CAMBRIDGE OFFICE & LAB MARKET REPORT

CAMBRIDGE OFFICE & LAB MARKET REPORT SECOND QUARTER 2017

WHITE HOT MARKET TO OPEN SUMMER As Greater Boston s global gateway market, Cambridge is a hub for intellectual capital, innovative minds and technological advancements. The Cambridge market has experienced plunging office & lab vacancy rates and rapidly growing rents which make the market one of the world s premier locations. In fact, vacancy rates are becoming difficult to track because available space is quickly absorbed and rarely hits the market before being committed by a new tenant. Demand is largely coming from the expansion of existing tenants, the inward migration from out-of-market users and the explosive growth of the life science industry. The life science sector now constitutes roughly 70% of total demand and has become the most formidable market force, particularly within the lab sector. Looking forward, Cambridge s future remains extremely bright with the high concentration of intellectual and investment capital keeping the market fueled and extreme land constraints placing an upper bound on future development. # 4.2% MAY MASSACHUSETTS UNEMPLOYMENT $ 4.0% JUNE NATIONAL UNEMPLOYMENT # 2.9% ANNUAL WAGE GROWTH 4 th HIGHEST GDP PER CAPITA NATIONALLY

MARKET TRENDS BOSTON 10 TH LARGEST METRO Faster population growth than New York & San Francisco $72.00 OFFICE CLASS A - ASKING RATE VS. DIRECT VACANCY Direct Vacancy (%) 24% VACANCY INCHES UP TO 1.6% Strong demand across all submarkets & sectors ASKING RATES RISE AGAIN Demand continued out-pacing supply, modern space rules $66.00 $60.00 $54.00 $48.00 $42.00 $36.00 $30.00 21% 18% 15% 12% 9% 6% 3% $24.00 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0% LIFE SCIENCE SECTION SURGES Now represents over 70% of R&D demand CREATIVE OFFICE Open layouts, contemporary and collaborative environments $55.00 Average Asking Rate Direct Vacancy (%) Direct Vacancy OFFICE CLASS B - ASKING RATE VS. DIRECT VACANCY 16% $50.00 14% WHERE IS THE RELIEF? Small and medium size users face historic competition $45.00 $40.00 $35.00 12% 10% 8% $30.00 6% INVESTMENT SALES ARE HOT New landlords are paying record pricing $25.00 $20.00 4% 2% $15.00 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0% Average Asking Rate Direct Vacancy

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

CAMBRIDGE STATS AT A GLANCE VACANCY 1.6% ABSORPTION 26,500 sf SUBLEASE 4.3% AVAILABILITY 8.8% WEST CAMBRIDGE ASKING RATE $65.35/sf CONSTRUCTION 980,000 sf Office $44.88/SF Lab $55.24/SF NNN MID CAMBRIDGE Office $59.69/SF Lab $76.08/SF NNN EAST CAMBRIDGE Office $75.73/SF Lab $75.77/SF NNN

CLASS A & B OFFICE

With rents in the mid to high $60 s on average and vacancy below 2.0% the Cambridge office market has become prohibitively difficult to enter and maintain a presence. The Kendall Square and Massachusetts Avenue corridor have become saturated with big life science and pharma tenants. On the flip side, many small start-ups and incubators are struggling to maintain Cambridge locations and are frequently pursuing periphery urban technology hubs like Somerville, Watertown and Brighton as lower cost alternatives. The East Cambridge office market recorded a quiet first quarter with several tenants renewing including CSP Associates at 55 Cambridge Parkway for 8,000 SF. There were few significant expansions observed beyond HubSpot who committed to additional square footage at One Canal. The overall lack of availability across East Cambridge has tempered absorption figures over the past 18-24 months however the market remains extremely strong. In the heart of Central Square at 625 Massachusetts Avenue, Harvard University signed a long term extension for 35,600 square feet. Across the street at 485 Massachusetts Avenue, Digital Ocean committed to 7,000 square feet. Within this stretch of Massachusetts Avenue between MIT and Harvard Square, the tenant base has become increasingly institutional quality which has pushed start-ups and the like west & north. Over the past 36 months, the West Cambridge submarket has dramatically transformed following the addition of new residential, retail and lifestyle amenities along Cambridgepark Drive. Following an extensive marketing and competitive bidding process Morgan Stanley has emerged as the street s largest landlord following the acquisition of 100, 125 & 150 Cambridgepark Drive in two separate transactions. With an average purchase price of $444 PSF the new benchmark has been set for the West Cambridge neighborhood. #1.6% DIRECT VACANCY #4.3% SUBLEASE AVAILABILITY #8.8% TOTAL AVAILABILITY #26,500 SF 12-MONTH ABSORPTION # $65.35/SF AVERAGE ASKING RATE

