Hartford, Connecticut
Portsmouth, New Hampshire
NEW ENGLAND
MARKET OUTLOOK
2014
Boston, Massachusetts
Manchester, New Hampshire
Providence, Rhode Island
Portland, Maine
A Message from CBRE/New England
CBRE/New England is pleased to present you with our 2014 New England Market Outlook. This review seeks to explain the changing dynamics of real estate in the major
urban and suburban markets we cover in New England.
2013 marked a year of continued uncertainty for what the global and the United States economies had in store for us, yet much of the New England region continued to
show signs of modest recovery. The business community exhibited signs of increasing confidence and beliefs that the economy was truly stabilizing, although some continued
trepidation persists that this might only be short lived and not sustainable. There was definitive growth in the New England economy this year and, in particular, Greater
Boston continues to lead the way as a top-tier gateway city with robust economic drivers attracting both national and global investors and companies.
Technology and demographics continue to play an ever-increasing role in the way business is being conducted and ultimately is impacting the demand for commercial real
estate. “Workplace strategies” took center stage in 2013 as one of the leading trends across the office sector. As the demographics of the workforce shifts towards the
younger millennial population, companies are transforming the way they design workspace to accommodate the need for mobility, efficiency, collaboration and densification.
Throughout 2013, CBRE/New England continued to invest in the services we offer our clients. Our deep bench strength across all our business lines provides us with
opportunities to deliver exceptional results for our clients. Our enhanced and fully integrated Capital Markets platform, providing our clients advice and expertise in property
disposition and acquisition, coupled with financing solutions from our Debt & Structured Finance team, continues to expand its presence and dominance in New England.
The product and functional expertise offered by CBRE/NE professionals is unmatched in our region.
CBRE/New England is your world-class
commercial real estate partner, wherever
your world may be.
We are proud to report that the employees and the tenants occupying space in CBRE/NE-managed properties have
continued to set new standards in 2013 through CBRE Cares for giving back to our communities and helping so many
of our neighbors who find themselves in need of assistance. An important component of our CBRE Cares philanthropy
mission is also to contribute to aid efforts when major tragedy and disaster strikes. Following the 2013 Boston
Marathon, CBRE/New England employees contributed with overwhelming support to The One Fund for an overall
donation of $39,000.
Our philanthropic initiative, CBRE Cares New England, was launched in 2010 to unite our philanthropic goals under
the mission to “build a foundation for the local communities throughout New England by facilitating a variety of
volunteer and giving opportunities that have a significant effect on the lives of families in need, building today for a
stronger tomorrow.” Since its inception, CBRE Cares New England has generated approximately $800,000 worth of
items collected and donated to local designated beneficiary organizations.
On behalf of the entire CBRE/New England community, we wish you a successful new year.
Sincerely,
Leveraging local market knowledge and a deep global
platform, CBRE/New England has you covered.
CB Richard Ellis – N.E. Partners, LP, a CBRE Joint Venture
www.cbre-ne.com
For more information:
Andy Hoar
President/Co-Managing Partner
617.912.7000
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
Andrew W. Hoar
Kevin M. Doyle
President/Co-Managing Partner
CFO/Co-Managing Partner
A Message from CBRE/New Engl and
1
Table of Contents
INTRODUCTION
CONNECTICUT
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
City of Hartford Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Greater Hartford Suburban East Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
GREATER BOSTON
Greater Hartford Suburban North Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Downtown Boston Office Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Greater Hartford Suburban South Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
✪✪ Spotlight: The Story of Smart-Sizing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Greater Hartford Industrial Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
✪✪ Spotlight: Growing Trend of Coworking Spaces . . . . . . . . . . . . . . . . . . . . . . . . 11
Central Connecticut Investment Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Cambridge Office Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Greater New Haven Office Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
✪✪ Spotlight: Cambridge IPOs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Greater New Haven Industrial Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Cambridge Lab Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Greater Springfield Office Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
✪✪ Spotlight: The Emergence of a New Market . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Greater Springfield Industrial Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Metro North Suburban Office Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Metro West Suburban Office Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
RHODE ISLAND
✪✪ Spotlight: New Construction – BTS vs. SPEC . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Downtown Providence Office Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Metro South Suburban Office Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Suburban Rhode Island Office Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Suburban Lab Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Rhode Island Industrial Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Suburban Industrial Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Downtown Boston Retail Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
NEW HAMPSHIRE
Suburban Retail Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
I-93/Route 3 Corridor Office Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
CAPITAL MARKETS
Greater Boston Office & Industrial Investment Market . . . . . . . . . . . . . . . . . . . . . 35
Seacoast New Hampshire Office Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
I-93/Route 3 Industrial Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Seacoast New Hampshire Industrial Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Debt & Structured Finance Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Greater Boston Retail Investment Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
MAINE
Greater Boston Hotel Investment Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Southern Maine Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Greater Boston Multifamily Investment Market . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
CORPORATE OVERVIEW
Corporate Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Major Service Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
Table of Contents
2
Introduction
which, in November, reached the best annualized sales pace since 2007. Looking
INTRODUCTION
forward to 2014, many economists project that the U.S. economy will grow around
by Scott Hutchinson, scott.hutchinson@cbre-ne.com
3.3%, its largest move in the last 10 years, as the nation finally replaces all of the
Since the Great Recession officially ended four and a half years ago, the overall
economy has made significant improvements. When we concluded last year’s
introduction to the 2013 New England Market Outlook, the national economy was
exhibiting signs of stabilizing capital markets, increased consumer confidence, and
improved national employment conditions. These trends have continued and, in
many cases, gained traction.
private sector jobs lost in the Great Recession.
Notwithstanding some bumps in the road, as we now look back upon 2013, the
headwinds that had been hindering the U.S. economy have continued to subside.
At the beginning of the year, the national unemployment rate was 7.9%, though
by November the metric had dropped another 90 basis points to 7%, its lowest
level in the last five years. However, national job growth was sharply mitigated by
According to the Institute for Supply Management (ISM), U.S. manufacturing grew
October’s 16-day U.S. government shutdown, stemming from a failure to reach an
in December at its second-fastest monthly pace in more than two years. ISM also
agreement on a budget, due to a standoff over the Affordable Care Act. Confident
reported increases in construction spending and the new orders index. These
that job gains will continue, the Federal Reserve stated that it would soon start to
late 2013 economic statistics reveal that productivity is gaining momentum, retail
reduce its bond purchases. The program, which began in 2012 as a way to stimulate
sales are increasing and the services sector continues to grow. Additionally, there
the economy, will still continue to put downward pressure on longer-term interest
have been larger increases in consumer spending as well as business investments
rates that will both support mortgage markets, and make financial conditions
in commercial real estate, industrial equipment and intellectual property, like
more accommodative. As a result, the current low interest rate environment should
software. One area of strength for the U.S. economy is automobile purchases,
continue well into 2015, which is a positive for the commercial real estate sector.
REGIONAL DEMOGRAPHICS
POPULATION
LABOR FORCE
PERCENTAGE
OF REGION
2012
316,700,000
N/A
314,200,000
0.8%
U.S.
14,602,000
N/A
14,563,000
0.3%
New England
3,592,800
24.6%
3,590,400
0.1%
Connecticut
2013
U.S.
New England
Connecticut
ANNUAL
GROWTH RATE
Maine
1,331,900
9.1%
1,329,200
0.2%
Maine
Massachusetts
6,672,600
45.7%
6,646,100
0.4%
Massachusetts
New Hampshire
1,328,700
9.1%
1,320,700
0.6%
New Hampshire
Rhode Island
1,051,700
7.2%
1,050,700
0.1%
634,400
4.3%
626,000
(0.3%)
Vermont
Source Data: U.S. Census Bureau
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
ANNUAL
GROWTH RATE
2013
2012
155,600,000
155,000,000
(0.02%)
7,695,900
7,721,000
(0.49%)
1,851,100
1,879,700
(1.20%)
0.57%
708,400
706200
3,480,200
3,475,800
0.11%
746,000
742,500
(0.44%)
Rhode Island
557,700
560,400
(2.13%)
Vermont
352,600
356,400
(1.52%)
Source Data: The New England Economic Partnership
Introduction
3
Introduction
On a regional level, according to the New England Economic Project (NEEP), the
experiencing a core shift in tenant preference. Boston’s burgeoning 24/7 Seaport
overall New England economy is expected to grow at 2.8% per year on average
Innovation District continues to command the most tenant interest. In contrast, the
through 2017, which is slightly below the projected national average of 3.1% for
Back Bay market has witnessed a dramatic slow-down in leasing velocity, and an
the same period. Growth in the regional economy is expected to peak in the fourth
increase in space dispositions. Overall, availability in downtown Boston stands
quarter of 2014 at 4.5% and then level off and remain at 4.0% through the first
at 16.2% with a vacancy rate of 8.1% as 1.27 million square feet was absorbed.
three quarters of 2015. The only state projected to experience overall economic and
Contributing to this positive statistic was relocation activity and the commence-
employment growth above the U.S. average is New Hampshire, which is forecasted
ment of several build-to-suit projects. Urban migration trends continued, as
to average 3.0% gross state product growth per year, while Massachusetts is
companies from the suburban markets and Cambridge relocated to more urban
expected to grow at an average annual rate of 2.9%. The Connecticut and Vermont
addresses within the City of Boston and even some institutional corporations
economies are forecasted to grow 2.8% and 2.7% per year, respectively. Rhode
migrated across submarkets in downtown Boston. Most notably, Goodwin Procter,
Island and Maine are projected to lag the other four New England states with
PricewaterhouseCoopers and State Street Corporation are each consolidating and
growth rates of 2.0% and 1.8% per year, respectively.
relocating into more efficient build-to-suit locations within the Seaport.
Greater Boston comprises the largest real estate market in New England, with an
While the downtown Boston market has been supported by a diverse mix of
office inventory of 209 million square feet. Readers might recall that last year at
financial services, insurance and legal operations enjoying continued growth,
this time the downtown Boston market saw a dramatic increase in ‘mega’ leasing
accelerated leasing activity in the Suburban Boston Office market and the
transactions north of 100,000 square feet. Fast-forward 12 months and the office
Cambridge Office and Lab markets amongst small to mid-sized tenants continues
market has sustained its positive momentum, while at the same time
to drive leasing velocity. Overall, the Boston Office market posted a year-end
REGIONAL DEMOGRAPHICS
UNEMPLOYMENT
PER CAPITA INCOME
HOUSING
ANNUAL
GROWTH RATE
2014 MED. PRICE
PROJECTION ($)
2013 MED. PRICE
ACTUAL ($)
ANNUAL
GROWTH RATE
NOVEMBER 2013
NOVEMBER 2012
2012 ($)
2011 ($)
U.S.
