BOSTON– Cushman and Wakefield released its second quarter market research that tracks the performance of the commercial real estate market in Boston, Cambridge and the suburbs.
In Boston, limited supply for large users continues to be a prevailing theme – along with rapidly escalating rents. At 4.9%, vacancy is only 20 basis points higher than the all-time low of 4.7% in 2000 and rents have reached near all-time highs.
The biggest difference between now and then is that we have never seen select landlords raise asking rents as quickly as they are now. Asking rents are rising so rapidly that lease comparables more than 30 days old no longer reflect the market. Percentage escalations throughout the lease term have all but replaced traditional ‘dollar bumps’ – increases of a dollar per square foot per year. From an escalation perspective, 2.5% to 3.0% is the new norm.
In Cambridge, mid-year 2019 brought more of the same – continually rising rents and virtually no availability. However, deals are still being executed – predominantly in space that never hits the market. Many high-end office and lab rents are now starting in $100 psf range.
“We have even seen some proposals for lab space come in at $140 NNN psf. Significant leases in the second quarter include Google’s commitment to 150,000 square feet of space formerly occupied by Akamai at 8 Cambridge Center and FogPharma’s 125,000 square-foot lease at 400-500 Cambridge Discovery Park,” the report said.
It was business as usual in the suburbs where life science activity and new construction continue to dominate headlines. At negative 413,000 SF year-to-date (YTD), absorption reflected both large new availabilities as well as several significant new leases.
Mid-year fundamentals are pointing to historical high-water marks in Boston. Absorption totaled just under 600,000 SF. This represents a slight decline over the first quarter, but is almost solely attributable to two (2) large new availabilities:
- A 200,000 square-foot block of sublease space at 10 Saint James Avenue listed by Wayfair
- A 300,000 square-foot block of space at One Post Office Square. Morgan Stanley is renovating the property and clearing out tenants in the low-rise portion. Putnam Investments also vacated the property (relocating to 100 Federal Street) in the third quarter of 2018.
Large deals continue to dominate headlines – especially as blocks over 100,000 square feet are dwindling.
- Restaurant tech startup Toast leased 155,000 square feet at 401 Park Drive
- Foley Hoag renewed in 165,000 square feet at 155 Seaport Lane
- Grubhub leased 75,000 square feet at Center Plaza
WeWork also continued its growth streak in Boston. Last quarter, the shared space provider leased 240,000 square feet at One Lincoln Street. This quarter, we are hearing that they are close to leasing over 100,000 square feet at a prominent downtown building near South Station. Additionally, the firm may be committing to 200,000 square feet in new construction. This would bring the co-working provider’s Boston footprint to over 1.5 million square feet.
Overall lab vacancy stands at 0.8%, but in East Cambridge, it’s literally 0.0%. In the Mass. Ave. Corridor, vacancy is just 0.2%. Cushman & Wakefield is currently tracking over three million square feet of pent-up demand, so we do not anticipate conditions will cool off any time soon.
- 35 Cambridgepark Drive saw significant leasing activity this quarter
- Codiak Biosciences leased 68,000 sf and Glympse Bio committed to 23,000 sf
- Cyclerion Therapeutics, a spinoff of Ironwood Pharmaceuticals, also committed to 116,000 SF at 301 Binney Street
- On the sales front, Harrison Street/Bulfinch Company purchased Osborn Triangle (610 Main Street – North, 1 Portland Street and 700 Main Street) from MIT for $1.1 billion or approximately $1,625 psf.
Life science activity is still strong in the suburbs, but the second quarter brought a string of large office leases:
- Boston Dynamics leased 180,000 sf at 200 Smith Street, Waltham
- Raytheon committed to 145,000 sf at 300-400 Innovation Drive, Tewksbury
- Avid Technologies renewed in 100,000 sf at 75 Network Drive, Burlington
- Advisor360 committed to 68,000 sf of former Monster.com space at 133 Boston Post Road, Weston
In addition to these large leases, there were also several large new availabilities that came online:
- 260,000 sf of space formerly occupied by Oracle came online at 100 Crosby Drive, Bedford
- 280,000 sf of PTC’s former space at 140 Kendrick Street, Needham became available