CAMBRIDGE OFFICE & LAB MARKET REPORT

SECOND QUARTER 2018

LANDLORD FAVORABLE MARKET CONDITIONSAs Greater Boston’s preeminent technology and innovation market, Cambridge has become a must have address for the world’s leading companies. Cambridge has experienced plunging off ice and lab vacancy rates which has resulted from an inf lux of out-of-market users and homegrown institutions. Faced with extreme barriers-to-entry, including occupancy costs and land constraints, the market has become some of the most globally sough real estate.

Largely fueled by the explosive growth of the life science, technology & biotech sectors, Cambridge’s current economy consists of 232 life science & high tech companies and 692 star t-ups many of which are supported by massive amounts of VC and NIH. Looking forward, Cambridge’s future remains extremely bright with a deep concentration of intellectual and investment capital keeping the market fueled for years to come.

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

technology advancement

TECHNOLOGY & INNOVATION HUB

Fortune 500 leaders and 1,900 homegrown startups

LIFE SCIENCE SECTION SURGES

Huge demand from National and International companies

WHERE IS THE RELIEF?Small and medium size users face

historic competition

MARKET RATES KEEP RISINGDemand out-pacing supply,

no relief for price sensitive users

COWORKING SPACE DISRUPTING MARKET

Tenants like flexibility and shorter term commitments

INVESTMENT SALES QUIET

Few East & Mid Cambridge assets coming to market, West Cambridge remained active

$24.00

$30.00

$36.00

$42.00

$48.00

$54.00

$60.00

$66.00

$72.00

$78.00

Average Asking Rate

YTD20182017201620152014201320122011201020092008200720060%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Direct Vacancy (%)

$18.00

$23.00

$28.00

$33.00

$38.00

$43.00

$48.00

$53.00

$58.00

$63.00

Average Asking Rate

YTD20182017201620152014201320122011201020092008200720060%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Direct Vacancy (%)

OFFICE CLASS AASKING RATE VS. DIRECT VACANCY

OFFICE CLASS BASKING RATE VS. DIRECT VACANCY

DIRECT VACANCY RATE BY SUBMARKET

0.0% 1.0% 2.0% 3.0% 4.0% 5.0%

East - Lab

Mid - Lab

East - O�ce

West - Lab

Mid - O�ce

West - O�ce

none

VACANCY

1.7%

CAMBRIDGE OFFICE STATS AT A GLANCE

SUBLEASE

4.2%ABSORPTION

13,450 sf

ASKING RATE

$71.14/sf

WEST CAMBRIDGE

Office $48.68/SF

Lab $60.36/SF NNN

MID CAMBRIDGE

Office $64.36/SF

Lab $78.00/SF NNN

EAST CAMBRIDGE

Office $82.10/SF

Lab $79.13/SF NNN

AVAILABILITY

8.5%CONSTRUCTION

2,400,000 sf

CLASS A & B OFFICE

1.7% DIRECT VACANCY

4.2% SUBLEASE AVAILABILITY

8.5% TOTAL AVAILABILITY

#13,450 SF 12-MONTH ABSORPTION

#$71.14/SF AVERAGE ASKING RATE

• Last quarter, Philips announced that it would relocate its North American headquarters into 243,000 square feet at the long beleaguered Cambridge Crossing. The good news kept coming this quarter when Philips announced it will take an additional 98,000 square feet at the same 250 North Street property. Current developers, DivcoWest, who began construction on a speculative basis recently announced that they will break ground shortly on the project’s second speculative office/lab building which will measure 500,000 square feet. All signs indicate that the long anticipated 5.5 million square foot mixed-use East Cambridge project is finally hitting its stride.

• After a hotly a contested battle for space at 121 First Street, CarGurus announced it has pre-leased 50,000 square feet at the new building. Rumors suggest that CarGurus and WeWork were competing for the boutique office building on the outskirts of Kendall Square. At the moment, the property will be an expansion for CarGurus who are currently located at 55 Cambridge Parkway and Two Canal Park.

• HubSpot was able to secure additional expansion space and extend its new 65,000 square foot lease at One Canal Park where the software company maintains a large presence across from its headquarters at 25 First Street. Other large tenants looking to grow their presence in the market include Google, Apple and Boeing.

