Office Insight - Jones Lang LaSalle

Jones Lang LaSalle Americas Research • Boston Office Insight • Q2 2012 2
Tenant perspective
Rent growth continues to be relegated to key, hot submarkets like
Cambridge and the Seaport District. Areas north of the city like Burlington
that are in the high tech corridor are exhibiting rising rents and high levels
of net absorption as well. The South continues to lag as it contends with
large blocks of space once used as back office Financial Services space.
Tenants are truly selecting space and submarkets that meet their
objectives from a branding and talent attraction standpoint if they can
afford the space. As vacancy drops in key submarkets, demand is spilling
into neighboring areas but some tenants like State Street Bank, Liberty
Mutual, Ironwood, Vertex and Biogen are all choosing to build their own
space in tight submarkets versus occupying existing buildings in looser
areas. We are also starting to see spec office space in the construction
pipeline (fully financed by developer) but a testament to the belief that
tenants will pay a premium for new space.
Landlord perspective
Asking rents rose only 0.5 percent in the second quarter but landlords in
the various submarkets are exposed to very different set of dynamics.
Landlords continue to play offensively in the healthiest submarkets like
Cambridge and the Seaport District. In the suburbs, 128/Mass Pike and
the high tech corridor in the north continues to exhibit landlord favorable
conditions. The first speculative office space is being built in Burlington
speaking to the bullish sentiment that tenants will chose location and
newer space over older space in secondary or tertiary submarkets.
Landlords in these outer suburbs are struggling to attract tenants and look
to create an urban feel in a suburban environment wherever and
whenever they can. Troubled assets are also an issue in the outer
suburbs with almost 10 percent of the space in 495/Mass Pike for
example (equaling over 1.3 million square feet) in some form of trouble.
Class A overall asking rents
Class A tenant improvement allowance
$ psf
$70
CBD
Suburbs
$ psf
$70
CBD
Suburbs
$60
$60
$50
$50
$40
$40
$30
$30
$20
$20
$10
$10
$0
2008 2009 2010 2011 Q2 2012
$0
2008 2009 2010 2011 Q2 2012
Class A free rent
Class A blocks of contiguous space
months
9
8
7
6
5
4
3
2
1
0
CBD
Suburbs
2008 2009 2010 2011 Q2 2012
# of blocks
90
80
70
60
50
40
30
20
10
0
60
20
50,000 -
100,000 sf
CBD
25
10
100,000 -
200,000 sf
Includes vacant existing blocks and available blocks
Suburbs
5
4
> 200,000
sf