Low Vacancy, High Leasing Activity Prevails in Q1 2019 in Greater Boston

0
248

Boston – The East Cambridge lab market vacancy rate is down to a staggering 0.1 percent, according to Cushman & Wakefield’s first quarter market research report.

Approximately 100 days ago, when Sanofi committed to 900,000 sf at Cambridge Crossing, it didn’t appear the Cambridge market could get any hotter. This has proved to be false: the decade-long Cambridge story of rising rents and non-existent vacancy continued into the first quarter of 2019.  Office vacancy stands at 2.7% while the lab market started the year off with a 1.8% vacancy rate. In East Cambridge, the vacancy rate is 0.1% – or just a mere 9,700 sf in a 6.8 million square foot (msf) market. Office rents are starting in the mid-$90s gross, while lab rents are starting in the mid-$90s NNN. 3% escalations per year are now the norm.

The overall vacancy is 5.9% – the lowest in Cushman & Wakefield’s recorded history – with one exception. In 2000, vacancy totaled 4.7%. Tight conditions mean rents continue to rise and large blocks of space are limited. Just five contiguous blocks more than 100,000 square feet (sf) are available: 601 Congress Street, 200 Berkeley Street, One Post Office Square, 100 Summer Street and 10-20 Channel Center.

It was business as usual in in the suburbs where life science activity and new construction are still grabbing headlines. Lab space conversions are also occurring in earnest. 45-55 Hayden Avenue in Lexington is in the process of being repositioned by King Street Properties, in addition to a speculative lab build at 75 Hayden Avenue.  Boston Properties has commenced the conversion of 200 West Street in Waltham and 33 Hayden Avenue in Lexington to lab space.

Boston

First quarter fundamentals are pointing to another banner year in Boston. Absorption totaled just over 800,000 sf – the strongest first quarter in 13 years. This is predominantly due to the ongoing growth of WeWork and the delivery of new construction.

  • 40 Water Street delivered 100% leased to Digitas (220,000 SF) and WeWork (140,000 SF)
    • EZCater committed to 100% of the WeWork space prior to delivery
  • WeWork also committed to 240,000 sf of former State Street space at One Lincoln Street
  • In Other WeWork news, the co-working company leased 31,000 sf on the 5Th and 6th floors of 711 Atlantic Avenue.
  • Seaport class A vacancy now stands at a mere 0.7% – conditions as restrictive as in Kendall Square.
  • Migration into Boston is continuing in earnest as Medidata committed to 117,000 sf at 110 High Street (50 Post Office Square). It will relocate from approximately 30,000 sf in Waltham
    • Haemonetics also leased 62,000 sf at 125 Summer Street. It will relocate its global headquarters from Braintree.
  • In other construction news, State Street announced that it will relocate its headquarters from One Lincoln Street into 500,000 sf of new space One Congress Street in 2023.

Cambridge

Overall lab vacancy stands at 1.8%, but in East Cambridge, it’s effectively non-existent – at 0.1%. In the Mass. Ave. Corridor, vacancy is just 0.2%. Cushman & Wakefield is currently tracking nearly 3 msf of pent-up demand, so it seems unlikely that conditions will cool off any time in the near future.

  • Three significant tenants relocated into the newly constructed 35 Cambridgepark Drive, also known as Alewife Research Center:
    • Syros Pharmaceuticals leased 53,000 sf
    • Eisai took 48,000 sf
    • Ribon Therapeutics relocated from Lexington into 27,000 sf
  • On the sales front, The Carlyle Group sold 87 Cambridgepark Drive to HCP, Inc. for $1,087 per square foot (psf)
    • There is speculation that another lab property is in the process of being sold for $1,800 psf
      • This would make it the most expensive building (on a square footage basis) to be sold in the US in the past 24 months – just behind Google’s purchase of New York’s Chelsea Market last year which commanded $1,998 psf
  • And speaking of Google, the internet behemoth committed to 360,000 sf at the under-redevelopment 325 Main Street in Kendall Square. That project is anticipated to be completed in 2022. This brings Google’s total Cambridge footprint to nearly 1 msf.

Suburbs

2018 was the second consecutive year of noteworthy life science leasing activity in the suburbs – and the streak continued through the first quarter of 2019. As availability in Cambridge grows increasingly prohibitive, many life science tenants continue to seek rent relief in the Inner Suburbs and along Route 128.

  • Dicerna Pharmaceuticals committed to 80,000 sf at 33 Hayden Avenue in Lexington
  • Tesaro renewed in 210,000 sf at 1000 Winter Street in Waltham
  • 200 Smith Street, Waltham, which delivered completely vacant in the third quarter of 2017 is now nearly 50% leased
    • Elevate Bio committed to 146,000 sf and Deciphera Pharmaceuticals will occupy 45,000 sf in April of 2019.