“Live-Work-Play” Environments Continue to Drive Growth in Boston’s Urban and Suburban CRE Markets
21 Jun, 2012, Boston
Cushman & Wakefield today released its mid-year statistics for the Boston commercial real estate market reflecting continued improving fundamentals in most major markets. Vacancy rates in the second quarter fell in the Financial District, and continue to hover near equilibrium in the already tight Back Bay submarket. Boston's suburban markets, driven by strong occupier demand in both leasing and sales, also showed signs of improvement in the first half of the year with leasing activity at 3.2 million square feet (msf) year to date.
"Boston's economic expansion and job growth, combined with powerful demand for urban life-style communities are driving the recovery in Boston's real estate markets," said Robert E. Griffin, Jr., President of Cushman & Wakefield's New England Region. "Renovation and redevelopment in the Fenway, Cambridge and Seaport, together with an extremely tight market in the Back Bay are underpinning Boston's status as a global gateway city. For investors, demand is extremely hot for well leased office, industrial, retail, multifamily and Medical Academic. We are also beginning to see significant signs of life in the suburbs, which is very promising."
The vacancy rate in Boston's overall Central Business District (CBD) was flat for the quarter at 12.6 percent; however, the Financial District saw a quarterly vacancy rate decline of 0.4 percentage points. Both the Financial District and the Seaport experienced combined positive absorption year-to-date of nearly 300,000 square feet (sf) with leasing activity for the overall CBD totaling nearly 2.0 msf for the first half.
The big story in the suburbs at mid-year has been powerful occupier activity in both leasing and sales. This week, Green Mountain Coffee Roasters, Inc., (GMCR) (NASDAQ: GMCR) leased 424,000 sf at 63 South Avenue in Burlington for its Massachusetts-based Keurig business unit. Other notable transactions this year include the sale of Corporate Crossing at 495, a 716,000 sf corporate campus in Marlborough, to TJX Company for $62.5 million, as well as the 328,000 sf office lease renewal with EMC at 174-176 Middlesex Turnpike in Bedford. In addition, most suburban markets posted solid declines in vacancy at mid-year.
In Cambridge, strong demand continues to drive the market with vacancy rates in two submarkets among the lowest in Greater Boston and 1.7 msf of construction now underway. The Mass Ave /Harvard Square office submarket finished the second quarter with the area's lowest vacancy rate, down 0.2 percentage points to 2.5 percent. In Kendall Square/East Cambridge, the office vacancy rate dropped 0.8 percentage points to 6.4 percent, finishing the quarter with the third lowest rate in the area (The Back Bay ended the quarter with the areas second lowest vacancy rate at 5.7 percent). Overall laboratory space in the Cambridge market experienced a 2.9 percentage point decline in its vacancy to 15.4%.
From an investment perspective, Boston is firmly established as a top-three market, joining New York City and San Francisco among the ranks of the top targeted US markets for investment by foreign and domestic investors. 2012 Highlights sales include the $610 million sale of 100 Federal Street in the city's financial district and the Davenport Building, both handled by Cushman & Wakefield.
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