CAMBRIDGE OFFICE & LAB MARKET REPORT

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Frank Barton
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1 CAMBRIDGE OFFICE & LAB MARKET REPORT THIRD QUARTER 2018

CAMBRIDGE REIGNS AS TOP GLOBAL MARKET As Greater Boston s premier technology and innovation market, Cambridge has become a must have address for the world s leading companies.

2 CAMBRIDGE REIGNS AS TOP GLOBAL MARKET As Greater Boston s premier technology and innovation market, Cambridge has become a must have address for the world s leading companies. Cambridge has experienced plunging office and lab vacancy rates resulting from an influx of out-of-market users and homegrown expansion. Boeing s new automated-flight center, an 100,000 square foot lease at 314 Main Street and Google s strong interest in anchoring a 390,000 square foot build-to-suit at 325 Main Street (adjacent to current their offices) are just two of the latest and greatest tenants pursuing a significant Cambridge presence. Largely fueled by the explosive growth of the life science, technology & biotech sectors, Cambridge s current economy consists of 232 life science & high tech companies and 692 start-ups, many of which are supported by massive amounts of VC and NIH funding. Looking forward, Cambridge s future remains extremely bright with a deep concentration of intellectual and investment capital keeping the market fueled for years to come. # 3.6% AUGUST MASSACHUSETTS UNEMPLOYMENT 3.6% AUGUST NATIONAL UNEMPLOYMENT # $5.2B MA YTD (AUG 18) VC FUNDING 2 ND NATIONALLY IN YTD (AUG 18) VC FUNDING

3 MARKET TRENDS $82.00 OFFICE CLASS A ASKING RATE VS. DIRECT VACANCY 18% $ % GLOBAL DESTINATION World leader in medical innovation and technology advancement $70.00 $64.00 $ % 12% 10% TECHNOLOGY & INNOVATION HUB Fortune 500 leaders and 1,900 homegrown startups $52.00 $46.00 $40.00 $ % 6% 4% 2% LIFE SCIENCE SECTION SURGES Huge demand from National and International companies $ Average Asking Rate Direct Vacancy (%) 2017 YTD2018 0% WHERE IS THE RELIEF? Small and medium size users face historic competition OFFICE CLASS B ASKING RATE VS. DIRECT VACANCY MARKET RATES KEEP RISING Demand out-pacing supply, no relief for price sensitive users $63.00 $58.00 $ % 16% 14% $ % COWORKING SPACE DISRUPTING MARKET $43.00 $ % 8% Tenants like flexibility and shorter term commitments $33.00 $ % 4% INVESTMENT SALES QUIET Few East & Mid Cambridge assets coming to market, West Cambridge remained active $23.00 $ Average Asking Rate Direct Vacancy (%) 2017 YTD2018 2% 0%

4 DIRECT VACANCY RATE BY SUBMARKET West - Office Mid - Office West - Lab East - Office Mid - Lab East - Lab 0.0% none 0.5% 1.0% 1.5% 2.0% 2.5% 3.0%

5 CAMBRIDGE OFFICE STATS AT A GLANCE VACANCY 1.5% ABSORPTION 30,800 sf SUBLEASE 4.3% AVAILABILITY 8.9% ASKING RATE $73.90/sf CONSTRUCTION 2,534,000 sf WEST CAMBRIDGE OFFICE $50.81/SF LAB $60.38/SF NNN MID CAMBRIDGE OFFICE $65.43/SF LAB $79.63/SF NNN EAST CAMBRIDGE OFFICE $85.94/SF LAB $82.86/SF NNN

6 CLASS A & B OFFICE

7 The Cambridge office market posted strong third quarter results which lowered the vacancy rate to 1.5% and drove the average asking rate up to $73.90 PSF. It feels as though every other quarter that there is a new blue chip tenant added to the Cambridge tenant roster and this quarter was no exception with rumors circulating that Google will likely anchor Boston Properties proposed 390,000 square foot site at 325 Main Street in Kendall Square. Google has been circling the market for years looking for a larger presence and they may have just selected their latest location which would be constructed across the street from Boeing s new 100,000 square foot automated-flight center under construction at 314 Main Street. Market rumors also suggest that DivcoWest is close to having 250 North Street in Cambridge Crossing fully leased if they are able to finalize terms with Goldfinch Bio for approximately 50,000 to 60,000 square feet. The building which began construction on a speculative basis was largely leased by Philips North America who will be relocating their headquarters from Andover to the East Cambridge campus next year. A handful of smaller office leases were signed this quarter including X4 Pharmaceuticals who expanded and extended their presence into approximately 12,600 square at 955 Massachusetts Avenue. Down the block, The Association for International Research (AIR) relocated from 1100 Massachusetts Avenue into 19,200 square feet at 675 Massachusetts Avenue. The volume of investment sales has slowed down significantly over the past year with very few assets coming to market; however, those properties that have come to market are receiving tremendous attention. The Davis Companies and Invesco have reportedly bolstered their West Cambridge portfolio after being selected as the winning bidder for 10 Fawcett Street. The property, which last sold in 2013 for $31.3 million, is expected to trade for roughly $60 million. $ 1.5% DIRECT VACANCY #4.3% SUBLEASE AVAILABILITY #8.9% TOTAL AVAILABILITY #30,800 SF 12-MONTH ABSORPTION # $73.90/SF AVERAGE ASKING RATE

