Research

BOSTON
2Q15 OFFICE MARKET

As Summer Comes,
Greater Boston Office
Market Heats Up
The Greater Boston office market continued its strong performance in the
second quarter of 2015, posting just under 1 million square feet of
positive absorption and bringing total absorption to positive 1.5 million
square feet absorption year-to-date. Vacancy rates also continued to
decline in the Greater Boston area, dropping 40 basis points this quarter
to 11.2%. This constituted the lowest vacancy in ten years. Average
asking rates also continued to climb throughout the market, climbing to
$35.41/SF.

Current Conditions
Overall vacancy now 11.2%, a 10-year low
More than 3.5 million square feet of new product under
construction in the Greater Boston Area
Just under 1 million square feet of positive absorption this
quarter
Class B vacancy at its lowest point in two years
Average asking rents increasing across all submarkets
Market Analysis
Asking Rent and Vacancy

Tenants Push Into Downtown Tower Space

The Central Business District (CBD) roared to life in the second quarter
of 2015, posting 902,257 square feet of positive absorption. This
constituted the strongest absorption for the CBD in the past two years.
Most of this positive absorption occurred in towers in the Back Bay and
the Financial District, which together contributed absorption totaling
425,278 square feet. The only CBD submarket that recorded negative
absorption in the second quarter was South Station.
The Back Bay remained one of Bostons most popular districts for office
space, posting 237,679 square feet of positive absorption in the second
quarter. Some move-ins of note this quarter included Aquent, which
occupied 30,000 square feet at 501 Boylston Street; Monument
Consulting Group, which occupied 11,000 square feet at 500 Boylston
Street; and Cooley LLP, which moved in to 15,000 square feet at 500
Boylston Street.
Absorption was also particularly strong in the Financial District, which
posted 379,760 square feet of positive absorption. The vast majority of
this activity, 321,585 square feet, occurred in tower space. The largest
move-in was Year-Up, which occupied 61,000 square feet at 45 Milk
Street. Also, in the tower space, Homesite Insurance expanded into an
additional 36,000 square feet at 1 Federal Street. Most of the movement,
however, was in smaller deals spread over several buildings, as 50% of
the buildings in the Financial District towers recorded positive absorption
this quarter.
The suburbs were a bit quieter this quarter. The Cambridge submarkets
recorded 51,553 square feet of negative absorption, as CDM Smith
moved out of 96,000 square feet at 50 Hampshire Street. The rest of the
suburban markets together posted 136,957 square feet of positive
absorption. The most active submarkets were Northwest Route 128,
which posted 96,000 square feet of positive absorption; and West 495,
which posted 92,000 square feet of positive absorption. The two largest
suburban move-ins were Sokolove Law, which occupied 53,000 square
feet at 1330 Boylston Street in Chestnut Hill; and Cavium Networks,
which occupied 42,000 square feet at 600 Nickerson Road
in Marlborough.

$40

20%

$36

16%

$32

12%

$28

8%

$24

4%

$20
0%
2Q05 2Q06 2Q07 2Q08 2Q09 2Q10 2Q11 2Q12 2Q13 2Q14 2Q15
Average Asking Rent (Price/SF)

Vacancy (%)

Net Absorption
Square Feet, Millions
3
2
1
0
-1
-2
2Q05 2Q06 2Q07 2Q08 2Q09 2Q10 2Q11 2Q12 2Q13 2Q14 2Q15

Market Summary

Total Inventory

Current
Quarter

Prior
Quarter

176MSF

176MSF

Year Ago 12 Month

Period Forecast
176MSF

11.2%

11.6%

12.3%

Quarterly Net Absorption

967,661

488,990

269,457

Average Asking Rent

$35.41

$34.87

$33.39

Under Construction

3.5MSF

3.2MSF

3.5MSF

Deliveries

230,000

Vacancy Rate

Research
BOSTON
2Q15 OFFICE MARKET

Skyscrapers and Buildto-Suits Dominate

Construction

Vacancy Hits a Ten-Year Low in CBD

The Greater Boston Office market continued to tighten through the
second quarter of 2015. The vacancy rate for Greater Boston dropped 50
basis points from the prior quarter to 11.2%, its lowest level in a decade.
Vacancy in the CBD submarkets declined 120 basis points quarter-overquarter to 8.5%. However, Cambridge, while still one of Bostons hottest
office markets, experienced an 80-basis-point increase in vacancy in the
second quarter.

Two major factors are influencing the Boston office construction market:
skyscrapers and build-to-suits. There are now 3.5 million square feet
under construction in the Greater Boston area. There are also
several proposed projects pushing through the final stages before
breaking ground.

