Suburban Boston Office MarketView

CBRE Global Research and Consulting Q2 2013

The Suburban Boston Office market absorbed more space in the first half of the year, recording more than 850,000 square feet of positive absorption in 2013, then it has since 2005 when 1.2 million was recorded. The 10-year average on space absorbed in the first half of the year is negative 300,000 square feet, indicating the Suburban Office market has passed the point of recovery after the last recession and has strengthened into growth mode. Despite the lack of blockbuster transactions this quarter, activity amongst tenants in the 15,000–30,000 square foot range dominated across all markets. Build-to-suit activity continues to be at the forefront of discussion for larger tenants as they evaluate their future real estate needs. Total availability in the suburbs is down 220 basis points year-over-year from 22.6% to 20.4%. Total vacancy in suburbs now sits at just 15.7%; this represents a tightening of 110 basis points year-over-year with vacancy reaching its lowest point since 2002, with the exception of one quarter in 2008. Overall average asking rents dipped slightly to $19.64 per square foot as the quality of available space continues to decrease.

Office Vacancy vs. Lease Rate

SUBURBAN OFFICE RECORDS STRONGEST FIRST HALF OF THE YEAR IN EIGHT YEARS

© 2013 CBRE, Inc.

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Hot Topics

• TripAdvisor announced they are relocating to Needham and more than doubling their footprint in 2015

• New England Executive Park in Burlington sold for $216 million ($208 per square foot) to New England Development and Charles River Investors

• Total availability in the suburbs is down 220 basis points year-over-year

Q2 2013 Current YoY QoQ

Vacancy 15.7%

Lease Rate $19.64

Net Absorption 396,896 SF

Quick Stats

Vacancy Rate 15.7% Average Asking Lease Rate $19.64

OCCUPIED SF94.0M

SUBLEASE SF2.7M

UNDER CONSTRUCTION1.0M

U.S. UNEMPLOYMENT7.6%

MA UNEMPLOYMENT7.0%

AVAILABILITY20.4%

*Arrows indicate change from previous quarter.

Source: CBRE/New England, Q2 2013

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Metro North

• Burlington remains the strongest alternative to nearby Waltham as tenants seek an amenity richness that the town offers. Technology companies continue to drive the demand in the 128 North submarket, but venture backed firms are beginning to make a return to this market. Class A vacancy rates in Burlington have declined 150 basis points year-over-year to 8.7%, the lowest the town has seen since 2001. Class A asking rents are also on the rise, having risen $1.75 in the past year as landlords are able to push rents and investment sales activity is on the rise. HealthEdge (28,000 square feet) and Berkshire Bank (14,000 square feet) completed the largest transactions in Route 128 North this quarter, both relocating within Burlington.

• Further north in the Route 495 Northeast submarket, activity is strong for tenants seeking 5,000-10,000 square feet though the lack of large tenant demand continues. Several landlords are beginning to put upward pressure on rents reaching the low $20s per square foot, while the overall asking rent for the Metro North market is $17.19 per square foot. Philips Medical Systems completed one of the largest transaction in the submarket renewing and shrinking their footprint for a total of 36,000 square feet at 200 Minuteman Drive in North Andover.

• New England Development and Charles River Investors closed on one of the largest suburban sales in recent history, purchasing the 10-building portfolio at New England Executive Park in Burlington for $216 million ($208 per square foot). The more than one million square foot portfolio has been approved for up to 750,000 square feet of expansion and was sold by Equity Office Properties who purchased the portfolio in 2007 for approximately $103 million. Other significant assets on the market include 25 Mall Road and Burlington Centre, both located in Burlington and expected to trade shortly.

Metro West

• The Metro West remains the strongest performing suburban office market in Greater Boston, posting over 275,000 square feet of positive absorption in the second quarter of 2013. Driving the activity was the Route 128 West submarket, which tallied 121,000 square feet of positive absorption, but all four submarkets recorded positive traction for the quarter. Vacancy decreased in the West from 15.2% at the end of the first quarter to just 14.5% in the second quarter, making it the tightest of the three suburban metros.

• Tenant interest and activity along the Route 9 corridor from Framingham to Westborough continues to strengthen. The Framingham/Natick submarket boasts a vacancy rate of 8.6%, the tightest of the four Metro West submarkets, and is down 120 basis points year-over-year. ADP completed the largest transaction of the quarter and will be relocating from Marlborough into 52,000 square feet at 2 Vision Drive in Natick.

