REAL insights SECOND QUARTER 2021 // OFFICE MARKET - Downtown Boston
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REAL insights
SECOND QUARTER 2021 // OFFICE MARKET
presented by the Hunneman Research Department
303 Congress Street, Boston, MA 02210 617.457.3400 www.hunnemanre.com
REAL insights // GREATER BOSTON OFFICE MARKET OVERVIEW
Wind is picking back up in the office in terms of percentage of population, just behind Vermont. As a result, the state of
emergency was able to be lifted on June 15th, the economy could fully open and
market and we are no longer in the employers were enabled to focus on a return-to-work policy that is less hindered by
government policy.
doldrums of COVID. Looking ahead, the office market is expected to continue its rebound in the near-
term. However, some of the longer-term effects of COVID have yet to be realized.
Halfway into 2021, the Greater Boston office market has hit a turning point.
Companies with leases expiring over the next few years will need to answer
Leasing activity is the highest it has been in over a year; employees are starting to
two questions; first, does the amount of available square footage align with its
come back to the office and the Commonwealth is emerging from the pandemic
workplace strategy? Second, when the term of the current space expires, how much
quickly and safely. With a strong performance from Cambridge and the suburbs,
space will be needed? While a variety of surveys have offered some insight as to
market fundamentals have significantly improved with only 110,000 square feet
what companies might do, the majority of companies leasing office space have not
in negative absorption registering in the second quarter. Comparatively, this is
had to face both of those decisions due to the longer-term leases signed prior to
a vast improvement from the last twelve months where over one million square
the pandemic. If these companies, especially ones with major footprints, decide to
feet of negative absorption occurred quarter-over-quarter.
contract in square footage over the next few years, this could result in a negative
effect on the market. Luckily, Greater Boston is in a position where economic
Compared to other major markets across the country, Boston’s inventory
momentum is higher than most markets around the globe, which is expected to
has seen the largest percentage of leasing activity and the overall vacancy
keep rental rates in check while satisfying the current building boom.
rate has stayed well below the national average of 16%. Both of these factors
can be attributed to Greater Boston’s exploding life science sector, assisting
“
the office market on two fronts. First, over 6.2 million square feet of office is
slated, or already has been, converted to lab over the last year, which has
Looking ahead, the office
put downward pressure on office vacancy. Second, a wide variety of business
market is expected to continue
”
services that support the growing life science industry typically have office
needs. Additionally, the Commonwealth’s rapid vaccination rate has also its rebound in the near-term.
contributed to Boston emerging from the pandemic at a faster pace. As of
quarter-end, Massachusetts is the second most vaccinated state in the nation
Greater Boston Market Fundamentals
Numbers are represented in the thousands
16% 2,000
13.3%
14% 1,500
TOTAL VACANCY RATE
12% 1,000
10% 500
Q1 NET ABSORPTION -110 SF 8% 0
6% -500
ASKING RENT
Average for Boston, Cambridge and Suburbs
$36.50/SF 4%
2%
-1,000
-1,500
0% -2,000
UNDER CONSTRUCTION 13,789 SF 2014 2015 2016 2017 2018 2019 2020 2021
*arrows denote change from last quarter’s performance
2 | METRO BOSTON OFFICE | Q2 2021
REAL insights // OFFICE MARKET FUNDAMENTALS
• Total vacancy increased from 1.6% to 12% which was primarily driven
by new mid-size vacancy in the Financial District spread evenly across
Class A and B buildings.
• Overall asking rents decreased a dollar per
$65-$80
square foot on average due to the Class B market.
BOSTON
(Class A asking rents)
However, upward pressure is being placed on the
Class A market with some landlords pushing rates, $50-$60
(Class B Asking Rents)
thanks to a flight-to-quality trend unfolding.
• Construction decreased slightly with the delivery of 201 Brookline
in the Fenway submarket. Just over 50% of office and lab under
construction is preleased.
• Leasing activity increased slightly compared to last quarter with
companies continuing to capitalize on sublease options.
• Total vacancy decreased from 7.6% to 6.9% thanks to 241,000 square
feet of positive absorption.
• Overall asking rents increased from last quarter
$75-$90
CAMBRIDGE
(Class A asking rents)
with some of the highest-Class A asking rents in the
$55-$65
market being quoted out of East Cambridge. (Class B Asking Rents)
• Construction levels decreased slightly with the delivery of 425,000
square feet at 325 Main Street in Kendall Square.
• Leasing activity was nominal this quarter due to a lack of available
existing space and a construction pipeline that is fully preleased.