7.0%
7.8%
42,693
41,560
2.7%
202,380
196,390
3.1%
New England
6.9%
7.2%
49,589
49,178
0.84%
286,500
277,400
3.3%
Connecticut
7.6%
8.3%
55,820
55,538
2.00%
203,000
203,000
0%
3.6%
Maine
6.4%
7.2%
37,263
36,786
0.40%
270,000
260,700
Massachusetts
7.1%
6.7%
51,655
51,222
1.40%
191,700
182,300
5.1%
New Hampshire
5.1%
5.7%
44,601
44,094
1.90%
343,100
332,100
3.3%
Rhode Island
9.0%
10.0%
42,433
42,179
(0.10%)
239,500
229,800
4.2%
Vermont
4.4%
5.0%
40,615
39,930
0.50%
254,100
250,500
1.5%
Source Data: U.S. Bureau of Labor Statistics
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
Source Data: The New England Economic Partnership
Source Data: The New England Economic Partnership
Introduction
4
Introduction
net absorption level of 1.85 million square feet. Also of note is the reemergence of
Despite a slight cloud of uncertainty following interest rate hikes in late spring,
build-to-suit and speculative office development, signifying a tightening in the
lending and investment sales activity maintained forward momentum during the
current leasing options, renewed confidence in the underlying market fundamen-
second half of the year. Large amounts of investment capital sought placement
tals, and a desire by tenants for state-of-the-art flexible space. The Cambridge
across the entire commercial real estate buyer spectrum in 2013. According to Real
Office and Lab market has benefited from inward migration from out-of-market
Capital Analytics, through November 2013 there was a 27% increase in national
tenants, as well as healthy organic growth from established companies that are
investment sales transaction volume over the same period last year. Regionally,
expanding their current footprints. As office and laboratory space continues to
overall New England investment sales volume, across all property types, increased
be absorbed, tenants will find asking lease rates increasing as the pendulum has
roughly 14% to $9.8 billion. Life Insurance, CMBS Lenders and Commercial Banks
firmly shifted back to the landlord’s favor.
are all providing debt financing for well-located properties with strong operating
The second-largest market in New England is Greater Hartford with an office
inventory of approximately 24 million square feet. Greater Hartford had a
relatively stable year, ending 2013 with a declining availability and vacancy
fundamentals as well as transitional assets and certain development projects.
2014 investment activity is expected to remain brisk as investors and owner/users
compete to acquire commercial properties in a low interest rate environment.
rates of 17.9% and 16.7%, respectively. In downtown Hartford, aside from the
As we move forward into 2014, companies that enter the New England region
overall improving business climate, the key contributor to this momentum swing
looking for space will find a vibrant economy benefiting from multiple demand
was The State of Connecticut Economic Development initiative to consolidate
generators. In many submarkets, top-tier space and sublease deals are virtually
offices, resulting in two property acquisitions in the CBD for 840,000 square feet.
non-existent. In conjunction with the overall improving business climate, the cranes
Additionally, five new CBD multifamily conversion projects are removing roughly
of new construction projects speckle the skyline in downtown Boston. Many new
550,000 square feet of Class B office space, essentially decreasing much of the
office, multifamily, retail and hotel projects are currently in various stages of
city’s antiquated, functionally obsolete office product that had been artificially
development. Mixed-use projects, such as the Ink Block (Boston), Pier 4 (Boston),
inflating the overall availability and vacancy rates.
Millennium Tower (Boston), The Van Ness (Boston), Assembly Row (Somerville),
The region’s ability to attract venture capital investment, which is a key barometer
of the local entrepreneurial economy’s health, grew at a solid pace in the third
quarter of 2013. Next to Silicon Valley, the New England region received the
second-highest level of funding in the country. According to the latest Money-Tree
survey by PricewaterhouseCoopers, New England venture funding increased
Arsenal on Charles (Watertown), University Station (Westwood), and Marlborough
Hills (Marlborough), have all started to take shape. Even in the midst of a
successful year within New England’s commercial real estate market, consistent
and permanent employment growth is essential to sustaining additional positive
absorption and further economic growth across the region.
8.0% to $870 million from the same period last year. Overall 109 companies have
received funding year-to-date, up from 102 over the prior 12-month period.
Boston, Massachusetts
Photo by iStockphoto, www.istockphoto.com
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
Introduction
5
Greater Boston
MARKET OUTLOOK
2014
OWNTOWN BOSTON OFFICE
MARKET FORECAST
Boston, Massachusetts
Photo by Dave Desroches, www.desrochesphoto.com
Greater Boston
DOWNTOWN BOSTON OFFICE MARKET
by David Fitzgerald, david.fitzgerald@cbre-ne.com
Building on the peak performance of 2012, the Boston Office market continued its positive momentum in 2013. Relocations were prevalent in all markets, and development
activity flourished as anchor tenants kicked off several build-to-suit projects. Goodwin Procter and PricewaterhouseCoopers chose to vacate their long-time Financial
District headquarters, opting for build-to-suit developments in the Seaport that, while over 300,000 square feet each, still right-sized their real estate footprints. Both deals
illustrated a growing trend towards efficiency and workplace strategy seen with many tenants, the largest being State Street Corporation’s reorganization of approximately
1.3 million square feet from the Back Bay and CBD to accommodate their move to the 500,000 square foot build-to-suit at Channel Center.
The existing product left by such sizable relocations had a significant impact on availability, as demand continued to favor technology-savvy, creative space. The technology
sector continued to migrate to Boston from Cambridge and Route 128, desiring quicker occupancy and making deals at “plug-and-play” spaces, first-generation
subleases and pre-built, spec suites. Demand for value space prevailed, cooling activity in high-rise spaces and high-rent markets such as the Back Bay. Havas, the parent
company of Arnold Worldwide, signed 115,000 square feet at the Burnham Building in Downtown Crossing. Havas’ move from the Back Bay launched the combined
rehabilitation of 10 Summer Street and construction of the new Millennium Tower at the former Filene’s Basement site. While the Seaport remained the hottest submarket
during 2013, Downtown Crossing gained momentum as a technology hub and Fenway made significant progress on several development projects.
CBD
HISTORIC BOSTON SUBMARKET ABSORPTION (SF)
CBD
Back Bay
Seaport
increase in activity in the low-rise and Class B markets, while the majority of
2,000,000
the premium Class A space languished.
1,500,000
• The CBD Class B market experienced high investment sales activity as
1,000,000
institutional capital, foreign investors and local investors competed for this
asset class.
500,0000
• Tenants’ preferred location continued to shift, moving the corner of “Main &
0
Main” towards the Fort Point Channel and the MBTA Red Line.
-500,000
• Sizable relocations created large blocks of availability, including Brown
-1,000,000
-1,500,000
• The CBD saw steady velocity, and demand for value space resulted in an
Brothers Harriman’s space at 50 Milk Street; PricewaterhouseCoopers’ space
2006
2007
2008
2009
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
2010
2011
2012
2013
at 125 High Street; AIG’s space at 100 Summer Street; and Goodwin
Procter’s space at 53 State Street.
Greater Boston
7
Greater Boston
BACK BAY
SEAPORT
• Following a period of strong growth, Back Bay momentum slowed during
• The Seaport experienced additional buzz as high-profile, corporate build-
2013 as demand began to stall, despite boasting one of the lowest vacancy
to-suit projects continued to change the landscape of the submarket. Both
rates in the country.
PricewaterhouseCoopers’ build-to-suit at 101 Seaport Square and Goodwin
• Several large blocks became available due to relocations and/or downsizings,
such as State Street Corporation, First Marblehead Corporation, MetLife and
GE—enough space to potentially triple vacancy rates over the next year.
• Spot premier pricing eclipsing $80.00 per square foot was still seen for the
best spaces, however overall rents softened as a result of the large increase in
low-rise availability.
Procter’s build-to-suit at 100 Northern Avenue added additional premier,
Class A inventory to the submarket.
• Class A rents rose due to increased out-of-market demand, while the Class B
market remained tight from highly sought-after “brick & beam” product.
• Work/life balance became an increasingly important factor to tenants and the
Seaport’s ability to deliver a 24/7 atmosphere with the addition of numerous
retail and residential developments was a key part of the submarket’s success
in drawing office tenants.
DOWNTOWN BOSTON OFFICE MARKET SNAPSHOT
SUBMARKET
Central Business District
Class A
Class B/C
Back Bay
Class A
Class B/C
TOTAL SF
AVAILABILITY
VACANCY
SUBLEASE
YTD ABSORPTION (SF)
AVG. ASKING RENT ($/SF)
37,040,705
27,070,992
18.0%
11.5%
20.1%
12.5%
1.3%
(687,217)
$48.23
1.5%
(943,032)
9,969,713
12.1%
$51.18
9.0%
0.7%
255,815
$34.86
14,549,025
9,749,606
15.7%
4.3%
1.3%
(414,172)
$52.63
16.6%
4.6%
1.9%
(250,457)
$56.49
4,799,419
13.9%
3.8%
0.0%
(163,715)
$43.16
10,472,402
12.3%
4.6%
1.7%
1,772,664
$46.73
Class A
4,592,928
11.3%
2.5%
2.0%
1,794,846
$57.75
Class B/C
5,879,474
13.1%
6.3%
1.4%
(22,182)
$38.51
Charlestown/East Boston
2,838,573
8.9%
6.6%
0.2%
54,674
$28.29
Seaport
Mid-Town
2,666,281
19.7%
6.3%
0.0%
66,113
$34.95
North Station/Waterfront
2,750,750
5.2%
3.9%
0.7%
340,978
$26.82
South Station
1,464,525
13.6%
2.7%
0.0%
82,865
$40.63
Dorchester/South Boston
1,141,970
13.3%
8.1%
0.3%
(15,877)
$23.69
Allston/Brighton/Longwood
1,730,367
15.2%
11.4%
0.0%
36,826
$27.35
Fenway/Kenmore Square
2,077,588
31.4%
2.2%
0.0%
38,654
$50.45
76,732,186
16.2%
8.1%
1.2%
1,275,508
$47.26
Overall Downtown Boston Office
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
Greater Boston
8
Greater Boston
DOWNTOWN BOSTON OFFICE MARKET FORECAST
HISTORIC BOSTON AVAILABILITY VS. VACANCY
Vacancy
Availability
As we head into 2014, the large blocks of availability across the Downtown
Boston Office market will greatly impact fundamentals. Both the Back Bay
18%
16%
and CBD are positioned to experience large increases in vacancy if demand is
14%
not sustained. With large deal velocity on the decline, technology growth and
12%
demand from Cambridge and Route 128 will be pivotal to market growth. The
10%
potential for migration into the CBD and other submarkets, combined with the
8%
large blocks of existing availability in those submarkets, will create rent growth
6%
4%
uncertainty. Creative, value space and short-term, immediately available options
2%
will remain prevalent to attract these companies. As the Seaport begins to
0%
2006
2007
2008
2009
2010
2011
2013
2012
experience lease roll from tenants who moved in at the start of the submarket’s
popularity, tenants now facing increases in rent may seek more competitive
economics downtown or price alternatives such as the Marine Industrial Park.
The Seaport will also face challenges such as traffic concerns and uncertainty of
HISTORIC BOSTON ASKING RENTS VS. AVAILABILITY
the new administration’s effect on city support of new development projects. The
Asking Rent
Availablity
once considered peripheral areas of Downtown Crossing, Fenway and the South
18%
$70
End will continue to gain momentum in 2014, as Millennium Partners’ projects
16%
$60
fuel the transformation of Downtown Crossing, Samuels & Associates’ projects
14%
$50
12%
10%
$40
8%
$30
6%
further the development of the Fenway area, and the market looks toward the
South End for new development opportunities.
$20
4%
$10
2%
0%
$0
2006
2007
2008
2009
2010
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
2011
2012
2013
“The once considered peripheral areas of
Downtown Crossing, Fenway and the
South End will continue to gain momentum
in 2014.”