• New construction is on the horizon in Framingham as The Congress Group is finalizing speculative redevelopment plans for 125 Pennsylvania Avenue to reposition the asset from industrial to office use. National Development recently closed on 490 Old Connecticut Path Road in Framingham for $4.5 million with plans to redevelop the 18.3-acre, former home of the Sealtest Ice Cream plant. Normandy Partners purchased 15 Pleasant Street Connector in Framingham for $5.5 million, previously occupied by Genzyme, with plans for a major renovation and repositioning of the asset that will include an additional 50,000 square feet of office space.

• Technology and build-to-suit activity continue to drive the Route 128 West market with both organically grown companies as well as tenants relocating to the suburban “hot spot”. Compuware

Transactions of Note

Tenant Address SF Submarket Type

Compuware 404 Wyman Street, Waltham 68,000 128 West Relocation/Expansion

ADP 2 Vision Drive, Natick 52,000 Framingham/Natick Relocation

Tax Ware 200 Ballardvale Street, Wilmington 49,000 128 North Relocation

TripAdvisor 140 Kendrick Street, Needham 43,000 128 West New/Expansion

Management Sciences for Health

200 Rivers Edge Drive, Medford 40,000 Close-In Suburbs – North Relocation/Contraction

Phillips Medical Systems 200 Minuteman Road, Andover 36,000 495 Northeast Renewal/Contraction

Morgan Stanley 45 William Street, Wellesley 31,000 128 West Renewal

Holcim 24 Crosby Drive, Bedford 30,000 Route 3 North Renewal/Contraction

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relocated this quarter from Framingham and expanded their footprint taking 68,000 square feet at 404 Wyman Street in Waltham. TripAdvisor announced their commitment to relocating and more than doubling their headquarters from 119,000 square feet in Newton to a 280,000 square foot new development in Needham in 2015. TripAdvisor will be the anchor tenant in Normandy Real Estate Partners’ new development Center 128. Additionally Vistaprint is rumored to be finalizing plans and awaiting permits to relocate their North American headquarters from Lexington to a new build-to-suit development owned by FM Global totaling approximately 300,000 square feet in Waltham.

Metro South

• Leasing in the Metro South remained relatively quiet in the second quarter of 2013, recording 13,000 square feet of absorption. There are several large tenants in the market that will have an impact on the submarket when they finalize plans in the near future. Dunkin’ Donuts, New York Life, Siemans, Haemonetics and Invensys are all actively in the market for approximately 650,000 square feet. Although these tenants are all looking to right size, it is more an indicator of efficient space use than it is due to layoffs or moving workers to other markets.

• Sales activity in the Metro South was impressive this quarter, particularly in Braintree and Quincy, as several quality assets

traded. Arbella’s headquarters at 1100 Crown Colony Drive in Quincy was purchased by New York City-based W.P. Carey for $25 million ($193 per square foot). The 132,000 square foot building is fully leased to Arbella for the next 14 years. Braintree Executive Park in Braintree was acquired by Albany Road Real Estate Partners for $17.2 million ($137 per square foot). The two-building portfolio totaling 125,000 square feet on Grossman Drive underwent a $2 million renovation prior to the sale. CommonWealth REIT sold 1 & 2 Heritage Drive in Quincy to Campanelli for $16.3 million ($46 per square foot). Previously occupied by State Street Corporation, Campanelli plans to rebrand and reposition the fully available properties, which total 356,000 square feet.

• After eight years of planning, Phase I of the $1.6 billion master redevelopment project in downtown Quincy has officially kicked off. Street-Works Development and the City of Quincy have begun construction on Merchants Row, the first block of the mixed-use development. Merchants Row is comprised of two buildings and when completed will house more than 35,000 square feet of ground-level retail and 24,000 square feet of office space in the Granite Trust building. The entire redevelopment project will consist of a 20-block urban mixed-use neighborhood totaling 3.5 million square feet when all phases are completed.

200 Ballardvale Street, Wilmington, MAPhoto provided by CoStar

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Market Statistics

MarketRentable Area

(SF)Availability

Rate %Vacancy

Rate %Sublease

Rate %Quarterly Net

Absorption (SF)Avg. Asking

Rent ($/SF/YR)

