Office Insight - Jones Lang LaSalle

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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
Jones Lang LaSalle Americas Research • Boston Office Insight • Q2 2012 3 Property clock – current market conditions Submarket leverage – market history and forecast Submarket 2010 2011 2012 2013 2014 Landlord leverage Tenant leverage Back Bay Financial District Seaport District Cambridge 128 Mass Pike 495 Mass Pike 495 North North Northwest South Landlord-favorable conditions Balanced conditions Tenant-favorable conditions Completed lease transactions Tenant Address Submarket Sf Type RSA, security division of EMC 174 Middlesex Turnpike, Bedford Northwest 328,232 Renewal Blue Cross Blue Shield 101 Huntington Avenue Back Bay 330,000 Relocation Red Hat, Inc. 314 Littleton Road, Westford 495/North 175,000 Renewal w/ Build-to-Suit Aveo Pharmaceutical (Lab) 650 East Kendall Street East Cambridge 126,065 Relocation Children’s Hospital Boston Landmark Center Back Bay 111,000 Sublease LogMeIn 320 Summer Street Seaport District 101,821 Relocation EnerNOC One Marina Park Drive Seaport District 100,000 Relocation Conformis 28 Crosby Drive, Bedford Northwest 90,000 Relocation Sybase, Inc. 15 Wayside Road, Burlington Northwest 62,805 Relocation w/ Contraction Top completed sale transactions Address Submarket Buyer / Seller Sf Sale Price $ psf 451 D Street Seaport District Shorenstein Partners/Rockpoint 496,000 $115,000,000 $232 13 Building portfolio Healthcare Trust of America/Stewart Healthcare Bedford Business Park Northwest The Davis Companies/Boston Properties 371,000 $100,000,000 $400 470,000 $62,800,000 $133 Greater Boston methodology: Inventory includes all Class A, B, & C office properties, excluding all condo, medical and owner occupied buildings
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Office Insight - Jones Lang LaSalle

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