Greater Boston
9
SPOTLIGHT: THE STORY OF SMART-SIZING
YEAR IN REVIEW
10 LARGEST
DEALS OF 2013
TOTA L E D
2 MSF
WITH
12.6% DECREASE
IN OVERALL SPACE
2 10 reported
OUT
OF
YET ONLY
decreases in
headcount
AND
7 10
OUT
OF
made space
more “creative”
HOW?
smart siz·ing
\'smärt sız´ing\ verb
CREATIVE SPACE
Analyzing a company’s workplace and adjusting its real estate footprint to optimize efficiency, collaboration, productivity and talent retention.
Most often resulting in a decrease in overall real estate footprint and costs, with increased use of creative space.
TALENT RETENTION
EFFICIENCY
COST REDUCTION
SMART-SIZING STORY
The future of work is changing, and,
office space is
occupied roughly
as employees’ needs and perspectives
48%
change, Boston-area employers must
adapt to retain top talent. That is
of the time
why we feel it is so important to adapt our
workspaces to provide our people with the
flexibility and innovation they want.
George Neble
MANAGING PARTNER
ERNST & YOUNG
Individual mobility and the office’s
large common areas almost force
employees to interact with one another
and work together more effectively.
Bob Sulentic
PRESIDENT & CEO; CBRE, INC.
CBRE Global Headquarters in Los Angeles
moves to “free-address” office,
with no assigned desks or offices
15%
INITIAL BUILD-OUT COST
VS
30%
OVERALL PROJECTED RENT
Space that is more dynamic
and conducive to social
interaction and collaboration.
Design is a funny word. Some
people think design means how
it looks. But of course, if you dig
deeper, it’s really how it works.
Steve Jobs
COMPANIES THAT ARE
SMART-SIZING
900,000
PIECES OF PAPER RECYCLED DURING THE SWITCH TO FREE-ADDRESS
We want to be part of something special, not just rent office space.
JAMES CALHOUN
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
CEO, CONVERSE
Greater Boston
10
SPOTLIGHT: GROWING TREND OF COWORKING SPACES
Flexibility and value are two of the most important
office space attributes for startups and entrepreneurs.
Coworking space—combining multiple individuals/
companies into a single office space—provides an
outlet for companies in a period of early-stage growth
to provide flexibility with shorter term deals and limited
commitments. Some coworking spaces provide the
resources and outreach for these companies to be
prepared for what lies ahead, whether through formal
or informal mentoring, concessions, or access to
funding.
Over one million square feet of coworking/shared
office space has popped up in Greater Boston over the
past few years; Boston’s coworking spaces have more
than doubled since 2009. The rise of this trend can be
attributed to several factors such as:
• The increase of technology startups has contributed
to the growing need for incubators and accelerators
in order to secure funding, advisory services, and
ultimately growth.
• With the advent of the internet, many people began
to work independently from home—including
So, what are the benefits of coworking space to entrepreneurs and business professionals? Reducing costs
freelancers, technology industry soloists and more,
by sharing facilities, equipment and resources; gaining access to a network of startups and entrepreneurs; and
creating a need for space that provides community
collaborating with others in similar industries.
and collaboration, as well as office space and
amenities.
As Boston’s area institutions continue to produce the talent pool and great ideas, the current footprint of
Boston’s coworking environment will grow into 2014. The question is at what point will there be too much?
2014 will continue to bring a competitive pool of larger coworking space providers, which may limit the
growth of these smaller to midsize groups.
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
Greater Boston
11
Greater Boston
CAMBRIDGE OFFICE MARKET
by Charles Kavoogian, charles.kavoogian@cbre-ne.com & Adam Brinch, adam.brinch@cbre-ne.com
The Cambridge Office market started the year off strong and continues to be white hot as 2013 draws to a close. The most active submarket, East Cambridge, has set
record-high rents reaching levels not seen since pre-recession highs, driving tenants outward towards lower rent alternatives in West Cambridge. Fundamentals remain solid
as the office market maintained a low vacancy rate throughout 2013, inching up 20 basis points year-over-year to 6.3%, and posting a respectable 155,000 square feet of
positive absorption for the year, driven by a series of mid-sized transactions. Overall availability fell 110 basis points year-over-year to 10.3%, despite a modest increase in
East Cambridge, proving that tenants are looking outside the hyper-competitive Kendall Square submarket in order to stay within the Cambridge city limits.
Tenant activity stemmed from an inward migration from out-of-market tenants coupled with biotech and high-tech companies experiencing organic growth and expanding
their current footprint in Cambridge.
TENANT ACTIVITY
HISTORICAL CAMBRIDGE NET ABSORPTION (SF)
• Cambridge Innovation Center expanded its Cambridge footprint by 52,000
square feet into 101 Main Street in the first quarter.
• Homegrown Hubspot finalized a blend and extend in the second quarter at
Office
Lab
800,000
600,000
its 25 First Street headquarters, taking an additional 67,000 square feet, for a
total of 117,000 square feet.
• Software company Intuit consolidated from Waltham to Cambridge, taking
61,000 square feet at 150 CambridgePark Drive, which proved to be the most
resounding example of inward migration year-to-date.
400,000
200,000
0
-200,000
-400,000
-600,000
“East Cambridge has set record-high rents reaching
levels not seen since pre-recession highs.”
-800,000
-900,000
2005
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
2006
2007
2008
2009
2010
2011
2012
2013
Greater Boston
12
Greater Boston
• A strong third quarter saw four deals between 40,000–50,000 square feet:
• Pfizer expanded by an additional 40,000 square feet at 700 Main Street.
• New to the market, Twitter took down 48,000 square feet at 141 Portland
• Responding to the continued rise in East Cambridge rents, landlords will
consider attractive net returns of converting large blocks of second-generation
lab space to office.
• Strong start-up activity has caused small, well-located suites to be scarce,
Street.
• Alexion Pharmaceuticals renewed and expanded its office presence at 55
Cambridge Parkway to just over 50,000 square feet.
while big block options of 100,000 square feet are nearly non-existent.
• Limited quality space in Harvard, Central and Mass Avenue corridor.
• Akamai converted 51,000 square feet of existing lab space to office at One
Kendall Square, showing the narrowing net effective return between office
CAMBRIDGE OFFICE MARKET FORECAST
and lab deals.
Looking ahead, we will see that mergers, acquisitions and West Coast migration
will have a strong impact on the Cambridge Office market in 2014. As
INVENTORY
availability remains low, rents will continue to trend upwards while tenants look
• Cambridge is still in a transformative growth stage, with 2.24 million square
to peripheral markets for space in both Cambridge and alternative nearby urban
feet currently under construction and 4.5 million square feet of build-to-suit
locations.
opportunities in the pipeline.
Fundamentals will continue to remain tight and be greatly impacted by the
• West Cambridge continues to show its value as a strong alternative to the
lack of large block options. Moving forward, increased venture capital funding
will continue to fuel robust start-up activity and office demand among small to
soaring East Cambridge rents as availability continues to tighten.
midsize companies. As a result of this demand, additional supply of co-working
and incubator space will naturally be added to the inventory providing a longterm pipeline for the Cambridge office market.
CAMBRIDGE OFFICE & LAB MARKET SNAPSHOT
SUBMARKET
TOTAL SF
AVAILABILITY
VACANCY
SUBLEASE
YTD ABSORPTION (SF)
AVG. ASKING RENT ($/SF)
$49.20
Cambridge Office – East
7,299,395
9.4%
5.4%
1.3%
195,289
Cambridge Office – Mid
1,870,936
5.8%
2.5%
3.2%
(35,258)
$37.02
Cambridge Office – West
1,927,834
18.3%
13.3%
11.1%
(5,113)
$32.80
11,098,165
10.3%
6.3%
3.3%
154,918
(Gross) $43.32
8,620,711
16.5%
7.2%
9.0%
(605,533)
$52.35
Overall Cambridge Office
Cambridge Lab – East
Cambridge Lab – Mid
593,817
27.9%
15.6%
1.7%
68,733
$47.57
Cambridge Lab – West
812,480
46.3%
6.9%
0.4%
(354,567)
$41.60
10,027,008
19.6%
7.6%
7.8%
(891,367)
(NNN) $49.95
Overall Cambridge Lab
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
Greater Boston
13
SPOTLIGHT: CAMBRIDGE IPOs
The biotechnology industry has had its best year for initial public offerings since 2007. Globally, there
have been 34 biotech companies that have gone public in 2013. Nine of those companies are based in
Massachusetts, and more specifically the Cambridge area, impacting both the office and lab markets in a
material way. These companies include Acceleron Pharmaceuticals, Bind Therapeutics, Foundation Medicine,
TetraPhase Pharmaceuticals, Enanta Pharmaceuticals, Epizyme, bluebird bio, Inc., Agios Pharmaceuticals and
Karyopharm Therapeutics, with several more preparing to file. This IPO activity has had a tangible correlation
to the Cambridge real estate market with a number of local tenants transacting over the course of 2013.
Namely, Foundation Medicine tripled its real estate footprint in Cambridge in the second quarter, shortly after
announcing its plans to go public. bluebird bio, Inc. took more space in the second quarter as well, moving
to 43,000 square feet at 150 Second Street, which represented an expansion of 25,000 square feet. With a
number of the aforementioned nine companies already in the market for additional space, and the remaining
ones poised for growth, Cambridge landlords should continue to be the beneficiary of very historically
favorable capital markets.
LIST OF 2013 IPOs:
OPENING PRICE
AVERAGE
TRADING PRICE*
GAIN/LOSS
SINCE IPO
Acceleron (XLRN)
$22.55 – 3Q13
±$32.31
Foundation Medicine (FMI)
$18.00 – 3Q13
Bind Therapeutics (BIND)
COMPANY
LOCATION
SQUARE FEET
43% up
12 Emily, 24 Emily, 128 Sidney
19,711; 37,166; 37,700
±$25.73
43% up
150 Second Street
60,980
$15.00 – 3Q13
±$14.87
-0.86% down
325 Vassar Street
32,784
$7.00 – 1Q13
±$13.65
95% up
480 Arsenal Street
15,899
Enanta Pharmaceuticals (ENTA)
$14.00 – 1Q13
±$28.58
104% up
500 Arsenal Street
45,000
Epizyme (EPZM)
$15.00 – 2Q13
±21.19
41% up
400 Technology Square
32,403
Agios (AGIO)
$18.00 – 3Q13
±$23.75
32% up
38 Sidney Street, 1 Kendall Square
38,536; 22,506
bluebird bio, Inc. (BLUE)
$17.00 – 2Q13
±$21.20
25% up
150 Second Street, 840 Memorial Drive
48,586; 17,648
Karyopharm (KPTI)
$16.00 – 4Q13
±$22.70
42% up
2–4 Mercer Road (Natick)
10,482
TetraPhase Pharmaceuticals (TTPH)
*As of Dec. 2013
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
Greater Boston
14
Greater Boston
CAMBRIDGE LAB MARKET
by Adam Brinch, adam.brinch@cbre-ne.com & Curtis Cole, curtis.cole@cbre-ne.com
As 2013 draws to a close, Cambridge has increasingly solidified itself as one of, if not the most, sought-after life science real estate markets in the country. Strong demand
drivers coupled with limited availability have driven average asking rents to historical highs in East Cambridge reaching $52.35 triple net per square foot, with the highest
concentration of lab inventory across all Cambridge submarkets. The overall vacancy rate rose slightly to 7.6% year-over-year. Existing industry stalwarts such as Novartis
and Millennium continue to fortify their R&D operations, while a new crop of both mid-sized out-of-market tenants and homegrown companies have further legitimized
Cambridge as the destination for laboratory development. However, relief is on the horizon, with the “Vertex Effect” impacting the market in 2013, adding roughly 700,000
square feet back to supply. The availability rate is currently 19.6%, rising from 10.4% in 2012.
