blue by encompass spectrum family Second Quarter 2016 all data as of, or for the quarter ended, June 30, 2016 ABSORPTION was a moderate 92,000 sf as four-quarter levels reached 3.0 million sf; vacancy is at 11.1 percent. GOODWIN moved into its new, 375,000 sf facility in the Seaport District, the move was accompanied by a re-branding of the firm. GENERAL ELECTRIC has announced its Seaport headquarters facility will be 410,000 sf, about a one-third increase from previous expectations. KENDALL vacancy is at 2.0 percent; potential new development can t alleviate acute near-term shortage. RENT RATES have held steady regionally last two quarters, though isolated rent growth continues. BOSTON CONSULTING GROUP will move its HQ into 202,000 sf in the Seaport in 2019. ABBEY GROUP intends to redevelop the Flower Exchange into as much as 1.4 million sf of office, the region s latest envisioned urban infill project. BIDS ARE DUE in September for the redevelopment of the Vople Center site in Cambridge; at least five groups are expected to compete. LOW FLOOR URBAN CORE space is being rapidly depleted by TAMI (Technology, Media, Advertising, Internet) tenants. QUICK Absorption +92,000 sf Positive demand driven by new completions Vacancy 11.1% +0.1% Vacancy lifted on inventory increase Rents (Class A) $37.62 +1.1% Modest increases seen in all demand areas. WILL THIS SAVE THE SUBURBS? Driverless cars are set to take the streets in the 2020s ten million by 2020 by one leading estimate; so if autonomous is taking over starting with the next CRE cycle, how should landlords respond? OTB, page 3 blue is greater boston s definitive resource for commercial office real estate discussion & analysis. Brendan Carroll <> Director of Intelligence
blue Second Quarter 2016 timeline q3 jun GOODWIN opens its new Seaport offices in 375,000 sf at 100 Northern Avenue, the opening of the facility coincides with a new website, logo and a shorting of the firm s marketing name to one word. BOSTON CONSULTING GROUP agrees to lease 202,000 sf of the newly under construction 140 Northern Avenue in the Seaport, consolidating both its local office and global headquarters at the site. GENERAL ELECTRIC, only a quarter after announcing its HQ move to Boston, states its footprint will be more than 400,000 sf, an increase from an earlier figure of 290,000 sf. GENERAL SERVICES ADMINISTRATION formally solicits proposals for the redevelopment of the 14-acre Volpe Transportation Center site in Kendall; bids due end of summer. jun may PUBLICIS GROUPE is discovered to be in talks to consolidate its local operations, including digital media firms Digitas and Sapient, into 200,000 sf at RelatedBeal s Congress Square redevelopment. ABBEY GROUP unveils plans to replace its newly acquired Boston Flower Auction with up to 1.4 million sf of office; the site was prominent in the Boston 2024 Olympic bid. KRONOS, having leased 400,000 sf at Cross Point in Lowell last quarter, raised its commitment by 35,000 sf; the move will take place in 2017. BOSTON CELTICS will practice in a 70,000 sf facility to be built at New Balance s Boston Landing development, the adjacent Bruins facility is nearing completion. may apr HINES INTERESTS is now proposing a mix of condos, along with office space, for its South Station tower development; the group brought on a Chinese capital partner Gemdale to help start the project. WAYFAIR, already a 381,000 sf occupant at Copley Place, is in the market for an additional 100,000 sf; their local footprint set to triple in just four years. UNION INVESTMENT REAL ESTATE pays $1,030 per sf for 121 Seaport, the newly completed area office of PWC; the sale is one of five last three years to eclipse $1,000 per sf. apr q1 MASS INNOVATION LABS says it will expand its current 124,000 sf footprint in Kendall by an additional 100,000 sf as well as open a San Francisco office. Flashback to Q1 2016 Tenants absorbed 273,000 sf of space, furthering a robust demand trend and lowering vacancy 0.1 percent to 11.0 percent. General Electric announced it will move its headquarters to Boston from Connecticut, following an extensive location search. Kronos and Mercury Systems each inked six-digit sf lease deals in the 495 belt. UnitedHealth s Optum unit announced it will move into 125,000 sf at the newly completed 1325 Boylston Street in the Fenway. Putnam Investments committed to moving to 250,000 sf at 100 Federal Street. 2 timeline