• Total vacancy increased slightly from 14.3% to 14.7% despite a slight
amount of positive absorption due to several buildings delivering with
a high amount of vacancy.
$30-$45
• Overall asking rents remained flat with some (Class A asking rents)
submarkets along route 128 seeing a small increase
SUBURBS
$20-$30
and most along 495 seeing a small decrease.
(Class B Asking Rents)
• Construction levels increased with notable projects kicking off such as
10 Prospect Street in Somerville and 1050 Waltham Street in Lexington.
Both have a major lab component.
• Leasing activity was up significantly due to a number of larger deals
such as BJ’s Wholesale at 350 Campus Drive in Waltham and IBM at
CrossPoint in Lowell.
3 | METRO BOSTON OFFICE | Q2 2021
REAL insights // SUPPLY TRENDS
GREATER BOSTON ENTERS ITS THIRD BUILDING BOOM AFTER THE POST-WWII ERA
The Tower Era: In the late 1970s, Greater Boston hit a turning point of population growth after experiencing 30 consecutive years of population decline. As the metro
started to gain more residence thanks to the emergence of the suburbs, the MBTA concluded a 20-year buying spree where several train lines were bought and combined
to form what we know as the commuter rail today. The buying spree incentivized employers to be in the city because of opportunity to fully tap Greater Boston’s labor
pool. As a result, some of Boston’s largest towers were built over the next decade such as 200 Clarendon, One Financial Center and One Post Office Square, along with
53, 60, and 75 State Street.
The Dot-Com Era: In the late 1990s, substantial amounts of office construction outside of Boston began along the Route 128 Belt and Cambridge. Technology companies
grew at an exponential pace and developers with the foresight to get ahead of this demand focused on building near key transportation arteries within striking distances
of Boston and Cambridge, where much of the educated labor was graduating from. At the turn of the century, the Dot-Com Bubble burst, leading to a sharp decline in
construction due to a large injection of either sublease space or speculative development that were unleased. During this time, some popular suburb office parks were
initiated or completed, such as the Waltham Woods Corporate Center to the west, Crown Colony in Quincy to the south, and Northwest Park in Burlington to the North.
The Roaring 20s: We are now entering our third office building boom since the Post-World War II era (aka the Golden Age, 1950s-1970s). However, towers are not getting
taller and with the exception of a few urban pockets, there are no new market frontiers. This boom is based on the make-up of office and the importance lab space has
played in constructing new office buildings. With a white-hot life science sector, office buildings that provide a lab component are taking less risk, in that they are able
to cater to biotech companies along with any other occupier in need of office space. This has resulted in a significant amount of building over the last decade with the
brunt of projects expected to be completed over the next five years.
Existing Under Construction Second Half 2021 Construction Start
16,000,000 SF
THE “TOWER” ERA DOT-COM BUBBLE THE NEW ROARING 20’S
Towers go higher The Emergence of the Suburbs Life-Science Discovery Explodes
14,000,000 SF
12,000,000 SF
10,000,000 SF
8,000,000 SF
6,000,000 SF
4,000,000 SF
2,000,000 SF
0
1970 1980 1990 2000 2010 2020 2025
Route 125 West 1,918 SF
OFFICE TO LAB CONVERSIONS KEEP
VACANCY IN CHECK
Fenway 1,534 SF
• It is hard to go a week in the Greater Boston market without a developer filing
Seaport 1,353 SF
with any given municipality to convert part, if not all, of their buildings to a
South Boston 467 SF lab use. This has helped and will continue to help an office market that has
not faired well during the pandemic. Over the last year, over 6.2 million square
Financial District 294 SF
feet of office space, either existing or in the development process, has pivoted
West Cambridge 280 SF to include a lab component. This has helped the office market by taking away
what could have been potential office vacancies and has led to less office
East Cambridge 226 SF supply being built than previously planned.
Route 128 Northwest 101 SF
• Leading the charge, Route 128 West, the Fenway area, and Boston’s Seaport
Inner Suburbs 84 SF have become hotspots for lab conversions due to their close proximity to
Cambridge and ample amount of existing office or planned office to convert.
“
0 500 1,000 1,500 2,000 2,500
Square Feet (thousands)
”
Approximately 6.2 million square feet of existing
*Square footage of office that has been or is planning to be converted to lab since March 2020.
Includes buildings in the ground-up construction pipeline that pivoted to lab over the last year. and planned office space pivoting to a lab.
4 | METRO BOSTON OFFICE | Q2 2021
REAL insights // DEMAND TRENDS
BOSTON IS BACK...