2013 proved to be an active year for growth-stage biotech companies. Foundation Medicine tripled its square footage to 61,000 square feet, taking half of the newly built
150 Second Street. Shortly thereafter, bluebird bio relocated into nearly 43,000 square feet at the same address from 25,000 square feet at 840 Memorial Drive. Finally,
Sarepta’s HQ relocation from Bothell, Washington to 61,000 square feet at 215 First Street was a glaring example of the West Coast’s desire to tap into the talent pool in the
Cambridge market.
LARGE TENANT ACTIVITY
HISTORICAL CAMBRIDGE AVER AGE ASKING RENT
• Ariad Pharmaceuticals expanded its Cambridge footprint, committing
to 244,000 square feet with a build-to-suit at Alexandria Center @ Kendall
Square in the first quarter, followed by an additional 142,000 square feet
in the third quarter of 2013.
Office (Gross)
Lab (NNN)
$60
$50
• Momenta Pharmaceuticals renewed its lease for 105,000 square feet at 320
Bent Street, with a total footprint of 182,000 square feet.
• Industry leaders Millennium and Novartis expanded their Cambridge presence,
taking 233,000 square feet at 300 Mass Avenue and 100,000 square feet at
700 Main Street, respectively.
$40
$30
$20
$10
$0
2005
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
2006
2007
2008
2009
2010
2011
2012
2013
Greater Boston
15
Greater Boston
HISTORICAL CAMBRIDGE VACANCY
Office
Lab
16%
SUPPLY SNAPSHOT
• Cambridge is still very much in a growth phase with 2.24 MSF of fully
committed lab buildings currently under construction and an additional 4.5
MSF of permitted development in the pipeline.
• Build-to-suit activity and expansion of existing large users has limited the
amount of big blocks available; however, a healthy inventory of quality
second-generation lab space still offers small to mid-size tenants entry to the
tight market, albeit at healthy rents.
• As a result of the “Vertex Effect,” large blocks of second-generation space will
be added back to the market, causing landlords to get increasingly creative
14%
12%
10%
8%
6%
4%
2%
0%
2006
2007
2008
2009
2010
2011
2012
2013
with competitive inventory.
• In some cases, given the strength of the office market, obsolete lab buildings
or space will be evaluated for office conversion.
INVESTMENT SALES MARKET
• Institutional investors are increasingly interested in lab buildings, however
CAMBRIDGE LAB MARKET FORECAST
Looking ahead to 2014, it remains to be seen if public markets will continue
to lend themselves to initial public offerings for the market’s local biotech
companies. The IPO activity has been an important demand driver in 2013, as
capital raising to fund drug development and clinical trials has had a measurable
they are recognizing the importance of teaming up with local operators and
effect on absorption. On a smaller scale, with the strength of the market always
typically choose to partner with established business groups in Cambridge.
depending on the next group of young companies, Cambridge Innovation
• A number of important assets have traded hands during CY2013, with One
Kendall Square, 245 First Street and 150 Second Street all expected to close
before year-end.
• The strength of the market has expanded to West Cambridge, with two Pfizerowned buildings under agreement to local developers.
Center’s new LabCentral concept offers open, flexible space for start-up life
sciences companies, something that has long been lacking in Cambridge.
Finally, using Ariad as an example, it should be noted that as top-heavy, larger
companies continue to grow in Cambridge, there will be a need for flexible
disposition strategies in the event of failed drug programs. However, the overall
concentration of intellectual capital coupled with the deep bench of talented
professionals in all phases of drug development will continue to make Cambridge
one of the premier places in the country to build companies, and the real estate
that supports them.
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
Greater Boston
16
Greater Boston
SPOTLIGHT:
THE EMERGENCE OF A NEW MARKET
by Robert Fitzgerald, robert.fitzgerald@cbre-ne.com
Twenty-five years ago, Cambridge was an afterthought.
Back then, Boston and its Route 128 suburbs dominated the commercial real estate scene. Downtown Boston in the late ‘80s was home to powerhouse companies such
as Fidelity, Putnam Investments, Bank of New England, Shawmut Bank and other financial service institutions. Meanwhile, Boston’s Route 128 market boomed as the
‘Massachusetts Miracle’ exploded in an era when tech companies like Digital Equipment Corporation, Wang Laboratories, Data General and Apollo Computer leased
millions of square feet annually. During this time Cambridge was a lonely planet.
Cambridge’s commercial real estate market in the late ‘80s consisted of about 10 million square feet of space, occupied by an array of untested industries. Unproven
companies such as Genetics Institute, Genzyme, Biogen and Lotus Development occupied a small, but growing segment of the Cambridge marketplace. Unbeknownst to
most at the time, these companies were planting early seeds for Cambridge’s blossoming into a dominant commercial real estate market.
Today, Cambridge’s commercial real estate inventory stands at 20.5 million square feet of space—double that of 25 years ago. Cambridge is still in a growth mode, as there
is nearly two million square feet of construction underway. Indeed, Cambridge is becoming a large market unto itself.
By way of context, the entire city of Providence, RI contains six million square feet of office space (as tracked by CBRE/New England), meaning the Cambridge market
contains 3.5 times more space than Rhode Island’s state capital. Soon, Cambridge will have as much space as the communities of Waltham, Lexington and Burlington
combined.
GREATER CAMBRIDGE
Real estate in cities and towns such as Somerville, Medford and Watertown
has historically been linked to various markets. Watertown, for instance, has
traditionally been tied to Waltham and Route 128. Real estate in Somerville and
Medford were pulled north and often closely allied to markets such as Woburn,
Lynn and Wilmington.
The rise of Cambridge and the size of its commercial real estate sector (crammed
into seven square miles) have created a gravitational pull. The lure of Cambridge
has produced satellites orbiting the city. Behold, the emergence of the Greater
Cambridge Market (GCM).
CORE MARKET
SINGLE DISTINCT SUBMARKET
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
The emergence of a stand-alone overlay district called the Greater Cambridge
Market has become apparent in recent years. The Greater Cambridge Market
consists of eight communities including Charlestown, Medford, Malden,
Somerville, Arlington, West Cambridge, Watertown and Allston-Brighton.
Combined, these municipalities possess 12.8 million square feet of commercial
space housed in 145 buildings.
Greater Boston
17
Greater Boston
SPOTLIGHT:
THE EMERGENCE OF A NEW MARKET CONTINUED
Six common threads bind these communities together. First, they are geographically close to the core of Cambridge’s market (East Cambridge and Harvard Square). Second,
these towns are chiefly urban with high-density populations. Third, companies and employees located in the GCM are reliant on public transportation. Fourth, on-site
parking spaces are modest in number as compared to those provided in more traditional suburban locations. Fifth, commercial real estate in the GCM is relatively affordable
as matched against downtown Boston or Cambridge rents. Finally, these communities are bound by traditional migratory patterns. For instance, a tenant considering
commercial office space in Charlestown invariably will consider buildings in Medford, Malden or Somerville. Likewise, a tenant seeking space in Watertown will often mull
over buildings found in West Cambridge or Allston-Brighton.
The gravitational pull of Cambridge coupled with these six common threads has knit the eight communities into a single distinct market.
DEVELOPMENT
The emergence of Greater Cambridge certainly has caught the eye of real estate
developers.
Urban ‘in-fill’ development is sizzling. Housing construction has exploded with
1,400 units of new construction underway in West Cambridge alone. Watertown
has seen nearly 1,000 units built or about to break ground while Malden has three
housing projects comprised of 400 units underway. Malden is also in the late
planning stages for the construction of a new 6,500-seat minor league baseball
stadium scheduled for completion in 2016.
Commercial mixed-use projects in the pipeline include Assembly Row in Somerville,
which has approximately 450 housing units and a speculative 100,000 square foot
office building under construction—combined with hundreds of thousands of square
feet of modern retail space and a new MBTA Orange Line Station. Meanwhile, New
Balance in Brighton has started construction at Boston Landing on its new 250,000
square foot corporate headquarters. Upon completion, Boston Landing will possess
nearly one million square feet of office space, a 325,000 square foot sports center,
and a new MBTA Commuter Rail stop.
Last spring, athenahealth closed on the purchase of the Arsenal on the Charles in
Watertown for $168 million to be used for its long-term corporate headquarters.
Athena also recently joined forces with Boylston Properties/Wilder in the $70
million purchase of the adjacent Watertown Mall. The strategy here is to link the
mall with the office park and turn this area of Watertown into the next innovation
district.
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
All of this real estate development is a clear sign of an improving local economy.
Underpinning it, however, is the intrinsic strength of Greater Cambridge’s real
estate market.
Understanding the dynamics within this Greater Cambridge Market has become
increasingly important to users, developers and owners of commercial real estate.
Likewise, real estate professionals need to view these formerly disparate markets
through a new lens in order to best advise their clients on how to maximize
opportunities within the Greater Cambridge Market. Like so many of the leadingedge companies within Cambridge, this market will continue to morph and grow.
Paying attention to these trends will yield optimal results for savvy tenants and
investors—ignoring the changes afoot will leave others in the cold.
“Soon, Cambridge will have as much space
as the communities of Waltham, Lexington
and Burlington combined.”
Greater Boston
18
Greater Boston
METRO NORTH SUBURBAN OFFICE MARKET
HISTORICAL BOSTON SUBURBAN OFFICE ABSORPTION (SF)
by Jason Levendusky, jason.levendusky@cbre-ne.com
Metro North
The most significant story of 2013 within the Metro North Suburban Office market
2,000,000
was the dramatic number of investment sales in Burlington. Beginning late in the
1,500,000
first quarter, approximately 65% of Burlington’s Class A office product changed
ownership within a 10-month period. These transactions were comprised of
Piedmont’s purchase of 5 and 15 Wayside Road (270,000 SF) from Behringer
Harvard; Charles River Realty/National Development’s purchase of New England
Executive Park (1,035,000 SF) from Equity Office; TA Associates’ purchase of
25 Mall Road (285,000 SF) from Equity Office; The Davis Companies/Principal
Metro West
Metro South
1,000,000
500,000
0
-500,000
Financial’s purchase of Burlington Centre (490,000 SF) from Bentall Kennedy;
-1,000,000
Griffith Properties/Artemis Capital’s purchase of 1 and 3 Burlington Woods
-1,500,000
2006
(267,828 SF) from Colony Realty; RJ Kelly’s purchase of 77 South Bedford Street
2007
2008
2009
2010
2011
2012
2013
GREATER BOSTON SUBURBAN OFFICE MARKET SNAPSHOT
SUBMARKET
Close-In Suburbs North
Route 128 – North
Route 495 – Northeast
Route 3 – North
Metro North
Route 128 – West
TOTAL SF
AVAILABILITY
VACANCY
SUBLEASE
YTD ABSORPTION (SF)
AVG. ASKING RENT ($/SF)
$18.41
4,147,746
14.2%
11.8%
2.4%
(30,596)
19,475,688
17.4%
13.5%
3.2%
(93,242)
$20.11
5,096,155
27.4%
22.3%
0.4%
(99,755)
$15.27
14,232,189
24.1%
19.9%
3.2%
318,051
$15.56
42,951,778
20.5%
16.5%
2.8%
94,458
$17.45
$27.00
27,087,546
15.0%
12.3%
1.8%
669,521
Framingham – Natick
7,418,007
16.4%
13.2%
2.6%
(93,326)
$19.60
Route 495 – Route 2 West
4,735,123
24.7%
20.4%
3.7%
(35,035)
$15.20
Route 495 – Mass Pike West
13,548,898
27.6%
24.2%
2.8%
282,479
$17.24
Metro West
52,789,574
19.3%
16.2%
2.3%
823,639
$21.00
Route 128 – South
13,788,707
23.4%
20.9%
1.1%
239,076
$19.61
Route 495 – South
2,190,950
20.0%
14.3%
0.7%
159,073
$16.76
15,979,657
22.9%
20.0%
1.1%
398,149
$19.20
111,721,009
20.3%
16.9%
2.3%
1,316,246
$19.68
Metro South
Overall Suburban Office
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
Greater Boston
19
Greater Boston
(144,000 SF) from Equity Office; and Nordic/Nordblom’s purchase of 15 Network
The overall leasing performance of the Metro North market during 2013 was
Drive (130,000 SF) from Pallomar Medical. Additionally, two other assets, 10 and
moderate. The net result was 94,000 square feet of positive absorption in a total
20 Mall Road (154,000 SF) and 5 Burlington Woods (103,000 SF), are on track to
market of 42.8 million square feet. Availability and vacancy rates stood at 20.5%
close in early 2014.