• Just outside Central Square, X4 Pharmaceuticals recently expanded and extended their presence into approximately 12,600 square at 955 Massachusetts Avenue. Down the block, The Association for International Research (AIR) relocated from 1100 Massachusetts Avenue into 19,200 square feet at 675 Massachusetts Avenue.

• The volume of investment sales has slowed down significantly over the past year with very few assets coming to market, however those properties which do come to market are receiving tremendous attention. Most recently, the Davis Companies widely marketed a four building West Cambridge portfolio which was ultimately recapped by Invesco for approximately $364 per square foot. The Davis and Invesco partnership also controls the newly redeveloped 35 Cambridgepark Drive which is reported nearly fully leased.

ADDRESS SUBMARKET TENANT SF

250 North Street East Cambridge Philips 98,000

255 Main Street East Cambridge Cambridge Innovation Center 90,000

1000 Massachusetts Avenue Mid Cambridge Morning Bright Investments 66,000

One Canal East Cambridge HubSpot 65,000

121 First Street East Cambridge Car Gurus 50,000

675 Massachusetts Avenue Mid Cambridge Association for Int’l Research 19,200

955 Massachusetts Avenue Mid Cambridge X4 Pharmaceuticals 12,600

625 Massachusetts Avenue Mid Cambridge Helbling Precision Engineering 5,500

NOTABLE RECENT LEASES

CLASS A & B OFFICE

$24.00

$30.00

$36.00

$42.00

$48.00

$54.00

$60.00

$66.00

$72.00

$78.00

$84.00

YTD2018201720162015201420132012201120102009200820070.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

YTD201820172016201520142013201220112010200920082007

AVERAGE DIRECT VACANCY BY SUBMARKET

AVERAGE ASKING RATE BY SUBMARKET

West Mid East

1,700,000 SFTOTAL COWORKING SPACE IN BOSTON & CAMBRIDGE

775,000 SF

459,450 SF

368,800 SF

63,900 SF

32,200 SF

32,150 SF

30,300 SF

18,900 SF

MAP LABELS LOCATIONS WITH MORE THAN 15,000 SF

EXPLOSIVE GROWTH FROM MOBILE CORPORATE USERS

WHO’S TAKING COWORKING SPACE?*

47% Small Business

25% Mobile Corporate Users

20% Freelancers

8% Other

*AS % OF MEMBERSHIP

IN THE LAST 12 MONTHS

RESEARCH SPOTLIGHT THE COWORKING EFFECT

CLASS A & B LAB

0.1% DIRECT VACANCY

0.6% SUBLEASE AVAILABILITY

0.8% TOTAL AVAILABILITY

#83,550 SF 12-MONTH ABSORPTION

#$77.94/SF AVERAGE ASKING RATE

• The Cambridge lab market is some of the world’s most sought after real estate from both investors and tenants. With a microscopic vacancy rate below 1.0%, market rents and investment sales pricing are pushing historically high. Major life science, biotech and pharmaceutical companies have caused the demand surge while research and academic institutions have strengthened the city’s commercial backbone.

• Over the past three years, approximately 2.1 million square feet of new lab space has been delivered fully leased. The strength of new construction has been supported by the depth of tenant demand which has given developers like DivcoWest and Alexandria RE confidence to break ground on speculative basis.

• Mass Innovation Labs signed a full building lease at 21 Erie Street for 56,000 square feet. The barely four year old incubator has initiated a strong growth plan which recently included its first two leases in Boston at iSQ Seaport and Boston Landing. Additionally this quarter, Beam Therapeutics signed a 38,200 square foot lease at 26 Landsdowne Street.

• West Cambridge’s successful run continued as the periphery market received inbound demand from both suburban and East Cambridge tenants. Market rumors suggest that The Arc (35 Cambridgepark Drive), which has been fully redeveloped, is now 75%+ pre-leased with rents in the mid $60.00 NNN per square foot range. Around the rotary at Fresh Pond Research Park, Life Biosciences leased 25,000 square feet and Hydra BioSciences signed on for 24,700 square feet at 27 Moulton Street.

• Looking forward, watch for continued movement within Cambridge as tenants compete for highly desirable and rarely available lab ready space. As the cost of doing business in Cambridge continues rising, many early stage and non venture-backed businesses are being squeezed out into emerging life science locations including Brighton, Watertown, Waltham and Lexington.