WELL ON THE WEEKENDS AT LEAST
Apple mobility data collected over the last year shows a percent change in activity compared to January of 2020. As we can see, activity on all fronts is trending upwards
with a notable uptick in the walking score due to the warm weather. However, activity on all fronts looks to ranges widely on the week days compared to the weekends. This
signals that most employees are still working remotely. As employees return to the office through the remainder of the year, these trendlines are expected to straighten out.
Boston: Apple Mobility Scores
Driving Score Walking Score Transit Score
6.1.20 7.1.20 8.1.20 9.1.20 10.1.20 11.1.20 12.1.20 1.1.21 2.1.21 3.1.21 4.1.21 5.1.21 6.1.21
LEASING VELOCITY REACHES Greater Boston Office Leasing Velocity
PRE-PANDEMIC LEVELS Direct Leasing SF Sublet Leasing SF
• Leasing activity for office space across Greater 4,000,000
Boston is back to where it was before the
3,500,000
pandemic hit thanks to the suburbs and
Boston’s active sublease market. With the
3,000,000
state of emergency now lifted and vaccinations
on the rise, the uncertainty brought on by the
2,500,000
pandemic has been minimized and companies
are executing on real estate decisions. 2,000,000
• Before COVID, demand for office space in
1,500,000
greater Boston was at its height. However,
many of these requirements were put on 1,000,000
hold in early 2020 and after a year of pent-up
demand, the companies that know they still 500,000
need office space, are taking advantage of
market that has softened over the least year. 0
2020 Q1 2020 Q2 2020 Q3 2020 Q4 2021 Q1 2021 Q2
5 | METRO BOSTON OFFICE | Q2 2021
REAL insights // NOTABLE DEALS & PROJECTS
RECENT DEALS
100 & 350 CAMPUS DRIVE 1600 DISTRICT AVENUE 1 CABOT ROAD
MARLBOROUGH BURLINGTON MEDFORD
190,000 SF 61,138 SF 38,300 SF
900 CHELMSFORD STREET 100 CAMBRIDGEPARK DRIVE 320 SUMMER STREET
LOWELL CAMBRIDGE BOSTON
150,000 SF 58,888 SF 37,765 SF
ONE KENMORE SQUARE 8 TECHNOLOGY DRIVE 500 RUTHERFORD AVENUE
BOSTON MARLBOROUGH CHARLESTOWN
121,000 SF 55,000 SF 35,863 SF
200 BALLARDVALE STREET 1210 WASHINGTON STREET 10 SYLVAN STREET
WILMINGTON NEWTON WALTHAM
70,000 SF 39,000 SF 35,000 SF
IN THE PIPELINE | Top 30 Developments based on SF
Property Address City Submarket RBA Percent Leased Owner/Developer
One Congress Boston North Station 978,800 52% Carr Properties
Winthrop Center Boston Financial District 812,000 0% Millennium Partners
One Post Office Sq Boston Financial District 782,875* 0% Morgan Stanley
The Beat Dorchester South Boston 693,921* 0% Alcion Venture
South Station Tower Boston Financial District 646,613 0% Hines
Hub on Causeway Phase 3 Boston North Station 632,000 100% Boston Properties
400 Summer St Boston Seaport 626,400 100% W/S Development
350 Water St Cambridge East Cambridge 515,040 100% Divco West
111 Harbor Way Boston Seaport 511,000 100% W/S Development
225 Wyman St - North Wing Waltham Route 128 West 484,721 37% Hobbs Brooks
250 Water St Cambridge East Cambridge 480,000 100% Divco West
325 Main St Cambridge East Cambridge 420,000 100% Massachusetts Institute of Technology
450 Water St Cambridge East Cambridge 413,235 100% Boston Properties
Volpe Exchange Cambridge East Cambridge 400,000 100% GSA
238 Main St Cambridge East Cambridge 386,600 100% Massachusetts Institute of Technology
10 Fan Pier Blvd Boston Seaport 315,000 100% W/S Development
455 Grand Union Blvd Somerville Inner Suburbs 303,546 58% Federal Realty
101 South St Somerville Inner Suburbs 289,000 76% DLJ Real Estate Capital Partners
ISQ Seaport Phase II Boston Seaport 265,000 100% Related Beal
The 105 by Breakthrough Boston Seaport 263,500 100% Tishman Speyer