Although the suburban markets have a higher vacancy rate than the CBD
and Cambridge, their vacancy rate decreased 20 basis points quarterover-quarter to 13.3%. In particular, the West 495 office submarkets
vacancy rate, which historically has been the highest of the Greater
Boston submarkets, fell 80 basis points in the second quarter to 20.2%.
Given the increasing strength of this submarket, it seems likely the
vacancy rate will dip below 20% in the next few quarters, bringing every
Greater Boston submarket below that threshold.

In the CBD, the Seaport continued to be a major outlet for build-to-suit

opportunities. PriceWaterhouseCoopers new Boston headquarters at
101 Seaport is scheduled to deliver next quarter, and Goodwin Procters
build-to-suit at 100 Northern Avenue topped off last quarter. Outside the
Seaport, Converse completed construction of its 230,000-square-foot
headquarters at 160 North Washington Street. While build-to-suits
accounted for most of the CBD office construction this quarter, several
skyline-altering towers are on the horizon. The Chiofaro Companies
recently received approval for a new 600-foot tower at the former Harbor
Garage site, which could bring up to 900,000 square feet of commercial
space. In the Financial District, eight developers are vying to develop a
skyscraper at the Winthrop Square Garage site. The potential uses of the
site range from all residential to 700,000 square feet of commercial
space, but the project will surely have a great influence on the Boston
office market and skyline.

Asking Rental Rates Reach Ten-Year High

At $35.41/SF, average asking rents reached a new high for the second
straight quarter. Average asking rents have increased 5.8% the past
year, 12.1% in the past five years and an impressive 43.3% in the past
10 years. In the CBD, average asking rates stood at $53.91/SF, with all
but two submarkets boasting asking rates higher than $40/SF. Asking
rates in Class A space was particularly high, as all submarkets had
asking rates of more than $50/SF for Class A space. Across the river in
Cambridge, rents continued to skyrocket, and stood at $58.95/SF by the
end of second-quarter 2015.

In the suburbs, build-to-suits reigned supreme in construction this

quarter. TripAdvisor is nearing completion of its new 280,000-square-foot
headquarters in Needham, and VistaPrints new headquarters in
Waltham is scheduled to deliver in the fall. Construction is ongoing at
CityPoint in Waltham, where Wolverine will occupy 150,000 square feet.
Additionally, Clarks committed to a build-to-suit at 1265 Main Street in
Waltham, scheduled for completion in the fall of 2016.

Asking rates in the suburbs also continued to climb, although at a slower

pace. The average asking rate for suburban space rose to $24.18/SF this
quarter. All suburban submarkets had average asking rates of more than
$20/SF, with the exception of the North 495 office submarket, which
stood at $19.86/SF. Considering the current climate, it seems likely that
all submarkets will average more than $20/SF in the coming quarters.

Asking Rents by Class

Office Building Sales

Millions

$45

$10

$400

$40

$8

$320

$35

$6

$240

$30

$4

$160

$25

$2

$80

$20
2Q05 2Q06 2Q07 2Q08 2Q09 2Q10 2Q11 2Q12 2Q13 2Q14 2Q15

$0

$0
2Q06 2Q07 2Q08 2Q09 2Q10 2Q11 2Q12 2Q13 2Q14 2Q15
Volume

Source: Real Capital Analytics

Price/SF

Research
BOSTON
2Q15 OFFICE MARKET

In addition to current construction and development, several buildings are

still under renovation. At 300 Boylston Street in Chestnut Hill, the former
Atrium Mall is nearing conversion to 300,000 square feet of Class A office
space. In the Financial District, renovations are ongoing at 40 Water
Street, which will deliver in the fall. In the suburbs, MathWorks recently
began renovations of 1 Boston Scientific Place in Framingham, which are
scheduled for completion in early 2016.

& Wealth Management for $123.0 million, or $639/SF; and 745 Atlantic
Avenue, a 170,000-square-foot office building which sold to Oxford
Properties for $114.5 million, or $672/SF. Additionally, Invesco Advisors
purchased 226 Causeway Street from Spear Street Capital for $91.7
million, or $475/SF, in April, and Clarion Partners purchased 100 Franklin
Street for $48.7 million, or $414/SF.
In the suburbs, the largest sale of the quarter was TripAdvisors new
headquarters at 400 1st Avenue in Needham Heights, which sold to US
Realty Advisors for $133.2 million, or $474/SF. Other large sales in the
suburbs included 150 Royal Street in Canton, which sold to Jumbo
Capital Management for $58.0 million, or $207/SF, and Westborough
Technology Park, which sold to Ferris Development for $24.5 million,
or $110/SF.