and 16.5% respectively, compared to 20.8% and 15.7% in 2012. With the exception
These sales are a result of Burlington’s continued emergence as a suburban
version of Boston’s Innovation District and East Cambridge. Suburban high-tech
companies, driven by their constant quest to retain and attract young employees,
are increasingly drawn to Burlington’s true ‘live, work, play’ environment, which
has been fortified by the restaurant, entertainment and retail developments
currently in planning stages and under construction. One of such developments is
of the rapid and significant rent increase in Burlington, and a corresponding
but more tempered increase in immediately neighboring areas, such as Woburn
and Bedford, rental rates remained relatively flat in Metro North through the course
of the year. Most activity was focused on higher-quality well-located buildings,
while activity on lower-quality product and buildings in areas with limited amenities
remained slow.
Third Ave, which will be comprised of Wegmans market, Kings Bowling complex,
The most active submarket within Metro North was Route 3 North, which
and several new restaurants.
experienced 318,000 square feet of positive absorption this year. Significant
The increased investment sales activity in the Burlington office market has led to
a rapid increase in asking rates. From mid-year, Burlington asking rents have
increased approximately 8% year-over-year, with rents currently achieving low-$30s
levels. While these increased rates have yet to be seen in a significant number of
completed transactions, the fact that the new ownership groups have all bought
their assets at a basis ranging from $198–270 per square foot, and most plan
transactions include Verizon’s renewal and expansion of 251,000 square feet
at Cross Point in Lowell; Raytheon’s renewal of 152,000 square feet at 880
Technology Park in Billerica; Cynosure’s renewal and expansion of 144,000 square
feet at 3 and 5 Carlisle Road in Westford; Emprix’s lease of 56,000 square feet
at 600 Technology Park in Billerica; and Holcim’s lease of 30,000 square feet at
24 Crosby in Bedford.
significant capital investments, means that rents in the low- to mid-$30s are likely
to become not only a market reality, but a market requirement. The higher asking
rents in Burlington have already spread to other contiguous areas of the Metro
METRO NORTH OFFICE ASKING RENTS VS. VACANCY
North market.
“Beginning late in the first quarter, approximately 65%
of Burlington’s Class A office product changed ownership
within a 10-month period.”
Asking Rents
$25
25.0%
$20
20.0%
$15
15.0%
$10
10.0%
$5
5.0%
$0
0.0%
2006
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
Vacancy
2007
2008
2009
2010
2011
2012
2013
Greater Boston
20
Greater Boston
Performance of the Route 128 North submarket was off significantly from 2012,
Charm Sciences purchase of 1 Riverside Drive in Andover from Deutsche Asset
as demonstrated by 93,000 square feet of negative absorption. Significant
and Wealth Management for $3.5 million, or $57.71 per square foot. In addition,
larger lease transactions include Microline Surgical’s lease of 68,000 square feet
several significant properties were brought to the market in the latter part of the
at 50 Dunham Road in Beverly; Taxware’s lease of 49,000 square feet at 200
year but have yet to close, including Cross Point in Lowell (1,282,212 SF), Ames
Ballardvale Street in Wilmington; and Appleseed’s lease of 41,000 square feet
Pond Corporate Center in Tewksbury (154,200 SF), and 300 Apollo Drive in
at Ferncroft Corporate Center in Middleton. The most significant blocks of space
Chelmsford (293,422 SF).
that returned to the market within 128 North were 15 Network Drive in Burlington
(130,000 SF), which will be vacated by Pallomar Medical as part of the sale
transaction to Nordic/Norblom, and 128,000 square feet of sublease space from
ArQule at 19 Presidential Way in Woburn.
The Close-In North Suburban and Route 495 Northeast submarkets both had a
relatively quiet year, ending 2013 with 31,000 square feet and 100,000 square
feet of negative absorption, respectively. A notable development in the Close-In
North Suburban submarket was the 81,000 square feet vacated by Bank of
“The overall fundamentals are solid;
pace availability will continue to tighten and
rental rates will continue to increase.”
America at 200 Exchange Street in Malden. Notable transactions in the Route 495
Northeast submarket include Philip Medical’s downsize and renewal of 36,000
square feet at 200 Minuteman Drive in Andover, and TASC’s downsize and
relocation of 23,000 square feet at 35 New England Business Center in Andover.
New construction in the Metro North market was limited in 2013. No significant
speculative projects or build-to-suits broke ground. However, build-to-suit
discussions with larger tenants will continue.
METRO NORTH SUBURBAN OFFICE MARKET FORECAST
Provided there is overall macro-economic stability and moderate tenant demand,
most segments of the Metro North Office market are poised for a strong 2014.
In contrast to the whirlwind of sales in Burlington, investment sale activity
The overall fundamentals are solid; pace availability will continue to tighten and
throughout Metro North was more moderate. Representative transactions
rental rates will continue to increase along the Route 128 stretch from Burlington
included Grander Capital’s purchase of 300 Federal Street in Andover (120,121
to Wakefield, which will finally push more consistent leasing activity up the Route 3
SF) from Injured Workers Pharmacy for $6,165,000, or $51.32 per square foot;
and Interstate 93 corridors. However, lower-quality buildings and buildings in
Grander Capital’s purchase of 700 and 900 Technology Park Drive (87,095 SF)
areas with fewer amenities will struggle with limited tenant interest. Build-to-suit
in Billerica from Campanelli for $7,075,000, or $81.23 per square foot; and
discussions will continue with larger tenants due to limited large block availability.
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
Greater Boston
21
Greater Boston
Two major build-to-suits were inked in 2013. TripAdvisor committed to a 270,000
square foot build-to-suit with Normandy Real Estate Partners in Needham, and
FM Global is building a 300,000 square foot office building for Vistaprint in
Waltham. Both transactions were driven by the need to accommodate company
growth as well as the need to create a work environment that will brand the
METRO WEST SUBURBAN OFFICE MARKET
companies and help them to retain and recruit new employees. Build-to-suit
by Andy Majewski, andy.majewski@cbre-ne.com
activity is expected to continue into 2014 as the number and quality of existing
The positive momentum from 2012 continued into 2013 with increased leasing
activity throughout the Metro West submarket. Net absorption for 2013 in Metro
large blocks continues to decrease. See Spotlight: New Construction – BTS vs.
Spec immediately following this article.
West, the bell weather indicator of the health of a market, exceeded that achieved
One oddity in the market today is that there has been almost no speculative
in 2012. In 2013, the Metro West market absorbed 824,000 square feet, the
construction. With the vacancy rate at 16.2%, strong organic growth and limited
highest overall absorption achieved in the Metro West Office market since 2007.
large blocks available, expect to see a groundbreaking or two in 2014.
Net absorption, vacancy and availability have all reached pre-recession highs,
signaling that the Metro West submarket is back and healthy.
A number of high-profile assets traded hands in 2013. The most significant sale
was Manulife Financial Corp.’s acquisition of Wellesley Office Park from Equity
There were, and are, five primary themes in Metro West: user buyers, organic
Office for $364 per square foot. Equity Office sold off a number of assets in
growth, build-to-suits, diminishing large blocks and the transition of ownership.
the suburbs in 2013, including New England Executive Park, 25 Mall Road and
Mathworks, Athena Healthcare and Meditech purchased over 1.2 million square
feet of Class A office space in 2013. Not only is this great news for the market,
but it also highlights organic growth, diminishing large blocks and, through
77 South Bedford Street, all in Burlington. The iconic 649,000 square foot,
eight-building Wellesley Office Park is most significant, for leading the market in
achieving rents in the mid-$40s per square foot.
acquisitions, it pushes other tenants in those acquired buildings to enter the market.
Wellesley was not alone in pushing rents this year. Achieved rents in the
An important footnote is that Mathworks is making up to 200,000 square feet
Framingham/Natick submarket increased 6% year-over-year in 2013, and rents
available for lease, out of a total of 500,000 square feet in the former Boston
in Westborough Office Park were up significantly as well— all signs of a healthy
Scientific building in Natick.
recovery.
METRO WEST SUBURBAN OFFICE MARKET FORECAST
METRO WEST SUBURBAN OFFICE RENTS VS. VACANCY
Asking Rents
$30
Vacancy
20.0%
Provided macro issues in the economy remain in check, 2014 should witness
additional build-to-suit projects and other speculative announcements. With
companies still flush with cash, there will likely be other user/owner purchases
$25
$20
$15
$10
15.0%
as well.
10.0%
Rental rates for premium properties should continue to trend up for three
5.0%
$5
reasons: firstly, the number of large blocks is decreasing; secondly, there remains
healthy organic growth; and lastly, through the transition in ownership, the
$0
0.0%
2006
2007
2008
2009
2010
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
2011
2012
2013
collective mindset of the new owners is to push rents.
Greater Boston
22
SPOTLIGHT: NEW CONSTRUCTION – BTS vs. SPEC
• With more than 2.5 million square feet of
office space currently under construction
8
or scheduled to break ground in the near
future, cranes have returned to change the
suburban Boston landscape.
4 1
• Increased demand for Class A office
9
space has led to a limited big block
inventory, resulting in an uptick in spec
and build-to-suit activity.
• In order to justify new construction in
6
10
markets characterized by low supply
3
2
and strong demand, such as 128 West,
5
landlords will have to achieve mid-$30s
net rent, or mid-$40s gross rent with
taxes and operating expenses taken into
consideration.
7
• The result? Expect the Suburban Boston
BUILD-TO-SUIT
SPEC
Office market to continue to tighten and
rents to remain on the increase.