321 Harrison Ave Boston Midtown 233,901 0% BioMed Realty
225 Wyman St - South Wing Waltham Route 128 West 227,491 0% Hobbs Brooks
325 Binney St Cambridge East Cambridge 208,695 0% Alexandria Real Estate Equities
The Engine Cambridge Mid Cambridge 200,000 100% Massachusetts Institute of Technology
10 Prospect St Somerville Inner Suburbs 194,033 0% USAA Real Estate
Beacon @ One Kenmore Square Boston Fenway/Kenmore 189,799* 6% Related Beal
170 Middlesex Tpke Bedford Route 128 Northwest 186,000 0% The Guitierrez Company
Revolution Labs Lexington Route 128 Northwest 173,700 0% Greatland Realty Partners
100 Forge Watertown Route 128 West 165,496 24% The Wilder Companies
101 Cambridge Park Dr Cambridge West Cambridge 160,000 0% King Street Properties
Buildings with a have a major lab component | Preleasing % is based on direct availability | *Denotes the SF is for space that is under renovation
6 | METRO BOSTON OFFICE | Q2 2021
REAL insights // OFFICE RECAP
TOTAL UNDER TOTAL CLASS A CLASS B Q1 NET 12-MONTH NET AVERAGE
INVENTORY SF CONSTRUCTION VACANCY VACANCY VACANCY ABSORPTION ABSORPTION ASKING RENTS
Total Market 213,315 13,159 13.3% 12.1% 15.1% (110) (4,281) $36.03
Boston 78,979 7,425 12.0% 9.4% 17.6% (360) (3,234) $55.58
Back Bay 15,543 0 7.3% 6.5% 14.6% 30 (378) $65.70
Financial District 37,154 2,589 12.3% 10.3% 19.5% (229) (1,572) $57.46
Seaport 11,537 1,981 19.3% 13.2% 25.3% (157) (842) $56.45
Charlestown 2,705 0 21.0% 31.0% 18.9% (13) (265) $41.78
Fenway 2,033 317 1.9% 2.5% 0.5% 35 91 $50.85
Midtown 2,226 234 10.2% 6.7% 11.0% (47) (68) $51.47
North Station 3,340 1,611 9.5% 3.3% 10.9% 46 (106) $50.72
South Station 1,392 0 10.3% 4.7% 16.7% (1) (119) $52.06
S.Boston 1,957 694 10.0% 7.0% 11.0% 3 99 $44.47
Allston-Brighton 1,091 0 7.8% 10.7% 2.9% (27) (74) $42.07
Cambridge 10,968 3,184 6.9% 7.2% 6.1% 241 (115) $71.95
East 6,638 2,824 6.9% 6.7% 8.4% 261 82 $84.36
Mid 2,669 200 8.2% 13.7% 5.8% (17) (63) $63.40
West 1,661 160 4.8% 5.3% 4.2% (3) (134) $63.10
Suburban 123,368 2,550 14.7% 15.0% 14.5% 9 (932) $24.51
Inner Suburbs 5,457 867 13.5% 8.5% 24.0% (10) 41 $30.60
Route 128 North 14,761 0 10.6% 13.7% 7.4% 123 43 $24.10
Route 128 Northwest 12,968 360 16.4% 20.1% 9.4% (85) (456) $30.95
Route 128 West 24,611 1,078 13.2% 12.1% 14.5% 349 (443) $33.90
Route 128 South 18,522 166 9.8% 9.3% 10.4% (6) 352 $23.06
Route 495 Northeast 8,157 80 19.4% 13.5% 23.4% 17 (90) $19.61
Route 495 North 15,327 0 24.8% 31.7% 20.8% (533) (396) $19.51
Framingham-Natick 7,217 0 10.0% 12.9% 6.1% (2) (24) $23.68
Route 495 West 12,299 0 18.9% 18.6% 19.2% 159 37 $19.22
Route 495 South 3,629 0 7.9% 5.0% 9.0% (3) 5 $19.67
*Numbers in the thousands
**Construction number include space that can also be built out as labs
*** Asking rents are quoted on a gross basis
7 | METRO BOSTON OFFICE | Q2 2021
“ Hunneman prides itself on having the ability to
cater to our client’s specific needs, and to provide
”
the level of personal service they deserve.
REAL by Hunneman
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TUCKER WHITE JENNA BRINK
Director of Research Senior Graphic Designer
978.828.5141 617.457.3253
twhite@hunnemanre.com jbrink@hunnemanre.com
METHODOLOGY
Source: Co-Star, Hunneman, Apple, Bldup. Prepared: June 2021.
Disclaimer: The above data is from sources deemed to be generally reliable, but no warranty is made as to the accuracy of the data nor its usefulness for any particular purpose.
Average Rental Rates are asking rents on direct space. Vacant space includes both direct and sublease space.
303 Congress Street, Boston, MA 02210 617.457.3400 www.hunnemanre.com
8 | METRO BOSTON OFFICE | Q2 2021
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