Trophy Office Assets

Continue to Change
hands

Looking Forward

Properties continued to change hands in the Greater Boston office

market. Average cap rates, which have been in decline for the past few
quarters, decreased another 80 basis points this quarter to 5.2%. This
rate is 140 basis points lower than the national average cap rate of 6.6%.
With the healthy investing conditions in Boston, even more out-of-state
investors are coming to the market. The largest portfolio sale of the
quarter was Lone Star Funds purchase of 53 properties for $376.0
million from Equity Commonwealth. Boston-area properties accounted for
$36.0 million of this sale, demonstrating Lone Stars increased
commitment to the area moving forward. An out-of-state investor was
also responsible for the largest single building sale of the second quarter,
AustralianSuper purchased a 49% stake in 75 State Street for $296
million, or $718/SF. Other sales of note in the CBD included 50-60
Staniford Street, a medical office building that sold to Deutsche Asset

Even though construction is at an all-time high, it is unlikely that new

construction will alleviate the pressure on rental rates and vacancy.
Asking rates for new construction typically come in above the average
rate for the market at the time, and most of the new space has been preleased in build-to-suit opportunities or to anchor tenants. New
opportunities for tenants will open up once construction begins on the
new downtown skyscrapers. But at the moment, space is dwindling, rents
are increasing and landlords are providing fewer concessions in leases.
Expect the market to continue to tighten and asking rates to climb higher
in the next few months.

Lease/User Transactions
Tenant

Building

Submarket

Type

Square Feet

Clarks of England

1265 Main Street

West Route 128

Direct

120,000

Autodesk, Inc.

1 Design Center Place

Seaport District

Direct

89,000

McGladrey

80 City Square

Inner - North

Renewal

80,000

HubSpot

2 Canal Park

Cambridge - East

Direct

60,000

Cambridge Innovation Center

50 Milk Street

Financial District

Direct

56,000

Select Sales Transactions

Building

Submarket

75 State Street

Financial District Tower

$296,000,000

$718

813,000

50-60 Staniford Street

North Station

$123,300,000

$639

209,000

745 Atlantic Avenue

South Station

$114,500,000

$672

170,000

West Route 128

$133,200,000

$474

281,000

$91,700,000

$475

225,000

400

1st

Avenue, Needham Heights

The Causeway

Sale Price

North Station

Price/SF

Square Feet

Research
BOSTON
2Q15 OFFICE MARKET
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Submarket Statistics
Total
Inventory
(SF)

Under
Construction
(SF)

Total
Vacancy
Rate

Qtr
Absorption
(SF)

YTD
Class A
Absorption Asking Rent
(SF)
(Price/SF)

Class B
Asking Rent
(Price/SF)

Total
Asking Rent
(Price/SF)

Back Bay - Tower

7,130,281

5.2%

103,693

284,318

$72.21

N/A

$72.21

Back Bay Low Rise

6,179,339

362,000

11.2%

133,986

(42,276)

$51.76

$45.97

$48.09

23,049,854

10.0%

321,585

614,163

$58.66

$38.00

$58.53

Financial District Low Rise

9,836,179

7.5%

58,175

(240,580)

$50.46

$40.58

$42.13

Government Center

1,796,457

3.9%

22,700

22,740

$52.14

$45.28

$46.14

Midtown

2,354,645

19.2%

14,238

37,177

$50.00

$39.40

$41.64

North Station

2,569,380

23,000

1.8%

228,974

238,779

N/A

$38.32

$38.32

Seaport District

8,704,663

940,000

8.2%

32,546

32,040

$57.27

$41.01

$43.81

South Station

2,972,546

2.0%

(13,640)

(4,363)

N/A

$39.48

$39.48

64,593,344

1,325,000

8.5%

902,257

941,998

$59.90

$42.28

$53.91

East Cambridge

6,239,466

8.5%

(50,179)

(40,127)

$70.24

$47.97

$66.51

Mid Cambridge

2,363,703

66,463

1.8%

19,562

16,262

$48.24

$44.36

$45.11

West Cambridge

1,600,348

7.8%

25,508

25,508

$44.75

$41.98

$40.81

Cambridge Total

10,203,517

66,463

7.0%

(51,553)

(19,293)

$65.75

$45.62

$58.95

Framingham/Natick

5,006,316

14.4%

(34,430)

(129,066)