8 CLASS A & B OFFICE NOTABLE RECENT LEASES ADDRESS SUBMARKET TENANT SF 314 Main Street East Cambridge Boeing 100, First Street East Cambridge Car Gurus 50, Massachusetts Avenue Mid Cambridge Association for Int l Research 19, Massachusetts Avenue Mid Cambridge X4 Pharmaceuticals 12, Cambridgepark Drive West Cambridge Michael Baker Int'l 10, Cambridgepark Drive West Cambridge Devo 4,500 AVERAGE ASKING RATE BY SUBMARKET AVERAGE DIRECT VACANCY BY SUBMARKET $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ YTD % YTD2018 West Mid East

9 OFFICE & LAB DEVELOPMENT PIPELINE 238 MAIN STREET Lab 145 BROADWAY Office & Lab 325 MAIN STREET Office 121 FIRST STREET Office 314 MAIN STREET Office 400/500 CAMBRIDGE DISCOVERY Office & Lab 399 BINNEY Lab 250 NORTH STREET Office & Lab

10 CLASS A & B LAB

11 The Cambridge lab market is some of the world s most sought after real estate from both investors and tenants. With a microscopic vacancy rate below 1.0%, market rents and investment sales pricing are pushing historically high. Major life science, biotech and pharmaceutical companies have caused the demand surge while research and academic institutions have strengthened the city s commercial backbone. The only dampening news for the quarter came from Shire, who announced that they have halted build-out construction and planned occupancy at 500 Kendall Street. The news came at a time when Takeda Pharmaceuticals is in the processing of taking over Shire and relocating their headquarters from Chicago to the Boston area. Takeda has the intentions to shift nearly 1,000 jobs to the Greater Boston area so the space at 500 Kendall Street may likely be occupied by the new consolidated company or it would become a very desirable large block of space. While Kendall Square continues its domination as ground zero for some of the world s largest and financially strong companies, the West Cambridge subamarket has picked up significant momentum over the past months. Most recently, the Davis Companies and Invesco s newly revamped 35 Cambridgepark Drive, now known as Alewife Research Center (ARC), secured a handful of leases. Eisai has signed a long term commitment for 48,000 square feet and Ribon Therapeutics announced they will vacate their Lexington offices and occupy 26,900 square feet at the ARC. The redeveloped property is now nearly fully stabilized and has eliminated the only existing large block of availability in the submarket. Perhaps hoping to draft off the ARC s success, the Bulfinch Companies broke ground on their final phase of development at Cambridge Discovery Park, where the local development team is working to construct 400/5000 Cambridge Discovery Park which will deliver 250,000 square feet towards the end of next year. Looking forward, watch for continued movement within Cambridge as tenants compete for highly desirable and rarely available lab ready space. As the cost of doing business in Cambridge continues rising, many early stage and non venturebacked businesses are being squeezed out into emerging life science locations including Watertown, Waltham and Lexington. $ 0.1% DIRECT VACANCY $ 0.4% SUBLEASE AVAILABILITY $ 0.6% TOTAL AVAILABILITY # 87,550 SF 12-MONTH ABSORPTION # $80.95/SF AVERAGE ASKING RATE

12 CLASS A & B LAB NOTABLE RECENT LEASES ADDRESS SUBMARKET TENANT SF One Kendall East Cambridge Ipsen Biosciences 69, Binney Street East Cambridge Generation Bio 53,000 Alewife Research Ctr West Cambridge Eisai 48, Sidney Street Mid Cambridge Blueprint Medicines 40, Landsdowne Street East Cambridge Beam Therapeutics 38, Memorial Drive Mid Cambridge Mersana Therapeutics 34, Sidney Street East Cambridge Agios Pharmaceuticals 27,000 Alewife Research Ctr West Cambridge Ribon Therapeutics 26,900 Fresh Pond Research West Cambridge Life Biosciences 25, Broadway East Cambridge Brammer Bio 22, Massachusetts Avenue Mid Cambridge Astellas Pharmaceuticals 10,000 AVERAGE ASKING RATE BY SUBMARKET AVERAGE DIRECT VACANCY BY SUBMARKET $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ YTD % YTD2018 West Mid East