PROJECT/
TENANT NAME
1
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
BLANCHARD
WOODS
LOCATION
STATUS
PROJECT/
TENANT NAME
SF (OFFICE)
STATUS
SF (OFFICE)
BOSTON
SCIENTIFIC
Marlborough
Under Construction
225,000
Norwood
Under Construction
160,000
Burlington
Under Construction
85,000
7
FM GLOBAL
HEADQUARTERS
300,000
8
RED HAT
Westford
Complete
100,000
Concord
Complete
50,000
Northborough
Under Construction
30,000
2
125 PENN
Framingham
Proposed–
Permitted
3
THE ATRIUM
Newton
Under Construction/
Renovation
125,000
LOCATION
6
4
KEURIG
Burlington
Under Construction
424,000
9
HARVARD
VANGUARD
5
CENTER 128
TRIPADVISOR
Needham
Under Construction
280,000
10
IRON
MOUNTAIN
Greater Boston
23
Greater Boston
METRO SOUTH SUBURBAN OFFICE MARKET
by Nat Kessler, nat.kessler@cbre-ne.com
The theme for the Metro South market in 2013 has been large renewals by companies with near-term lease expirations. This is in contrast to the momentum of 2012, which
resulted in a number of smaller new leases. Overall, the Metro South market experienced a solid 398,000 square feet of positive absorption during the year, demonstrating
the velocity of big tenant activity resulting in over 1,019,000 square feet in renewals in 2013. Interestingly, many of these tenants never fully engaged the available market
alternatives before renewing. Average asking rents increased in the Metro South market, reaching $19.20 per square foot. Metro South tenants continue to be fiscally
conservative, with an eye to avoid any large relocation expenditures. On the other side of the table, landlords are making very attractive offers to retain their tenants, knowing
that it will cost exponentially more to replace them. New residential and mixed-use developments broke ground and began construction for high-profile projects both in
Quincy Center and at University Avenue in Westwood.
BRAINTREE/QUINCY
• Investment sales activity continued throughout the year with Campanelli
“Metro South tenants continue to be
fiscally conservative, with an eye to avoid
any large relocation expenditures.”
purchasing both 1 and 2 Heritage Drive in North Quincy from Commonwealth
REIT for a combined $16,300,000 ($42.54 per square foot) with plans
to multi-tenant 2 Heritage Drive and to keep 1 Heritage as a single-user
building. Down the road in Quincy, W.P. Carey & Company, LLC purchased
1100 Crown Colony Drive from TRT Acquisitions, LLC for $25,500,000
($192.95 per square foot). This sale was precipitated by Arbella Insurance
Company’s long-term lease renewal in the entire 132,160 square foot
METRO SOUTH OFFICE RENTS VS. VACANCY
building. Following this benchmark sale, both 300 Crown Colony Drive
Asking Rents
Vacancy
$21
25.0%
$20
20.0%
$19
15.0%
$18
10.0%
$17
5.0%
$16
0.0%
2006
2007
2008
2009
2010
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
2011
2012
2013
and 1900 Crown Colony Drive were put up for sale by their current owners,
Campanelli and Arbella.
• Leasing activity in Braintree/Quincy saw a jump at the end of 2013,
highlighted by the news that Best Doctors expanded out of Boston and leased
48,000 square feet at 1250 Hancock Street in Quincy Center.
• The large blocks of space in the North Quincy area that have been available
for several years still remain mostly vacant, with approximately 600,000
square feet of remaining availability in the four buildings. With rental rates
Greater Boston
24
Greater Boston
rising and availability decreasing in the Seaport and other Boston neighborhoods, North Quincy is poised to be a cost-efficient alternative for companies
seeking space in proximity to the city with access to public transportation.
CANTON/DEDHAM/NORWOOD/WESTWOOD
• Many of this area’s largest tenants in the market elected to renew at their
current locations. Most notably, Dunkin’ Brands will remain in 175,000 square
495 SOUTH – FOXBORO/MANSFIELD
• The Foxboro/Mansfield market saw minimal activity in 2013 with the exception
of UC Synergetics moving from 603 West Street in Mansfield to 34,498
square feet at 21 Oxford Road in Mansfield. Princess House played with
moving their operation to the Foxboro/Mansfield area and was in the market
to see what was available, but ultimately ended up renewing at 470 Myles
Standish Boulevard in Taunton.
feet at 130 Royall Street in Canton, a decision that narrowly beat out a move
to a build-to-suit at nearby University Station in Westwood. Other large
notable renewals include Mercer Management and American Red Cross at
1 Investors Way in Norwood, and 100 Rustcraft in Dedham. These two
tenants total over 392,198 square feet of renewals alone. Slightly smaller, but
still considered large tenants in the market, Woodard & Curran renewed their
24,796 square foot lease at 980-990 Washington Street in Dedham and
Wolters Kluwer renewed their lease for 16,642 square feet in Norwood.
• The most notable exception to the renewal trend was GZA GeoEnvironmental
METRO SOUTH SUBURBAN OFFICE MARKET FORECAST
As we enter a new year, the trends exhibited during 2013 will carry on in 2014.
The South market’s renewal activity by larger tenants will likely continue with
tenants like New York Life in Westwood and Siemens in Norwood. This growth in
activity, coupled with rising rental rates in the various Greater Boston submarkets,
will likely result in tenants seeking more affordable space in suburban markets.
With quick access to public transportation, North Quincy should be among the
main beneficiaries of these requirements. The new developments in Quincy
Technologies, who relocated mid-year to 48,328 square feet at 249 Vanderbilt
Center and University Avenue in Westwood will increase the overall appeal of
in Norwood.
their respective micro markets, but the main focus for both developments will be
• Several large blocks of space remain vacant, including 200,000 square feet
at 100 Technology Center Drive in Stoughton; 208,000 square feet at 105
first to build out the retail and residential components of the projects, with the
office being the final piece of the puzzle.
Rosemont Road in Westwood; and 100,000 square feet at 500 River Ridge
Drive in Norwood.
“New developments in Quincy Center and in
Westwood will increase the overall appeal of
their respective micro markets.”
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
Greater Boston
25
Greater Boston
SUBURBAN LAB MARKET
by Alex Plaisted, alex.plaisted@cbre-ne.com
After a strong 2012, the Suburban Lab market maintained its positive momentum
throughout 2013. Historically, lab companies seeking suburban locations have been
faced with few options; however, landlords delivered over 300,000 square feet of
new lab construction in 2013. Organic growth in the suburban lab segment has
been the main demand driver with only a few new leases executed by out-of-market
users. The current strength of the market is modest to flat, given the recent influx
of new supply from two large blocks of existing lab space at 19 Presidential Way,
Woburn and 610 Lincoln Street, Waltham, as well as the growing inventory of new
construction 113 Hartwell Avenue, Lexington and 200 Forest Street, Marlborough.
At year-end, availability and vacancy have increased to 14.5% and 8.2%
respectively, coupled with 173,000 square feet of negative absorption year-to-date.
TENANT ACTIVITY
• Quest Diagnostics signed a 200,000 square foot lease in Marlborough,
which converted the old Hewlett Packard campus into a new office, laboratory
and R&D facility.
• Shire Plc and Synageva BioPharma expanded their footprints in Lexington to
107,000 square feet.
INVENTORY
• 325,000 square feet of new inventory has been added to the market with
Quest Diagnostics, Synageva BioPharma, Intelligent MDX and UniQure
leasing space and building out new labs from shell.
• Network Biosystems is in discussions with Boston Properties to convert an
additional 50,000 square feet of office into a new laboratory for their use at
Bay Colony Corporate Center, Waltham.
• Tufts Health Plan purchased 64 Grove Street in Watertown and will convert the
lab space into office space for their own use.
• ArQule has put their 120,000 square foot facility at 19 Presidential Way in
Woburn on the market for sublease.
• BG Medicine has relocated from 610 Lincoln Street, Waltham and On-Q-Ity
has closed its doors, bringing the entire 94,000 square foot lab building to
market.
• Availability of existing lab space for large users has tightened. Only three
options over 30,000 square feet are available for tenants in need of existing
laboratory space.
• The suburbs are experiencing strong organic growth, with Alkermes and
ImmunoGen actively expanding their footprints in Waltham, and EnVivo
Pharmaceuticals looking for a new 100,000 square foot lab coming out of
Watertown.
• UniQure signed a new 50,000 square foot lease in Lexington, and
SUBURBAN LAB MARKET FORECAST
As we look ahead to 2014, we expect the current suburban roster of big pharma
and established life science companies to drive demand through continued
organic growth. The balance of the market demand will be driven by smaller
IntelligentMDX relocated from Cambridge into 26,000 square feet at 285 Bear
later-stage companies, which range in size from 10,000–25,000 square feet. Due
Hill Road, Waltham. These were the two largest out-of-market tenant migrations
to a shrinking inventory of existing lab space, we expect lab tenants to consider
to the suburbs in 2013.
office buildings as a viable opportunity for lab conversions.
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
Greater Boston
26
Greater Boston
SUBURBAN INDUSTRIAL MARKET
by Robert Gibson, Jr., robert.gibson@cbre-ne.com & David Connolly, david.connolly@cbre-ne.com
After turning a corner in the year prior, the Boston Industrial market continued to pick up momentum in 2013 and is nearing a strong recovery across all submarkets. The
year showed a consistent and significant increase in tenant and user/buyer velocity and, consequently, a stream of positive absorption and dwindling availability. While the
market for low-bay industrial space has remained static, the big story this year has been a flight to quality, with distributors focused solely on modern, high-bay warehouse
space. The decreasing supply of Class A availabilities has forced attention to low-bay space, which is just now showing early signs of recovery. This trend should progress
into 2014, as the prospect of new Class A availabilities seems challenged.
The solid absorption and lack of quality supply for Class A warehouse space has pushed rents upwards throughout the market. Class A warehouse space with 30'+ clear
heights is now commanding rental rates above $6.00/SF NNN, a level that has not been seen since the last market cycle. We expect this momentum to endure through
2014 and are optimistic that the remaining quality product will continue to be picked off by year’s end. A significant challenge for 2014 will be the lack of supply of modern
high-bay facilities. For the first time since 2009, developers and their investment backers have a reason to be confident in the market, and speculative construction is back
on the horizon.
Perhaps the most indicative story of the flight to quality is seen in the Route 495/
HISTORICAL BOSTON SUBURBAN INDUSTRIAL ABSORPTION (SF)
Metro North
Metro West
Metro South
Route 2 West submarket, home to 7.5 million square feet of industrial space. The
submarket has battled sky-high availability rates for the past few years, peaking at
3,000,000
50.8% in the first quarter of 2011. Young state-of-the-art facilities (including build-
2,000,000
to-suits completed for and subsequently vacated by Evergreen Solar, Anheuser-
1,000,000
Busch and Webvan) struggled to find any tenant demand. Finally, the submarket
has hit its stride with blockbuster deals such as Nypro (205,000 SF) and St. Gobain
0
(186,000 SF) to backfill 112 Barnum Road; a lease with Quiet Logistics (184,000
-1,000,000
SF) to fill 235 Barnum Road; and the user sale of 15 Independence Drive (370,000
-2,000,000
-3,000,000
SF) to O’Reilly Automotive. These deals alone total nearly one million square feet
2006
2007
2008
2009
2010
2011
2012
2013
and have sent availability rates tumbling down to 33.9%, a near 6% decrease from
a year ago.
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
Greater Boston
27
Greater Boston
METRO NORTH
HISTORICAL BOSTON SUBURBAN INDUSTRIAL AVAILABILITY
• Substantial growth in 2012 (over one million square feet of positive absorption)
led to a slower 2013.
Metro North
Metro West
Metro South
30%
• Well-located Class A product is experiencing rising rental rates due to limited supply.
• There has been an increase in sales to owner/users, with stronger demand from
25%
20%
buyers than from tenants.
15%
METRO WEST
• 2013 marked 818,000 square feet of positive absorption, largely attributable to big
deals in the I-495/Route 2 West submarket.
10%
5%
• Increased demand from owner/occupiers has led to increased user sales.