ADDRESS SUBMARKET TENANT SF

21 Erie Street East Cambridge Mass Innovation Labs 56,000

399 Binney Street East Cambridge Rubius Therapeutics 45,000

26 Landsdowne Street East Cambridge Beam Therapeutics 38,200

64 Sidney Street East Cambridge Agios Pharmaceuticals 27,000

Fresh Pond Research West Cambridge Life Biosciences 25,000

27 Moulton Street West Cambridge Hydra BioSciences 24,700

245 First Street East Cambridge Acadia Pharmaceuticals 20,000

1030 Massachusetts Avenue Mid Cambridge Astellas Pharmaceuticals 10,000

NOTABLE RECENT LEASES

CLASS A & B LAB

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

YTD20182017201620152014201320122011201020092008

AVERAGE DIRECT VACANCY BY SUBMARKET

AVERAGE ASKING RATE BY SUBMARKET

West Mid East

$25.00

$31.00

$37.00

$43.00

$49.00

$55.00

$61.00

$67.00

$73.00

$79.00

$85.00

YTD20182017201620152014201320122011201020092008

OFFICE & LAB DEVELOPMENT PIPELINE

145 BROADWAY Office & Lab

VOLPE CENTER Office & Lab

314 MAIN STREET Office

250 NORTH STREET Office & Lab

399 BINNEY Lab

121 FIRST STREET Office

40 THORNDIKE Office

238 MAIN STREET Lab

OFFICE & LAB REPORT STATS

Office Total Inventory (SF)

Direct Vacancy

Sublease Availability

Total Availability

QuarterlyAbsorption (SF)

12 MonthAbsorption (SF)

Average Asking Rate

TOTAL A & B

Cambridge 11,192,850 1.7% 4.2% 8.5% 16,500 13,450 $71.14

East Cambridge 6,051,350 0.7% 4.1% 8.3% (9,350) 20,800 $82.10

Mid Cambridge 3,135,750 1.6% 0.9% 3.3% 9,250 (8,050) $64.36

West Cambridge 2,005,800 4.5% 9.5% 17.6% 16,550 750 $48.68

CLASS A

Cambridge 7,360,450 1.8% 5.2% 8.3% 16,250 37,750 $76.50

East Cambridge 5,032,500 0.7% 4.8% 6.6% (10,150) 25,150 $83.72

Mid Cambridge 1,224,500 2.4% 0.9% 3.2% 8,700 1,350 $67.92

West Cambridge 1,103,450 5.9% 12.0% 21.5% 17,650 11,350 $53.13

CLASS B

Cambridge 3,832,450 1.5% 2.2% 9.0% 250 (24,350) $60.85

East Cambridge 1,018,850 0.9% 1.1% 16.4% 750 (4,350) $74.13

Mid Cambridge 1,911,200 1.1% 0.9% 3.3% 600 (9,350) $62.08

West Cambridge 902,350 2.9% 6.4% 12.7% (1,100) (10,600) $43.25

Lab Total Inventory (SF)

Direct Vacancy

Sublease Availability

Total Availability

QuarterlyAbsorption (SF)

12 MonthAbsorption (SF)

Average Asking Rate

TOTAL A & B

Cambridge 14,662,550 0.1% 0.6% 0.8% 22,550 83,550 $78.64

East Cambridge 9,660,700 0.0% 0.6% 0.7% 2,700 (1,250) $79.13

Mid Cambridge 4,336,850 0.2% 0.2% 0.7% --- 89,800 $78.00

West Cambridge 665,050 0.8% 2.0% 2.8% 19,800 (5,000) $75.80

CLASS A

Cambridge 12,174,400 0.1% 0.5% 0.6% 2,750 (7,250) $79.34

East Cambridge 9,005,750 0.0% 0.7% 0.7% 2,750 (1,250) $79.50

Mid Cambridge 3,039,550 0.2% 0.0% 0.2% --- (5,950) $79.42

West Cambridge 129,150 0.0% 0.0% 0.0% --- --- $66.00

CLASS B

Cambridge 2,662,150 0.3% 0.8% 1.7% 19,800 90,800 $70.32

East Cambridge 654,950 0.0% 0.0% 0.0% --- --- $74.00

Mid Cambridge 1,297,250 0.3% 0.6% 2.0% --- 95,800 $74.67

West Cambridge 709,900 0.7% 1.9% 2.6% 19,800 (5,000) $59.00

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 Cambridge 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