf),” according to Cushman & Wakefield. “TJX chose to fully occupy these buildings previously vacated by Fidelity. The removal of this now owner-occupied property from inventory helped boost market fundamentals in 495 West for the quarter.”

South Shore

  • For the 10.7-million-square-foot South Shore submarket Reis reports a vacancy rate of 18.7%, and an average asking rent of $21.49 psf, lowest among the submarkets.
  • The vacancy rate decreased 80 basis points during the quarter, and is down 130 from a year earlier. Both the average asking rent and the average effective rent were unchanged during the quarter, with the latter at $16.53 psf. The year-over-year gains are 1.4% and 1.6%, respectively.
  • The 160,000-square-foot building at 177 Boston/Providence Highway in Norwood is the only building under construction, with an early 2013 completion expected, but Reis predicts more than 700,000 square feet will be added here through 2016.
  • For the South submarket, Jones Lang LaSalle reports an availability rate of 26.5% and an average asking rent of $19.62 psf.