CLASS A & B OFFICE NOTABLE QUARTERLY LEASES ADDRESS SUBMARKET TENANT SF 625 Massachusetts Avenue Mid Cambridge Harvard University 35,600 One Canal Park East Cambridge Hub Spot 25,300 125 CambridgePark Drive West Cambridge TriNetX 19,800 150 CambridgePark Drive West Cambridge NuoDB 10,800 55 Cambridge Parkway East Cambridge CSP Associates 8,000 485 Massachusetts Avenue Mid Cambridge Digital Ocean 7,000 AVERAGE ASKING RATE BY SUBMARKET AVERAGE DIRECT VACANCY BY SUBMARKET $76.00 20.0% $71.00 18.0% $66.00 16.0% $61.00 14.0% $56.00 12.0% $51.00 10.0% $46.00 8.0% $41.00 6.0% $36.00 4.0% $31.00 2.0% $26.00 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 West Mid East

RECENT OFFICE INVESTMENT SALES 125/150 Cambridgepark Drive 100 Cambridgepark Drive 1000 Massachusetts Ave 955 Massachusetts Ave 125/150 Cambridgepark Drive $210,000,000 ($443/RSF) Buyer: Longfellow & Morgan Stanley 100 Cambridgepark Drive $60,200,000 ($445/RSF) Buyer: Longfellow & Morgan Stanley 955 Massachusetts Avenue $66,000,000 ($734/RSF) Buyer: DivcoWest 1000 Massachusetts Avenue $69,500,000 ($644/RSF) Buyer: International RE

CLASS A & B LAB

The Cambridge lab market has become some of the world s most sought real estate from both tenants and landlords alike. With a barely measurable vacancy rate below 1.0%, market rents and investment sale pricing are pushing historically high. The life science sector now constitutes roughly 70% of total demand with major pharma users driving demand through rapid expansion. Most significantly over the past six months, Johnson & Johnson, AbbVie, Shire, Lilly & Novartis have all either committed to large expansions or been actively engaged in lease negotiations. Following Novartis 302,600 square foot renewal at 100 & 200 Technology Square last quarter, Ironwood Pharmaceuticals renewed its lease at 301 Binney Street securing its 223,000 square foot operation for the long term. It is also widely rumored that Shire Pharmaceuticals, as part of their efforts to consolidate exclusively to Cambridge and Lexington, will take approximately 230,000 square feet at 125 Binney Street. Also in East Cambridge, Blueprint Medicines has leased 100,000 square feet at 45 Sidney Street while co-working lab environment, Lab Central, secured 42,000 square feet at 700 Main Street. The shared working space has become increasingly popular with asking rates soaring and start ups finding it difficult to secure space within Kendall Square. Looking forward expect the market to continue performing at an efficient clip, however with several new lab developments scheduled to open over the next 3-5 years, rent growth will be less explosive because the increased supply will offset demand. Development projects to recently break ground include: Alexandria s new 170,000 SF life science building at 399 Binney Street, the Davis Companies 220,000 square foot redevelopment of 35 Cambridgepark Drive and Northpoint s 250 North Street which is currently slated as a 430,000 square foot versatile office & lab building. # 0.7% DIRECT VACANCY $ 2.3% SUBLEASE AVAILABILITY $ 4.8% TOTAL AVAILABILITY $ (65,000) SF 12-MONTH ABSORPTION # $74.90/SF AVERAGE ASKING RATE