Greater Boston experienced its 13th consecutive quarter of positive absorption as single-digit vacancy conditions blanket the Urban Core, Cambridge and Streetcar Ring. General Electric, having announced a relocation of its headquarters to the Boston area in the first quarter, said it will occupy a larger footprint than expected in the Seaport District while law firm Goodwin completed relocation to the Seaport and Boston Consulting Group announced it will move to the area in 2019. Demand has plummeted Kendall vacancy rates to 2.0 percent, the lowest observed levels since 2001, while space also remains scant in fellow tech-attractive areas in Fort Point and Downtown Crossing. While absorption was the lowest amount observed in the current streak, expected growth in coming quarters will likely further a net increase in occupancy in coming periods. Scant vacancy in some of the region s most preferred areas will likely prove a driver of absorption in areas adjacent to where current activity is slowing due to lack of supply. Rent rates remain at high levels for new construction though will likely continue to fluctuate in the near term given the varying nature of currently available supply. autonomous the yeah, you know me! future& We all know that self-driving cars are coming, in fact, most experts believe the technology is closer to commercialization and mass-adoption will be far more rapid than most people believe. Here is a compact primer on the subject, and Encompass four top impacts on/opportunities for the commercial real estate industry. PRIMER Definitions The NHTSA has proposed the following classification system for autonomous cars: LEVEL 0 No automation LEVEL 1 Automation of at least one function LEVEL 2 Coordinated automation of two or more functions LEVEL 3 Full automation in certain conditions LEVEL 4 Full automation in all legal driving situations okay, here are some thoughts Expectations 1. Many cars sold today have the ability to be level 1 or 2, some Tesla models sold today are Level 3-ready 2.Level 4 cars are expected to be on sale in 2020; Tesla announced it may sell a Level 4-ready model by 2018 3.While all jurisdictions will likely move toward permission of fully-automated operation, not all areas will allow at first 4.Level 4 cars expected to rapidly take over share in 2020s 1 Tighter spaces Level 4 cars park themselves, they don t need nearly the space for error as humans do, and don t need space for passengers to exit from the sides. As landlords see their tenants workers go increasingly autonomous, it may make sense to proactively create areas or structures to more efficiently offer car storage than the traditional 150 space per acre parking lot. 2 Fewer spaces, period The autonomous revolution may quickly lead to a car-share model. This could rapidly change industry parking ratios freeing land, in some cases, for more development! 3 Also in the Core - The trend may also drop alreadylower car usage in dense areas, such as the core and Cambridge. What to do with this found space? Encompass may have some ideas - 4 Good new for the burbs! Autonomous stands to address some of the biggest challenges facing suburban landlords the stress of driving will gave way to more productive time while the cost obstacle workers face could be mitigated by expected car-share models. 3 OTB
