BOSTON OFFICE MARKET REPORT

SECOND QUARTER 2018

NO SIGNS OF SUMMER SLOWDOWNGreater Boston's market showed no signs of weakening during the second quarter by recording strong growth from numerous industry types. The market continued receiving inbound demand as well as converting organic growth into significant expansion. Most notably, Amazon's commitment to nearly 430,000 square feet at Parcel L4 in the Seaport reflects inbound demand while Wayfair's torrid expansion into roughly 395,000 SF in the Back Bay at 222 Berkeley and 500 Boylston Street exemplifies organic growth.

The region's demographics and economy have remained solid which has supported and promoted Boston's recent expansion. Firmly rooted in education, technology and life sciences, Boston's diverse economic base has submitted strong job growth through increased recruitment and skilled labor retention from the area’s leading universities and institutions. Looking forward, expect durable market conditions and a diversified economy to guide the region's commercial real estate market to a strong performance over the next several years.

3.5%MAY

MASSACHUSETTS UNEMPLOYMENT

3.8%MAY

NATIONAL UNEMPLOYMENT

# $2.6BMA QUARTERLY

VC FUNDING (Q1)

2ND

NATIONALLY IN QUARTERLY (Q1)

VC FUNDING

MARKET TRENDS

GLOBAL DESTINATIONWorld leader in medical innovation and

technological advancement

TOWER SALES RIPPLE EFFECT

Will recent Class A Tower sales push rental rates even higher?

TECHNOLOGY & INNOVATION HUB

Fortune 500 leaders and 1,900 homegrown startups

BUILD TO SUIT AND SPEC DEVELOPMENT

Demand still out-pacing supply, tenants prefer new efficiencies

COWORKING SPACE DISRUPTING MARKET

Tenants like flexibility and shorter term commitments

TENANTS FAVOR CREATIVE OFFICE

Open layouts, contemporary and collaborative environments

$40.00

$43.00

$46.00

$49.00

$52.00

$55.00

$58.00

$61.00

$64.00

Average Asking Rate

YTD20182017201620152014201320122011201020092008200720060.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

Direct Vacancy (%)

$17.00

$21.00

$25.00

$29.00

$33.00

$37.00

$41.00

$45.00

$49.00

Average Asking Rate

YTD20182017201620152014201320122011201020092008200720060.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

Direct Vacancy (%)

CLASS AASKING RATE VS. DIRECT VACANCY

CLASS BASKING RATE VS. DIRECT VACANCY

DIRECT VACANCY RATE BY SUBMARKET

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%

Charlestown

North Station

Seaport

South Station

Back Bay

Financial District

Fenway

Midtown

Beacon Hill

North End

South End

Back Bay$61.90/SF

North Station$52.79/SF

Financial District

$56.66/SFMidtown

$46.78/SF

South Station$50.19/SF

Seaport$59.86/SF

VACANCY

5.6%

ABSORPTION

982K sf

SUBLEASE

1.7%

CONSTRUCTION

1.8 MM sf

AVAILABILITY

11.7%

ASKING RATE

$56.83/sf

QUICK GLANCE MARKET STATS

CLASS A OFFICE

5.7% DIRECT VACANCY

#1.6% SUBLEASE AVAILABILITY

#11.7% TOTAL AVAILABILITY

#991,050 SF 12-MONTH ABSORPTION

#$61.98/SF AVERAGE ASKING RATE

• While recent indications suggest that Boston may fall short on Amazon's HQ2 selection, Bostonians could look up in 36 months and Amazon will easily have over two million square feet of local office and R&D space. Most recently, the eCommerce titan has leased 430,000 square feet at Parcel L4 in the Seaport. The build-to-suit will span 17 floors and reportedly house up to 2,000 new workers including the team behind Amazon's widely popular Alexa business unit. Market rumors have indicated Amazon will also keep a close eye on Manulife's building at 601 Congress Street which will become fully available when the company relocates and consolidates into its Back Bay campus.

• Similar to Manulife, Wayfair has also begun to spread its roots in the Back Bay and has gobbled up 395,000 square feet at 222 Berkeley and 500 Boylston where the Online retailer will expand its operations from Copley Plaza. Following last quarter's lease announcement with Draft Kings for 105,000 square feet, Oxford Properties will have made great strides towards stabilizing the 1.3 million square foot asset following Houghton Mifflin and Wells Fargo's relocations to the Financial District. Only 12-18 months ago many experts were doubting the Back Bay's resiliency, however, those doubts seem unfounded now with a 5.1% market vacancy rate and strong tenant activity.

• Burns & Levinson announced it will be vacating 125 Summer Street in favor of newly re-stacked space at 125 High Street. The law firms new offices will span 150,000 square feet. Joining them Downtown will be Spotify who has leased 74,000 square feet at One Center Plaza. The digital music service will consolidate multiple offices from across Boston's interior markets. The latest Cambridge tenant to join Boston's ranks will be BitSight when the cyber risk management company relocates from 125 Cambridge Park Drive to 111 Huntington Street in the Back Bay.