0%
2006
• Low-bay space has been struggling to attract tenants, pushing landlords to become
2007
2008
2009
2010
2011
2012
2013
aggressive with rental rates and incentives in order to fill long-vacant spaces.
GREATER BOSTON INDUSTRIAL MARKET SNAPSHOT
SUBMARKET
TOTAL SF
AVAILABILITY
VACANCY
SUBLEASE
YTD ABSORPTION (SF)
Close-In Suburbs North
7,589,437
14.8%
13.2%
2.8%
(175,785)
$7.56
Route 128 – North
22,491,599
14.1%
11.8%
0.8%
467,530
$8.67
Route 495 – Northeast
11,291,505
28.5%
16.4%
2.4%
406,965
$6.34
Route 3 – North
11,007,971
22.9%
21.4%
2.4%
(90,373)
$7.74
57,783,493
20.2%
16.5%
1.7%
707,751
$8.44
Metro North Industrial
AVG. ASKING RENT ($/SF)
Route 128 – South
28,942,223
17.1%
13.2%
2.0%
322,592
$5.27
Route 495 – South
28,320,294
14.6%
10.8%
0.5%
1,045,173
$5.87
Metro South Industrial
57,262,517
15.9%
12.0%
1.3%
1,367,765
$5.53
Route 128 – West
2,771,434
10.1%
8.9%
0.0%
(52,272)
$10.93
Framingham – Natick
3,327,169
14.9%
12.9%
0.0%
179,148
$6.31
Route 495 – Route 2 West
7,483,482
33.9%
30.2%
1.0%
348,818
$4.93
14,475,236
16.1%
13.5%
1.9%
342,633
$7.06
28,057,321
20.1%
17.4%
1.3%
818,327
$6.14
143,103,331
18.5%
14.9%
1.4%
2,893,843
$6.65
Route 495 – Mass Pike West
Metro West Industrial
Overall Industrial
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
Greater Boston
28
Greater Boston
METRO SOUTH
SUBURBAN INDUSTRIAL MARKET FORECAST
• The I-495 corridor is extremely tight, creating competition among tenants
As we head into 2014, quality product will continue to disappear as a result of
seeking quality and value space.
heightened demand. The market feels very healthy and the current overall industrial
• There are a number of large build-to-suit tenants in the market, with no decent
existing options to consider.
availability rate is a bit misleading, as much of the vacant space throughout the
market is functionally obsolete and in need of retrofitting in order to attract tenants.
Building owners and investors recognize this, and well-located yet functionally
• Pre-emptive expansion by existing warehouse tenants afraid to lose space as
recovery continues.
challenged buildings will require capital improvement upgrades to meet the
demand. In 2014 and beyond, as the economy continues to improve and speedto-ship times shrink, an increasing number of big-box and e-commerce retailers
will move into the Boston area to be closer to their customer base. This will be
a major factor in the resurgence of spec construction that we anticipate to begin
SUBURBAN BOSTON INDUSTRIAL ASKING RENTS (NNN)
Metro North
$10
$9
$8
$7
$6
$5
$4
$3
$2
$1
$0
2006
2007
2008
2009
2010
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
2011
Metro West
2012
Metro South
2013
in 2014.
“Increased demand from owner/occupiers
has led to increased user sales.”
Greater Boston
29
Greater Boston
DOWNTOWN BOSTON RETAIL MARKET
by Jeremy Grossman, jeremy.grossman@cbre-gra.com
The Downtown Boston Retail market continued to tighten across all submarkets as retailers and restaurants continued to lease space at an aggressive pace in 2013. As supply
continues to diminish, retail rents have reached near or above historical highs across the city as bullish property owners attract the demand of lease prospects. Mixed-use
development and redevelopment throughout Boston is adding over a million square feet of new retail space, offering rare, large format retail space to the market. As a result,
retailers, such as department stores, wholesale clubs and supermarkets that were once challenged in finding urban lease opportunities, are now competing for space and
securing long-term leases in Boston. The Back Bay, Boston’s core submarket, continues to lease to capacity, and along with the new development in other urban submarkets,
emerging retail markets are being created attracting anchor and non-anchor retailers, specifically Boston’s Fenway and Seaport District. Notably, the Downtown Crossing
submarket, which has struggled for years to improve its perception and retail appeal, has become one of Boston’s most sought-after neighborhoods due to significant
infrastructure improvements and new mixed-use development. Retail rents in Downtown Crossing have increased to levels comparing to Boston’s Back Bay, and recent anchor
deal announcements and successful restaurant and theater openings have solidified the submarket as a viable retail destination. Overall, Boston is thriving, with rumblings of
concern over dwindling space compared to increasing retail demand.
DOWNTOWN CROSSING/CBD
BACK BAY
• Millennium Partners took control of the stalled Filene’s project from Vornado
• The Back Bay continues to attract ‘best-of-class’ domestic and international
Realty Trust and has been approved for a new 625-foot residential tower with
retailers along its high streets, Newbury and Boylston Streets, and within the
ground floor retail and underground parking. The multi-level retail will consist
submarket’s mall properties, Prudential Center and Copley Place. Mall sales
of junior-anchor space (20,000–40,000 SF), street-level retail and restaurant
continue to increase with sales in excess of $700 per square foot.
space. Roche Bros. supermarket was recently announced as an anchor; no
other retail tenants have been announced.
• The Abbey Group’s repositioning of office space to retail on two levels at
Lafayette City Center now offers a larger-format retail opportunity in
excess of 60,000 square feet. The opportunity is attracting interest from
department stores, wholesale clubs and entertainment uses; no retail lease
announcements have been made.
• The opening of Nordstrom Rack and Restoration Hardware in 2013 absorbed
more than 75,000 square feet of vacant space in the submarket. Other
notable international openings included Netherlands-based Scotch & Soda
and UK-based Pret A Manger.
• With Back Bay’s vacancy rate at a near historical low, retail rents in the Back
Bay are among Boston’s highest, with asking rents for desirable space along
Newbury and Boylston Streets in excess of $150 per square foot.
• Street-level retail rents along Washington Street have increased to historical
highs, ranging from $80–100 per square foot. Restaurants and boutique
‘high-street’ retail uses continue to absorb space along the street.
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
Greater Boston
30
Greater Boston
SEAPORT
• Although quickly emerging as one of Boston’s most desirable commercial submarkets, the Seaport lacks a retail anchor that will draw additional retail uses to the
submarket. Seaport Square, a planned retail-focused development by WS Development, if constructed, will deliver more than 300,000 square feet of retail anchor and
non-anchor space to the submarket, solidifying Seaport as a viable retail destination. Today, local and national restaurants continue to secure space in the submarket.
Boston’s highest restaurant volumes come from the Seaport area, from Del Frisco’s and Legal Harborside, with sales in excess of $13 million. As other mixed-use
projects continue to develop, such as Fan Pier and Waterside Place, additional restaurant and service-based retail will continue to secure space.
• Although national retail interest has centered along Seaport Boulevard, Fort Point Channel’s primary streets (Summer and Congress Streets) and secondary corridors
within Fort Point are appealing to boutique retailers and celebrity-chef-driven restaurants. Bobby Flay and Mario Batali are planning restaurant openings in the
submarket, and Greater Boston’s renowned celebrity chef, Ming Tsai, recently opened Blue Dragon along A Street in the Fort Point Channel.
• Retail rents continue to rise with asking rents along Northern Avenue/Seaport Boulevard ranging from $70–100 per square foot. Fort Point Channel rents range from
$40–50 per square foot—nearly a 50% increase year-over-year.
DOWNTOWN BOSTON RETAIL MARKET FORECAST
As we look ahead to 2014, the retail trends of this year will continue. Rents will
continue to increase across all submarkets and emerging submarkets. Specifically,
Fenway and Seaport will attract a large percentage of retail interest based on
“Boston is thriving, with rumblings of concern
over dwindling space compared to increasing
retail demand. ”
planned development within each district. Rumored new development in the Back
Bay at the Prudential Center and Copley Place may introduce highly desirable new
space to the market for future openings by anchor-type retail. As anchor retailers
are projected to be announced in Downtown Crossing in 2014, retail interest along
Washington Street and its cross-streets in the submarket will be strong, attracting
both domestic and international retail, and solidifying Washington Street as one of
Boston’s strongest ‘high-street’ locations.
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
Greater Boston
31
Greater Boston
SUBURBAN RETAIL MARKET
by Kevin Higgins, kevin.higgins@cbre-gra.com
2013 was a very vibrant and healthy year for retail in the suburbs of Boston MSA, and 2014 should prove to be just as strong. Retail development activity has returned, as
many projects that were once stalled due to the 2008 financial markets meltdown are either now complete, under construction, or opening in phases. Many areas in
New England remain under-retailed when compared to the rest of the United States, which bodes well for retail developers if they are fortunate enough to find a site where
retailers want to open.
Food, health and wellness are the common retail themes in notable new suburban retail developments, as grocery stores, restaurants and fitness centers anchor almost
all new and future retail developments in the pipeline. This collection of retail mix helps drive daily traffic (sometimes several trips in one day from the same customer) and
extends total time spent from early morning into the late evening.
NOTABLE NEW RETAIL DEVELOPMENTS
Project, Town
Developer
Anchor(s)
MarketStreet, Lynnfield
WS/National Development JV
Whole Foods & Kings, Legal C Bar, Davio’s, Eastern Mountain Sports and Yard House
The Street, Chestnut Hill
WS Development
Del Frisco’s Grille, Davio’s, Legal Sea Foods, Pottery Barn, Showcase SuperLux, Sports Club/LA and
lululemon
Chestnut Hill Square,
Chestnut Hill
New England Development
Wegmans, Equinox Fitness Club, Anthropologie, Brio Tuscan Grille, Seasons 52 and The Capital Grille
Third Avenue, Burlington
Nordblom Company
Wegmans, Kings, Tony C’s (sports bar), Redstone American Grille, The Bancroft Steakhouse and Carter’s
Fine Jewelry
Assembly Row, Somerville
Federal Realty Investment Trust
Saks 5th Avenue Off Fifth, LEGOland Discovery Center, Nike, Brooks Brothers, Ann Taylor Loft,
Legal C Bar, Earls, Paul Bakery and Tony C’s
University Station, Westwood
New England Development,
National Development and
Eastern Retail JV
Wegmans and Target (and several others about to be announced)
Highland Commons, Berlin
Benderson Development
BJ’s Wholesale Club, Lowe’s, Market Basket, Cabela’s, TJ Maxx, PetSmart and Michael’s
Restaurants, in particular, have changed the leasing mix at many centers and can account for more than 20% of the GLA (gross leasable area), collectively acting as anchor.
Developers state that while there is tremendous demand from restaurants—from quick casual to white tablecloth—they need to be mindful of the amount of parking
restaurants can take up; it’s a balancing act.
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
Greater Boston
32
Greater Boston
Many healthy retailers with a presence in New England have been very active in 2013 in both opening new stores and repositioning others. Some of the more active tenants
include Ulta, DSW, TJ Maxx, Michael’s and Trader Joe’s, who have all added or repositioned stores throughout New England. Hobby Lobby has also opened several stores
in New England in 2013 and has several planned for 2014 and 2015. A welcome new addition to the New England restaurant scene is Paul Bakery from France, a CBRE/
Grossman Retail Advisors client, who has announced several new lease signings in Boston and surrounding suburbs.