blue Second Quarter 2016 urban boston this quarter Urban absorption has been positive 13 consecutive quarters during which time tenants have increased occupancy levels 4.5 million sf. Goodwin moved its offices into 375,000 sf at the newly completed 100 Northern Avenue in the Seaport; the law firm had been located on State Street for more than 100 years. Seaport and the Fringe have accounted for 95 percent of positive absorption last four quarters. Seaport inventory will reach 12.2 million sf by 2019, given current levels and active new construction, this is up from 8.8 million sf in 2010. Buoyed on by demand from technology and media firms attracted to building amenities and generally lower rent levels, demand for lower floors has resulted in an untraditional surge in high floor availability. Boston Consulting Group will consolidate its Boston office and its corporate headquarters into 202,000 sf in a new building at 140 Northern Avenue in the Seaport, in 2019. Union Investment Real Estate and Deka Immobilien acquired $602 million sf and $139 million sf, respectively, of urban office real estate, first area investment for the pair of large German funds. Capital of biotech and Shoes? In the 19 th century, the Greater Boston area was the world s largest producer of shoes with more than 100,000 working in the industry and the towns of Brockton and Lynn both vying for the Shoe City title; shoe-making remains a key area business today with Converse, New Balance, Reebok and Wolverine Worldwide among the numerous operations based in the region. absorption (sf in thousands) 800 600 400 200 0-200 -400 vacancy % 16% 14% 12% 10% 8% 6% 4% 2% 0% rents $ class a per sf per year $70 $60 $50 $40 $30 $20 $10 $0 4 urban boston
cambridge & streetcar belt this quarter A positive absorption trend extends to four quarters as 90,000 sf of new occupancy lowers Cambridge vacancy 0.8 percent to 4.7 percent. Kendall vacancy dropped from 3.2 percent to 2.0 percent; a near-term acute lack of space could be relieved through several potential development sites that could yield new options, but not before 2019. At least five groups are expected to submit bids for the redevelopment of the 14-acre Volpe site in Kendall; the General Services Administration requested bids be submitted by a September deadline. Intercontinental Real Estate acquired a three-building portfolio on Canal Street from Beacon Capital ($304 million, 426,000 sf, $714 per sf). Streetcar Belt activity remains intense, though a flat quarter showed tenants pulling out of a net 57,000 sf. Abbey Group intends to redevelopment its newly acquired Flower Exchange site into 1.4 million sf of office space; neighboring development in the South End has been almost entirely residential. Athenahealth plans to construct 250,000 sf of space at its Watertown campus; the group currently occupies 417,000 sf and has been relocaing other groups from its own facility to accommodate its growth. absorption (sf in thousands) 600 cambridge 500 streetcar belt 400 300 200 100 0-100 -200 vacancy % 12% 10% construction update building rba lease% 123 Foley St, Somerville 850,000 100% 888 Boylston, Boston 425,000 75% 121 Seaport Blvd, Boston 415,000 49% 8% 6% 4% 2% 0% cambridge streetcar belt 140 Northern Ave, Boston 375,000 0% 80 Guest St, Boston 270,000 15% 500 Totten Pond Rd, Waltham 245,000 92% 130 3rd Ave, Waltham 230,000 100% 480 Arsenal St, Watertown 185,595 0% 1265 Main St, Waltham 120,000 100% 115 Hartwell Ave, Lexington 91,000 0% 9 Channel Ctr St, Boston 70,359 16% 505 Massachusetts Ave, Cambridge 43,500 41% rents $ class a per sf per year $70 cambridge $60 streetcar belt $50 $40 $30 $20 $10 $0 5 cambridge & streetcar belt