• North Station's dynamic renaissance, anchored by the Hub on Causeway, and supported by the surrounding brick & beam assets along Canal and Portland Streets, has created significant "Uptown" buzz. With reported recent commitments from Oath (Verizon) and Epsilon it appears as though the Hub's office tower will imminently start rising from above the podium level.

ADDRESS SUBMARKET TENANT SF

Parcel L4 Seaport Amazon 430,000

222 Berkeley/500 Boylston Back Bay Wayfair 395,000

10 Fan Pier Boulevard Seaport Mass Mutual 300,000

125 High Street Financial District Burns Levinson 150,000

501 Boylston Street Back Bay WeWork 120,000

One Center Plaza Financial District Spotify 74,000

500 Boylston Street Back Bay Cooley 60,000

111 Huntington Avenue Back Bay BitSight 48,000

125 High Street Financial District Pepper Hamilton 42,105

399 Boylston Street Back Bay Slalom 30,100

200 Clarendon Street Back Bay Great Hill Partners 29,600

101 Federal Street Financial District iBoss 22,000

100 Summer Street Financial District Industrious 21,000

260 Franklin Street Financial District Acadian Asset Management 16,000

NOTABLE QUARTERLY LEASES

CLASS A OFFICE

$42.00

$47.00

$52.00

$57.00

$62.00

$67.00

$72.00

YTD201820172016201520142013201220112010200920080.0%

3.0%

6.0%

9.0%

12.0%

15.0%

18.0%

YTD20182017201620152014201320122011201020092008

AVERAGE DIRECT VACANCY BY SUBMARKET

AVERAGE ASKING RATE BY SUBMARKET

Financial District Seaport Back Bay

RECENTINVESTMENT

SALES CLASS A & B

28 State Street

28 State Street$417,600,000 ($612/RSF)

Buyer: Heitman

451 D Street$276,000,000 ($579/RSF)

Buyer: Related Beal

60 Canal Street$22,000,000 ($477/RSF)

Buyer: Normandy RE

177 Huntington Avenue$137,500,000 ($665/RSF)

Buyer: PNC

60 Canal Street

451 D Street177 Huntington

CLASS B OFFICE

5.5% DIRECT VACANCY

1.9% SUBLEASE AVAILABILITY

11.6% TOTAL AVAILABILITY

(8,600) SF 12-MONTH ABSORPTION

#$47.47/SF AVERAGE ASKING RATE

• The Class B market has evolved over the past few years. No longer simply the low-cost option, the market now caters to some of today's coolest and most influential business. Somewhat reactionary to the growing co-working market segment, many Class B landlords are implementing creative office initiatives through lobby and amenity enhancements as well as "plug and play" spec suites programs. The market has responded extremely favorably with very low vacancy rates and double-digit rent growth over the past couple years.

• Activity was relatively sluggish across Downtown and North Station with the majority of transactions coming as renewals. PPL renewed their 24,700 square foot lease at 40 Broad Street while Starry expanded and extended its lease for 20,600 square feet at 38 Chauncy Street. In North Station, Maid Pro renewed its 13,900 square foot lease at 77 North Washington Street.

• During the second quarter, the Fort Point neighborhood remained very active. Seismic Software became the latest commitment to 25 Thompson Place after signing a 27,000 square foot lease. The penthouse addition atop 22 Boston Wharf Road is now fully leased after Akcea Therapeutics and Industrious each committed to the remaining 30,000 square foot suites. Meanwhile in the outer Seaport, at 88 Black Falcon, Delphi Automotive leased 23,000 square feet and became the latest technology and autonomous vehicle company to enter the local market.

• The investment sales market volume slowed down, however deals are achieving strong pricing which is expected to continue pushing rental rates. After selling the building in 2012 for approximately $115 million, Related Beal recently re-acquired 451 D Street in the Seaport for $276 million. Recent marketing collateral suggests the plan is to convert the building to lab use and capitalize on surging lab rents and tenant demand. Following a similar business plan, Related Beal is currently divesting 27 DryDock Avenue which they purchased less than two years ago, proved out lab market rents and are now selling at a significant premium rumored to be around $900 per square foot.

