DTZ Report: Class B Rents Rising

BOSTON—Boston's commercial markets have concluded a first quarter that DTZ says was “quiet on paper,” but much busier in reality, with class B rents jumping in the city and movement of activity from Cambridge to Lechmere. And suburban Lexington become a hotspot as bio-pharmaceutical leader Shire grabbed more than 200,000 square feet of space as it became available. These development's are noted in DTZ's first-quarter MarketWatch research report, and accompanying press release:

As we usually see in the first quarter it was quiet on paper.  However, there is always a story behind the numbers.  And this quarter brought a few trends we'll be watching throughout the year.

 In Boston, the story of the quarter was the jump in class B rents—up more than 10% in the Financial District just in the past 90 days, DTZ says. Also, in the past year, Midtown and the Financial District (neighborhoods that adjoin the up-and-coming Downtown Crossing) have seen class B rents jump 16.4% and 56.5%, respectively. Meanwhile, tightening conditions in the Kendall Square Cambridge have convinced tenants to consider Lechmere.

When Beacon Capital purchased Canal Park last spring, availability rates were close to 70%. In just a few months, tenants such as Foundation Medicine, CarGurus, Novell and Kayak have all decided to call Canal Park home. As a result, availability has dropped over 25 percentage points.As Kendall Square rents become prohibitively high, we expect to see increased leasing activity at Canal Park.

In the suburbs, Shire was the news of the quarter DTZ notes as it is committing to 202,000 square feet at 2 Ledgemont Center in Lexington—space that will be vacated by Vistaprint when it moves to its build-to-suit in Waltham later this year.  Shire also took 104,000 square feet at 235 Wyman Street in Waltham. And while we've known for some time that mixed-use developments in the inner suburbs are rapidly becoming an extension of downtown, activity this quarter solidified the notion.  At 128,000 SF, Harvard Business Review signed the largest deal of the quarter at Brighton Landing.

Boston

·         At (119,218) SF YTD, Boston ended the first quarter slightly negative – predominantly due to 125,000 SF of FBI space coming online at 1 Center Plaza in Government Center. The FBI will relocate to a build-to-suit in Chelsea.

o    Wayfair also listed 57,000 SF for short-term sublease at Copley Place. 

o    As for leasing activity, the majority of executed deals were under 15,000 square feet.

§  Notably, digital advertising company, Criteo, expanded by nearly 50,000 square feet at 60 State Street. The firm committed to 12,000 square feet just last March.

·         In Charlestown, an additional 20,000 square feet of space formerly occupied by Partners HealthCare System at 529 Main Street came online as the firm prepares for its 2016 relocation and consolidation to the Assembly Square development in Somerville.

·         Despite a relatively quiet quarter, asking rents in class B buildings jumped just over 10% in South Station and the Financial District in the past 90 days. In fact, we didn't see any class B deals executed for under $40.00 PSF in the first quarter.

·         In Life Sciences news, Tokai Pharmaceuticals committed to 15,000 SF on the 6th floor of 255 State Street. The pharmaceutical company is relocating from 1 Broadway in Cambridge.

Cambridge

·         Not surprisingly, East Cambridge office rents continue to climb – up 13.6% in the past 12 months.

·         In the lab sector, shared lab space company Mass Innovation Labs (aka Milabs) committed to 123,000 square feet of lab space at 675 West Kendall Street. The space had been offered for sublease after being vacated by Vertex.

o    As the availability of lab space begins to dwindle, asking rents are starting to rise – up 7.3% in East Cambridge and 9.6% in the Mass Ave Corridor class A market over the past year.          

Suburbs

·         The suburbs started off 2015 with a bang – as office absorption totaled over 700,000 SF.

o    The largest deals include Shire's 202,000 square-foot commitment at Two Ledgemont in Lexington and Harvard Business review's 128,000 square foot commitment at 20 Guest Street in Brighton.

·         Overall office rents started the year at $22.41 PSF – a slight increase of 2.5% over the past year.

o    However, it's worth noting that in 128 Central, asking rents are up 4.5% in the past 12 months while the Inner Suburbs have popped 7.8% in the same time.

o    Rents in Wellesley class A office buildings are now topping out in the mid to upper $40s – prices not seen since 2000.

DTZ is a global leader in commercial real estate services providing occupiers, tenants and investors around the world with a full spectrum of property solutions. The firm manages 3.3 billion square feet and $63 billion in transaction volume globally on behalf of institutional, corporate, government and private clients.