CLASS A & B LAB NOTABLE QUARTERLY LEASES ADDRESS SUBMARKET TENANT SF 100 & 200 Technology East Cambridge Novartis 302,600 301 Binney Street East Cambridge Ironwood Pharmaceuticals 223,000 45 Sidney Street East Cambridge Blueprint Medicines 100,000 26 Landsdowne Street East Cambridge Takeda Pharmaceuticals 100,000 700 Main Street East Cambridge Lab Central 42,000 200 CambridgePark Drive West Cambridge Celgene 39,100 AVERAGE ASKING RATE BY SUBMARKET AVERAGE DIRECT VACANCY BY SUBMARKET $76.00 20.0% $71.00 18.0% $66.00 16.0% $61.00 14.0% $56.00 12.0% $51.00 10.0% $46.00 8.0% $41.00 6.0% $36.00 4.0% $31.00 2.0% $26.00 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0.0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 West Mid East

RECENT LAB INVESTMENT SALES 733 Concord Avenue One Kendall Square 19 Blackstone Street 245 First Street One Kendall Square $750,000,000 ($1,125/RSF) Buyer: Alexandria RE 245 First Street $311,250,000 ($1,020/RSF) Buyer: Clarion Partners 19 Blackstone Street $56,000,000 ($718/RSF) Recap: Brickman & Investcorp 733 Concord Avenue $29,146,4980 ($662/RSF) Recap: King Street & Morgan Stanley

OFFICE & LAB REPORT STATS CONFIDENTIAL

Office Total Inventory (SF) Direct Vacancy Sublease Availability Total Availability Quarterly Absorption (SF) 12 Month Absorption (SF) Average Asking Rate TOTAL A & B Cambridge 10,809,900 1.6% 4.3% 8.8% (8,750) 26,450 $65.35 East Cambridge 5,668,350 1.1% 3.1% 7.5% 16,850 26,100 $75.73 Mid Cambridge 3,135,700 1.3% 1.8% 5.2% 600 24,250 $59.69 West Cambridge 2,005,800 3.0% 11.4% 17.9% (26,200) (23,850) $44.88 CLASS A Cambridge 6,977,450 2.0% 5.7% 10.7% (30,250) (39,200) $70.99 East Cambridge 4,649,500 1.3% 3.8% 7.1% 8,600 23,950 $77.03 Mid Cambridge 1,224,500 2.5% 2.0% 9.6% (13,700) (30,500) $68.25 West Cambridge 1,103,450 4.1% 18.2% 27.4% (25,150) (32,650) $48.56 CLASS B Cambridge 3,832,400 0.8% 1.6% 5.1% 21,500 65,650 $55.10 East Cambridge 1,018,850 0.5% 0.0% 9.3% 8,200 2,100 $69.81 Mid Cambridge 1,911,200 0.6% 1.7% 2.4% 14,350 54,750 $54.20 West Cambridge 902,350 1.7% 3.1% 6.3% (1,050) 8,750 $40.38 Lab Total Inventory (SF) Direct Vacancy Sublease Availability Total Availability Quarterly Absorption (SF) 12 Month Absorption (SF) Average Asking Rate TOTAL A & B Cambridge 14,109,500 0.7% 2.3% 4.8% (21,500) (65,600) $74.90 East Cambridge 9,107,700 0.0% 1.4% 2.5% 2,900 4,150 $75.77 Mid Cambridge 4,336,800 2.3% 4.5% 9.3% (24,350) (69,700) $76.08 West Cambridge 665,000 0.0% 0.0% 6.2% - - $55.24 CLASS A Cambridge 11,621,400 0.0% 2.7% 4.5% 2,900 4,150 $76.32 East Cambridge 8,452,750 0.0% 1.5% 2.7% 2,900 4,150 $75.81 Mid Cambridge 3,039,550 0.0% 6.0% 9.6% - - $78.25 West Cambridge 129,100 0.0% 0.0% 0.0% - - $64.00 CLASS B Cambridge 2,488,100 4.0% 0.5% 6.2% (24,400) (69,700) $68.27 East Cambridge 654,950 0.0% 0.0% 0.0% - - $75.25 Mid Cambridge 1,297,250 7.7% 0.9% 8.6% (24,400) (69,700) $71.00 West Cambridge 535,900 0.0% 0.0% 7.7% - - $53.13

ETHAN ROBERT Director of Research O: 617.951.4160 erobert@lpc.com Lincoln Property Company 53 State Street, 8th Floor, Boston, MA 617.951.4100 LPCBoston.com Lincoln Property Company s Boston Office Report is produced by the Boston Office s research team in collaboration with our Urban Brokerage Group. If you have any questions regarding market conditions and the information found in this report, please contact Ethan Robert.