ADDRESS SUBMARKET TENANT SF

22 Boston Wharf Seaport Akcea Therapeutics 30,000

25 Thomson Place Seaport Seismic Software 27,000

40 Broad Street Financial District PPL 24,750

88 Black Falcon Seaport Delphi Automotive 22,950

38 Chauncy Street Financial District Starry 20,620

77 North Washington North Station Maid Pro 13,900

55 Summer Street Financial District ThreatStack 13,000

255 State Street Financial District Boston Financial 12,000

855 Boylston Street Back Bay Industrious 12,000

200 State Street Financial District Pear Therapeutics 11,750

38 Chauncy Street Financial District Annikissam 9,500

201-207 South Street South Station Carbon Black 7,300

225 Friend Street North Station Brunner Cott 6,600

NOTABLE QUARTERLY LEASES

CLASS B OFFICE

$25.00

$30.00

$35.00

$40.00

$45.00

$50.00

$55.00

YTD201820172016201520142013201220112010200920080.0%

4.0%

8.0%

12.0%

16.0%

20.0%

YTD20182017201620152014201320122011201020092008

AVERAGE DIRECT VACANCY BY SUBMARKET

AVERAGE ASKING RATE BY SUBMARKET

Financial District Seaport Back Bay

OFFICE & LAB DEVELOPMENT

1,775,000 SFUNDER CONSTRUCTION 8 MAJOR OFFICE PROJECTS

UNDER CONSTRUCTION

121 SEAPORT BLVD Seaport

100 CAUSEWAY North Station

PIER 4 Seaport

321 HARRISON AVE South End

BULFINCH CROSSING North Station

INNOVATION SQUARE Seaport

40 GUEST Brighton

380 STUART Back Bay

BACK BAY STATION Back Bay

CONGRESS SQUARE Financial District

PARCEL L4 Seaport

PARCEL E Seaport

OFFICE REPORT STATS

Office Total Inventory (SF)

Direct Vacancy

Sublease Availability

Total Availability

Quarterly Absorption (SF)

12 Month Absorption (SF)

Average Asking Rate

TOTAL A&B 71,285,750 5.6% 1.7% 11.7% 251,400 982,450 $56.83

Back Bay 14,949,300 5.1% 1.8% 10.0% 52,400 344,250 $61.90

Charlestown 2,719,650 1.6% 0.6% 4.6% 34,300 70,200 $42.95

Fenway 1,746,000 6.8% 0.0% 6.8% (41,700) (42,250) $54.18

Financial District 35,439,750 6.6% 1.8% 13.4% 163,800 399,750 $56.66

Midtown 1,961,450 11.6% 0.0% 12.3% (1,250) 57,950 $46.78

North Station 3,312,750 2.6% 2.6% 12.1% (2,700) 24,350 $52.79

Seaport 8,274,450 3.2% 2.2% 11.0% 31,950 162,350 $59.86

South Station 2,882,400 4.1% 0.9% 7.8% 14,550 (34,200) $50.19

CLASS A 46,005,500 5.7% 1.6% 11.7% 228,150 991,050 $61.98

Back Bay 11,038,450 5.7% 1.9% 10.6% 52,450 365,350 $66.30

Charlestown 903,750 4.0% 0.0% 4.0% 10,950 32,550 $43.27

Fenway 1,117,650 10.7% 0.0% 10.7% (41,700) (48,750) $60.00

Financial District 25,558,900 6.0% 1.8% 13.7% 219,300 583,600 $60.77

Midtown 1,176,200 16.7% 0.0% 16.7% --- 42,900 $50.83

North Station 1,407,650 2.3% 4.8% 19.1% (16,750) (11,950) $59.17

Seaport 3,448,050 1.0% 0.0% 1.0% (6,850) 18,450 $70.06

South Station 1,354,850 2.8% 0.9% 3.7% 10,750 8,850 $55.75

CLASS B 25,280,250 5.5% 1.9% 11.6% 23,250 (8,650) $47.47

Back Bay 3,910,850 3.2% 1.5% 8.2% --- (21,100) $49.48

Charlestown 1,815,850 0.4% 0.9% 4.9% 23,350 37,600 $42.79

Fenway 628,400 7.9% 0.0% 7.9% --- 6,500 $43.83

Financial District 9,880,850 8.2% 1.9% 12.7% (55,500) (183,850) $46.03

Midtown 785,250 4.0% 0.0% 5.8% (1,250) 15,050 $40.70

North Station 1,905,100 2.8% 1.0% 6.9% 14,050 36,300 $48.08

Seaport 4,826,450 4.8% 3.7% 18.2% 38,800 143,900 $52.57

South Station 1,527,550 5.2% 0.8% 11.4% 3,800 (43,050) $45.25

Lincoln Property Company | 53 State Street, 8th Floor, Boston, MA | 617.951.4100 | LPCBoston.com

Lincoln Property Company’s Boston Office Report is produced by the Boston Office’s research team in collaboration with our Boston Brokerage Group. If you have any questions regarding market conditions and the information found in this report, please contact Ethan Robert.

ETHAN ROBERTDirector of Research 617.951.4160 erobert@lpc.com

MARY PATALITAAssociate 617.951.4119 mpatalita@lpc.com