$26.36

$19.87

$23.72

Inner North

6,051,395

74,000

10.2%

52,112

117,583

$33.03

$31.42

$32.08

Inner South

5,827,868

757,379

3.1%

7,939

(41,202)

$38.46

$27.06

$29.74

North Route 128

6,738,548

13.1%

55,755

234,189

$22.44

$17.93

$20.11

Northwest Route 128

16,368,792

136,883

10.2%

96,333

54,033

$32.45

$22.33

$29.26

South Route 128

14,198,368

17.1%

21,071

60,444

$23.83

$22.76

$22.96

West Route 128

20,225,025

945,000

9.5%

(103,052)

23,696

$35.96

$26.08

$32.06

North Route 495

11,950,493

32,400

19.6%

(42,290)

(10,365)

$20.59

$17.79

$19.46

South Route 495

3,875,790

11.1%

(9,236)

75,114

$21.90

$20.50

$21.11

West Route 495

11,558,592

20.2%

92,755

190,563

$21.64

$18.64

$20.22

Suburban Total

101,801,187

2,109,519

13.3%

136,957

574,989

$26.20

$21.48

$24.10

Market

176,598,048

3,500,982

11.2%

987,661

1,497,694

$40.07

$28.52

$35.41

Financial District - Tower

CBD Total

Research
BOSTON
2Q15 OFFICE MARKET

Economic Conditions

Employment By Industry

The Massachusetts unemployment rate stood at 4.7% at the end of the

first half of 2015, a 110-basis-point decline over the past year and a 200basis-point decline over the past two years. This percentage is also 70
basis points lower than the national average of 5.4%. Since the
beginning of 2015, 56,000 workers in the Boston-Cambridge-Nashua,
MA-NH Metropolitan Statistical Area have found employment.

Not Seasonally Adjusted, Annual 2014

Information

2.9%
3.6%

21.2%

3.9%

Construction
Other Services

6.6%

Financial Activities

7.3%

Manufacturing

The highest percentage of job growth occurred in the construction sector,

which grew by 3.4% in the past 12 months. The professional and
business services sector also posted healthy gains in employment,
adding 18,200 jobs in the past year. The education and health services
sector, the states largest employer, now employs 755,000 workers, a
19,000 employee increase in the past year. The manufacturing sector
continued to lose jobs statewide, posting a 0.9% decrease in jobs in the
past twelve months. Manufacturing was the only sector to report a
decrease in jobs in the past 12 months.

Leisure/Hospitality

9.4%

17.1%

Government
12.3%

Trade/Transportation/Utilities

15.6%
Business & Professional
Health/Education
Source: U.S. Bureau of Labor Statistics, Boston-Cambridge-Quincy, MA-NH

Unemployment Rate

Payroll Employment

Seasonally Adjusted

Total Nonfarm, Not Seasonally Adjusted, 12-Month % Change

13%
3%

10%

2%
8%

1%

5%

-1%

3%
0%
May-10

-2%
May-11

May-12

May-13

United States

May-14

-3%
May-10

May-15

May-11

May-12

May-13

United States

Massachusetts

May-14

May-15

Boston

Source: U.S. Bureau of Labor Statistics, U.S. Bureau of Labor Statistics New
England

Source: U.S. Bureau of Labor Statistics, Boston-Cambridge-Quincy, MA-NH

Consumer Price Index (CPI)

Employment Growth by Industry

All Items, 12-Month % Change, Not Seasonally Adjusted, 1982-84=100

12-Month % Change, Not Seasonally Adjusted

4%

Total
Construction
Other Services
Health/Education
Business & Professional
Trade/Transportation/Utilities
Information
Government
Financial Activities
Leisure/Hospitality
Manufacturing

3%
2%
1%
0%
-1%
May-10

May-11

May-12

United States

May-13

May-14

May-15

Boston

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

Source: U.S. Bureau of Labor Statistics, Boston-Cambridge-Quincy, MA-NH

Source: U.S. Bureau of Labor Statistics, Boston-Brockton-Nashua, MA-NH-ME-CT

Research

Boston
470 Atlantic Avenue
11th Floor
Boston, MA 02210
617.772.7200
David Tackeff
Research Coordinator
617 772 7283
dtackeff@ngkf.com

Newmark Grubb Knight Frank has implemented a proprietary database and our tracking methodology has
been revised. With this expansion and refinement in our data, there may be adjustments in historical
statistics including availability, asking rents, absorption and effective rents.
Newmark Grubb Knight Frank Research Reports are also available at www.ngkf.com/research
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