blue Second Quarter 2016 128 & 495 belts this quarter Absorption of 105,000 sf in the 128 belt dipped vacancy 0.2 percent to 10.6 percent; absorption has been positive 15 of the last 16 quarters. Class A options 50,000 to 100,000 sf in the high demand 128 Core submarket have increased from 10 to 14 over two quarters; existing selection remains non-existent for users larger than 200,000 sf. Four of the region s six spaces of at least 200,000 sf are in the 495 belt, though groups have shown a preference to build closer-in facilities at far higher costs than pursue these further-afield options. Demandware will expand its footprint in Burlington by 52,000 sf, to 182,000 sf; the group has agreed to be acquired by San Franciscobased Salesforce, which has an office in Boston at 500 Boylston Street. SEIU relocated its local operations from Boston to 52,000 sf at 108 Myrtle Street in Quincy. An $800 million multi-use development in downtown Lowell, set to contain 400,000 sf of office, is expected to be underway later this year. KS Partners acquired 2 Highwood Drive in Tewksbury ($29.0 million, 85,000 sf, $340 per sf) as Capstone Properties bought 70 Blanchard Road in Burlington ($24.0 million, 107,000 sf, $223 per sf). absorption (sf in thousands) 800 128 belt 600 495 belt 400 200 0-200 -400-600 -800 vacancy % 25% 20% Urban & 128 Gain = 495 Pain? Cumulative absorption, 2000s recovery vs current economic expansion by submarket group absorption sf in millions Q3 04 Q3 08 7 6 6.2 Q2 11 - present 15% 10% 5% 0% 128 belt 495 belt 5 4 3 3.2 3.4 4.8 2.7 rents $ class a per sf per year $35 128 belt $30 495 belt $25 2 1 0 1.3 1.4 0.4 0.4 0.1 $20 $15 $10 $5 urban boston cambridge streetcar ring 128 ring 495 ring $0 6 128 & 495 belts
absorption construction** rent*** sf in thousands rba vac% q2 16 ltm uc lease% ltm $cl a total market 207,327 11.1% 92 2,978 3,320 60% 2,204 $37.62 urban boston 67,866 8.3% 236 1,043 1,285 41% 953 $57.94 core 34,389 9.6% (253) (125) 0 0 $56.57 greenway 12,454 7.4% 2 (206) 0 0 $60.88 shawmut 21,935 10.9% (255) 81 0 0 $53.62 periphery 7,874 6.0% (13) 175 0 0 $48.00 downtown crossing 3,139 9.7% 9 225 0 0 $48.00 north station 3,208 3.8% (20) (68) 0 0 south station 1,527 3.0% (1) 18 0 0 back bay 14,255 6.9% 129 182 425 75% 0 $61.21 copley 10,699 7.6% 63 111 0 0 $61.69 prudential 3,556 4.9% 66 70 425 75% 0 $59.93 seaport 11,348 7.4% 372 812 860 25% 953 $62.35 fort point 3,914 5.0% 8 94 70 16% 118 marine 2,054 17.3% 63 (17) 0 0 waterside 5,379 5.4% 302 735 790 26% 835 $62.35 cambridge 11,290 4.7% 90 478 44 41% 66 $61.83 kendall 5,467 2.0% 65 256 0 0 $77.50 cambridgeport 970 3.5% 17 13 44 41% 0 lechmere 1,698 10.2% (5) 98 0 0 $62.50 harvard 1,240 0.0% 0 66 0 66 alewife 1,915 11.0% 13 45 0 0 $45.50 streetcar belt 14,715 9.2% (57) 299 1,306 68% 487 $40.00 charlestown 2,352 9.7% 23 85 0 0 somerville 4,231 12.2% (27) (62) 850 100% 0 $39.00 gateway 3,537 7.0% (8) 265 456 9% 250 $40.00 longwood 2,356 10.3% 0 36 0 237 $42.00 crosstown 2,239 4.9% (46) (26) 0 0 128 belt 58,194 10.6% 105 531 686 80% 697 $31.57 north shore 13,161 11.1% 41 (128) 0 0 $25.68 128 prime 21,482 10.2% 53 164 686 80% 416 $34.74 9 west 6,849 10.5% (51) 37 0 281 $42.75 blue hills 6,520 13.5% 26 172 0 0 $31.94 south shore 10,181 9.1% 35 286 0 0 $21.96 495 belt 55,263 17.0% (281) 627 0 0 $21.78 merrimack valley 8,807 23.3% (110) (145) 0 0 $21.72 3 north 15,029 15.2% 1 280 0 0 $21.36 2 west 6,015 20.5% (132) (119) 0 0 the boroughs 14,097 16.7% 55 648 0 0 $19.24 framingham natick 6,328 8.0% (110) (63) 0 0 $28.75 patriots 3,460 17.1% 15 11 0 0 $20.75 24 corridor 1,527 23.5% 0 15 0 0 $21.50 207,327 11.1% 92 2,978 3,320 60% 2,204 $37.62 rba = rentable building area ltm = last twelve months ** preleased % & last twelve months completions ***rent = $ per sf per year full service class a Encompass strives for complete accuracy in all aspects of its information and analysis, though no guarantee to that effect is made. Sources include Bureau of Economic Analysis, Bureau of Labor Statistics, Encompass Real Estate Strategy, Federal Reserve Bank, Google Analytics, Maptitude. 7 stats
spectrum family blue <> macro level office quarterly steel <> macro level industrial quarterly green <> macro level laboratory quarterly slate <> submarket level office series quarterly node <> transit-accessible office & lab twice-yearly white <> special interest twice-yearly or so Brendan Carroll <> President Director of Intelligence <> brendan@encompasscre.com 2016 Encompass Real Estate Strategy Inc. All Rights Reserved.