Close-In Suburbs North 4,147,746 15.6% 12.9% 2.1% (50,177) $17.67

Route 128 – North 19,450,952 17.7% 12.6% 3.1% 94,169 $19.35

Route 495 – Northeast 5,096,155 25.2% 21.5% 0.8% (2,078) $15.60

Route 3 – North 14,095,189 23.1% 17.3% 2.5% 66,813 $15.74

Metro North 42,790,042 20.1% 15.2% 2.5% 108,727 $17.19

Route 128 – West 27,164,173 16.2% 12.0% 3.4% 121,315 $27.50

Framingham – Natick 7,400,007 11.5% 8.6% 0.8% 53,616 $19.96

Route 495 – Route 2 West 4,735,123 24.2% 18.2% 3.7% 36,269 $14.23

Route 495 – Mass Pike West 13,484,898 27.4% 21.6% 2.6% 63,980 $17.28

Metro West 52,784,201 19.1% 14.5% 2.8% 275,180 $21.35

Route 128 – South 13,720,552 24.9% 21.0% 0.9% (12,494) $19.34

Route 495 – South 2,190,950 25.5% 18.9% 0.7% 25,483 $14.77

Metro South 15,911,502 25.0% 20.7% 0.9% 12,989 $18.52

Overall Suburban Office 111,485,745 20.4% 15.7% 2.4% 396,896 (Gross) $19.64

The overall New England economy grew at a modest rate in the first half of 2013, with Massachusetts outperforming the other New England states on many economic indicators. However, the pace of recovery in the region continues to lag behind that of the United States. Despite continuous year-over-year job gains for almost three years, May 2013 marks the 27th straight month of lagging employment growth in New England relative to the nation. As of May 2013, the United States has recovered 72.3% of the jobs lost during the Great Recession, while New England has recovered 70% of its job losses. Massachusetts is the only New England state to have gained back all the jobs lost in the Great Recession as of May 2013, recovering 106.5% of the employment lost in the recession. After reaching a post-recession low of 6.8% in April 2013, New England’s unemployment rate increased slightly to 6.9% in May, down from 7.3% in May 2012 and well below the national rate of 7.6%. Across the region, the unemployment rate in every New England state declined year-over-year to reach a post-recession low in either April or May of 2013.

Greater Boston Employment Growth

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Employment by State

Source: Federal Reserve Bank of Boston

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Average Asking Lease Rates

Average Asking Rents

Overall asking rents in the suburban markets decreased slightly in the second quarter to $19.64 per square foot, gross. 128 South saw the largest appreciation in rent this quarter rising $0.21 per square foot. Route 128 North saw the largest decrease in asking rents, decreasing by $0.23 per square foot this quarter, a direct result of high-quality space being leased thus reducing the inventory as well as several large blocks of sublease space being added to the market. Rent growth in the West remained flat quarter-over-quarter at $21.35 per square foot, gross.

Net Absorption

At the close of the first half of 2013, the overall Suburban Office market saw positive absorption of 855,778 square feet throughout all markets. Activity was strongest through the Metro West submarkets, which posted 727,600 square feet of absorption for the first two quarters of the year. After a quiet first quarter, activity returned in the Metro North market in the second quarter as the submarket recorded 108,727 square feet of positive absorption despite several large subleases being returned to the market. Metro South remained relatively flat with just 12,989 square feet of absorption this quarter.

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Source: CBRE/New England, Q2 2013

Source: CBRE/New England, Q2 2013

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DEFINITIONS

Average Asking Lease Rate

Rate determined by multiplying the asking gross lease rate for each building by its available space, summing the products, then dividing by the sum of the available space with net leases for all buildings in the summary.

Gross Leases

Includes all lease types whereby the tenant pays an agreed rent plus estimated average monthly costs of the operating expenses and taxes for the property, including utilities, insurance and/or maintenance expenses.

Market Coverage

Includes all competitive buildings in CBRE’s survey set.

Net Absorption

The change in occupied square feet from one period to the next, as measured by available square feet.

Net Rentable Area

The gross building square footage minus the elevator core, flues, pipe shafts, vertical ducts, balconies and stairwell areas.

Occupied Area (Square Feet)

Building area not considered vacant.

Under Construction

Buildings that have begun construction as evidenced by site excavation or foundation work.

Available Area (Square Feet)

Available building area that is either physically vacant or occupied.

Availability Rate

Available square feet divided by the net rentable area.

Vacant Area (Square Feet)

Existing building area that is physically vacant or immediately available.

Vacancy Rate

Vacant building feet divided by the net rentable area.

Normalization

Due to a reclassification of the market, the base, number and square footage of buildings of previous quarters have been adjusted to match the current base. Availability and vacancy figures for those buildings have been adjusted in previous quarters.

25 Sylvan Road, Waltham, MAPhoto by www.lesvants.com

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GREATER BOSTON SUBMARKETS

GLOBAL RESEARCH AND CONSULTING This report was prepared by the CBRE U.S. Research Team, which forms part of CBRE Global Research and Consulting—a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe.

DISCLAIMER

Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we

have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and

completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot

be reproduced without prior written permission of the CBRE Global Chief Economist.

CONTACTFor more information about this Local MarketView, please contact:

U.S. RESEARCH

Suzanne Duca Director of Research New England Research CBRE, 33 Arch Street, 28th Floor Boston, MA 02110 t: +1 617 912 7041 f: +1 617 912 7001 e: suzanne.duca@cbre-ne.com

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