13 BEHIND THE SCENES WHATS DRIVING DEMAND? Funding (YTD) 405 AWARDS $257,000,000 TECHNOLOGY INCUBATORS VC INVESTMENT BEING CONCENTRATED INTO FEWER DEALS, BUT TOTAL INVESTMENT GROWING START-UP, TECHNOLOGY & LIFE SCIENCE COMPANIES 15% OF CAMBRIDGE'S TOP 25 EMPLOYERS ARE LIFE SCIENCE OR TECH COMPANIES LIFE SCIENCE & VC HUB CAMBRIDGE UNEMPLOYMENT RATE 180 BASIS POINTS LOWER THAN NATIONAL AVERAGE $83,100 MEDIAN HH INCOME HIGHER THAN 17 % STATEWIDE OFFICE RENTS 55 % IN THE PAST 5 YEARS BOSTON IS THE #2 TOP NATIONAL STARTUP HUB

14 OFFICE & LAB REPORT STATS

15 Office TOTAL A & B Total Inventory (SF) Direct Vacancy Sublease Availability Total Availability Quarterly Absorption (SF) 12 Month Absorption (SF) Average Asking Rate Cambridge 11,192, % 4.3% 8.9% 17,350 30,800 $73.90 East Cambridge 6,051, % 3.3% 6.2% 6,250 27,000 $85.94 Mid Cambridge 3,135, % 2.1% 5.5% 6,350 (1,700) $65.43 West Cambridge 2,005, % 10.9% 22.4% 4,750 5,500 $50.81 CLASS A Cambridge 7,360, % 5.5% 8.4% 27,200 64,950 $79.72 East Cambridge 5,032, % 3.9% 4.7% 5,050 30,150 $87.80 Mid Cambridge 1,224, % 5.1% 6.1% 16,750 18,050 $68.58 West Cambridge 1,103, % 13.4% 27.4% 5,450 16,800 $55.25 CLASS B Cambridge 3,832, % 2.1% 10.0% (9,850) (34,150) $62.71 East Cambridge 1,018, % 0.5% 13.3% 1,200 (3,150) $76.75 Mid Cambridge 1,911, % 0.1% 5.2% (10,350) (19,750) $63.42 West Cambridge 902, % 7.8% 16.3% (700) (11,300) $45.38 Lab TOTAL A & B Total Inventory (SF) Direct Vacancy Sublease Availability Total Availability Quarterly Absorption (SF) 12 Month Absorption (SF) Average Asking Rate Cambridge 14,662, % 0.4% 0.6% 4,000 87,550 $80.95 East Cambridge 9,660, % 0.1% 0.2% - (1,250) $82.86 Mid Cambridge 4,336, % 0.7% 1.2% 4,000 93,800 $79.63 West Cambridge 665, % 2.0% 2.8% - (5,000) $61.76 CLASS A Cambridge 12,174, % 0.1% 0.2% - (7,250) $82.89 East Cambridge 9,005, % 0.2% 0.2% - (1,250) $83.50 Mid Cambridge 3,039, % 0.0% 0.2% - (5,950) $81.75 West Cambridge 129, % 0.0% 0.0% - - $67.50 CLASS B Cambridge 2,488, % 1.8% 2.6% 4,000 94,800 $71.41 East Cambridge 654, % 0.0% 0.0% - - $74.00 Mid Cambridge 1,297, % 2.5% 3.6% 4,000 99,800 $74.67 West Cambridge 535, % 2.5% 3.4% - (5,000) $60.38

16 ETHAN ROBERT Director of Research CONNOR MALONEY Analyst Lincoln Property Company 53 State Street, 8th Floor, Boston, MA LPCBoston.com Lincoln Property Company s Boston Office Report is produced by the Boston Office s research team in collaboration with our Cambridge Brokerage Group. If you have any questions regarding market conditions and the information found in this report, please contact Ethan Robert.

CAMBRIDGE OFFICE & LAB MARKET REPORT

CAMBRIDGE OFFICE & LAB MARKET REPORT SECOND QUARTER 2018 LANDLORD FAVORABLE MARKET CONDITIONS As Greater Boston s preeminent technology and innovation market, Cambridge has become a must have address for