Large-scale dispositions in the big box category have provided new supply and creative upcycling opportunities throughout New England. Sears/Kmart have been active in
the market with the releasing of its store in Keene, NH to Kohl’s and has reportedly prepared to sublet a portion of the first floor of its store at Burlington Mall. The creative
upcycling trend has been more prevalent across the former Borders portfolio, which has attracted a variety of diverse retail uses ranging from auto, furniture, food and
clothing.
Grocery stores have been particularly active in the area, especially Whole
RETAIL UPCYCLING DEALS
Location
New Retailer(s)
Deal Type/Use(s)
Peabody, MA
Brian Kelly Auto
Group (Purchase)
Purchase: Currently using land/
parking for auto inventory from
nearby dealerships
Burlington, MA
Season’s 52, Ethan
Allen
Leases: Restaurant, furniture
showroom
Braintree, MA
Guitar Center
Lease: Occupying a portion and
subletting remaining space
Shrewsbury, MA
Buffalo Wild Wings
Purchase: Occupying a portion
and subletting remaining space
Burlington, VT
City Sports
Lease: Sports
Nashua, NH
Eastern Mountain
Sports
Lease: Sports
Whole Foods
Lease: Food Grocery
Hyannis, MA
Foods, with its recent acquisition of the Johnnie’s Foodmaster locations; the
leasing of a former Market Basket in Nashua, New Hampshire’s north end; and
the recent leasing of Stop & Shop’s Bedford, New Hampshire location. Stop
& Shop announced it is closing all of its New Hampshire stores and Shaw’s is
closing several locations throughout New England. However, Shaw’s continues
to be active with its Star Market division, having recently announced it will lease
space at Boston Properties’ North Station project. Wegmans, which had a very
successful opening in Northborough, Massachusetts, will be opening several new
stores in the next few years including Chestnut Hill, Burlington, Westwood and
Fenway at Samuel & Associates and WS Development’s redevelopment of the
Landmark Center. Additionally, Market Basket has several locations that should
open in 2014 and beyond.
SUBURBAN RETAIL MARKET FORECAST
Retail development and leasing will remain strong through 2014 and the
foreseeable future. Healthy retailers will continue to grow strategically throughout
the region by taking advantage of existing real estate and new opportunities.
Developers will continue to seek sites in both the suburban and urban areas, with
a particular focus on transit-oriented mixed-use opportunities.
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
Greater Boston
33
Capital Markets
MARKET OUTLOOK
2014
Image by iStockphoto, www.istockphoto.com
Capital Markets
GREATER BOSTON OFFICE & INDUSTRIAL
INVESTMENT MARKET
by Nick Herz, nick.herz@cbre-ne.com
The investment market in 2013 experienced a tremendous acceleration of activity.
Since the downturn, pricing in Greater Boston has been restricted by ‘price per
By virtue of its status as a safe haven for capital, institutional-grade product in
square foot’ benchmarks. Investors displayed hyper-discipline and scrutinized their
Greater Boston traded hands at a frenetic pace. As the recovery in fundamentals
cost basis as a way of controlling risk. In 2013, investors began to move out along
took hold in primary markets, investor confidence pushed transactions beyond
the risk spectrum and focus on unlevered and levered metrics. With tighter return
core assets, which dominated the headlines over the past two years, into select
requirements driven by the resiliency of the Boston economy, pricing surpassed
value-add opportunities. Aggregate transaction volume of Class A office and
levels achieved in the last peak market cycle of 2006–2007. In the CBD, 2013
industrial properties throughout all 10 submarkets exceeded $3.7 billion with an
also marked the migration of institutional capital into the Class B space. Armed
apparent endless demand.
with confidence in rent growth and ‘below replacement cost’ pricing rationale,
investors established new high watermarks.
HISTORICAL OFFICE VS. INDUSTRIAL SALES VOLUME
Office
Industrial
$16.0
$14.0
$12.0
BILLIONS ($)
$10.0
$8.0
$6.0
$4.0
$2.0
4Q13
3Q13
2Q13
4Q12
1Q13
3Q12
2Q12
4Q11
1Q12
3Q11
2Q11
4Q10
1Q11
3Q10
2Q10
4Q09
1Q10
3Q09
2Q09
4Q08
1Q09
3Q08
2Q08
4Q07
1Q08
3Q07
2Q07
4Q06
1Q07
3Q06
2Q06
4Q05
1Q06
3Q05
2Q05
4Q04
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
1Q05
3Q04
2Q04
4Q03
1Q04
3Q03
2Q03
4Q02
1Q03
3Q02
2Q02
1Q02
$0.0
Capital M arkets
35
293
101
125
Capital Markets
293
93
3
“HOT” INSTITUTIONAL INVESTOR MARKETS
Active
2009
Forecast
495
INVESTMENT SALES MARKET FORECAST
1
95
As we enter a new year, many of the trends experienced in 2013 will carry on
3
128
throughout 2014. Highly selective Class A opportunities in the CBD, Cambridge
and primary Route 128 markets will lead to broader market activity. We are
93
495
2
2
128
already bearing witness to greater rationalization by institutional investors to look
2
3
95
outside the proverbial box of core markets and we expect this trend to continue.
2
1
93
This natural progression of capital beyond overheated core markets is the result of
128
2
95
495
an institutional commitment to own in Boston and the search for risk-adjusted yield.
Waltham
Cambridge
93
As this trend gains momentum and competition for assets increases, we expect
90
290
95
190
90
cap rates in secondary markets to tighten. In top-tier markets, limited opportunities
are fully priced and we see little to no room for additional cap rate compression.
128
190
9
293
9
128
3
125
90
Moving forward, we will watch for the income side of these investments to grow.
293
1
93
495
90
90
395
We also anticipate greater transaction volume from private capital in 2014.
101
93
95
290
9
1
Boston
9
101
146
3
93
3
Leasing fundamentals continue to gradually improve and the consensus is that
24
95
84
interest rates will remain low for the foreseeable future, which will bolster returns.
1
Forecast
Well-capitalized operators are nearing the end of depressed, pre-recession rents
495
495
3
that have kept cap rates high in anticipation of falling NOIs. As a result, these
1
146
395
295
recently re-stabilized properties will make their way to the market, offering strong
84
cash flowing ‘coupon’ opportunities. With general optimism building, 2014 has
Westford
2
the potential to mark the largest move outside Route 128 by both institutional and
2
1
24
Chelmsford
495
95
Andover
3
95
128
295
Reading
2
195
3
Bedford
190
Burlington 95
Wakefield
128
Woburn
2
495
24
195
95
395
1
93
128
Waltham
190
90
Newton
95
Framingham
395
9
9
90
9
128
Natick
Needham
Westborough
290
9
195
Cambridge
1
Marlborough
290
140
2
95
495
Boston
93
95
3
Quincy
Dedham
90
Westwood
1
93
495
90
90
3
140
Billerica
6
private capital that the market has seen thus far in this cycle.
2
128
495
93
Canton
395
3
146
95
24
84
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
1
495
Capital M arkets
3
36
Capital Markets
DEBT & STRUCTURED FINANCE MARKET
by Carlos Febres, carlos.febres@cbre-ne.com
In terms of capital flows in the Greater Boston market, 2013 can be characterized as a volatile year as well as a maturing year for the current investment cycle. The
generational lows in interest rates over the first few months came to an abrupt end and, for a moment, the market paused to evaluate the impact. To the surprise of many,
the rate increases did not have a material impact on asset pricing, demonstrating that the market is maturing from a capital markets-driven sales environment to a
fundamentals-driven environment.
Interest Rates Remain Low
THE TAPER FAKE-OUT (AND FALLOUT)
Although many real estate investors were initially concerned about the rising
INTEREST R ATES ARE STILL NEAR HISTORICAL LOWS
Interest rates are still near historical lows
 the
Despite
long-term
rate increases,
interest
continue
interest rates,
impact recent
on lending
and investing
capital in 2013
was rates
negligible.
to be at by
historical
Treasury rates increased
over 100lows
basis points between April and July of
10-Year T Note
6%
2013, with a corresponding wave of capital flows out of bond markets. For much
Traditionally, the Fed has managed inflation & economic
growth through short-term interest rates
liquidity in lending markets from nearly all lender types. Interest rates remain
historically low
10-year
ratenot
over
1.5%short-term
below the rate
in 2007.
 with
Thetoday’s
Fed has
statedtreasury
they will
raise
interest
rates
until:
In September of 2013, the Federal Reserve announced that it would delay its
 The easing
unemployment
rate
above
6.5%
‘tapering’ of the quantitative
program. At
theremains
time, markets
reacted
AND
favorably to this news, allowing
treasury rates to drop moderately. Since then, a
 Inflation
is projected
to be below
nominal degree of tapering
has occurred
with marginal
impact2.5%
on treasury rates.
A material decrease in the quantitative easing program will commence when
 With unemployment still high and inflation under control, it is
the unemployment rate falls below 6.5% and inflation is projected to fall below
likely that the Fed is also still a long way from increasing short
2.5%. Although inflation is under control, as of November 2013 the national
term rates
unemployment rate was 7.0%; this signifies that the Fed will most likely continue
4%
3%
2%
1%
0%
2003

The markets predict relatively low interest rates for a continued
period of time
2013
Target:
6.5%
6%
4%
2003
YE 2014
2011
“20138%can be characterized as a volatile year as well as aCurrent:
maturing
7.2%
year for the current investment cycle.”
6%
ate
YE 2013
2009
10%
Interest Rate & Economic Projections
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
2007
Unemployment still remains above the Fed’s target of 6.5% and
inflation remains below the Fed’s target of 2.5%
Unemployment
Rate
providing
a rate
hedge
for real
estate
investments
interventionist policy,
interest
volatility
in the
first half
of 2014 seems likely.
2005
Source: CBRE, Inc.
to buy securities
untilFed
the labor
market
in athat
substantial
 The
seems
to beimproves
very clear
if we doway.
notAlthough
have
incoming chair Janet
Yellengrowth,
suggeststhey
that will
the Fed
will make
a peaceful
exit from
sustained
continue
buying
securities
–
1 Month USD LIBOR
10 Year T Note
5%
US 10 Year Yield

of New England, the increase in rates at the end of 2013 was offset by substantial
1 Month USD LIBOR
4%
2005
2007
2009
2011
2013
Capital M Target:
arkets
2.5%
37
US 10 Yea
3%
Capital Markets
2%
1%
0%
2002
it
ng
2004
2006
2008
2010
2012
Unemployment
stillREMAINS
remains ABOVE
above THE
the Fed’s
ofOF
6.5%
and
UNEMPLOYMENT
STILL
FED’S target
TARGET
6.5%
AND INFLATION
REMAINS
BELOW
THE
FED’S
TARGET
2.5%
inflation
remains
below
the
Fed’s
target OF
of 2.5%
m,
a
Unemployment
Rate
focused on low-LTV mortgages and best-in-class assets. A disruption in corporate
8%
Current:
7.0%
bond markets resulted in the spread widening mid-year, however pricing has
6%
Target:
6.5%
life insurance companies are increasing their production targets, which should
4%
2003
2005
2007
2009
2011
2013
6%
Inflation Rate
4
8%
2%
0%
stabilized and settled 10–15 basis points higher than before the rate increase. Many
result in a steady flow of capital from this lender cohort in the upcoming year.
CMBS LENDERS
Target:
2.5%
Current:
1.0%
4%
-2%
-4%
2003
7%
Overall production for life insurance companies should have exceeded $60 billion
in 2013. These lenders remain active in stronger submarkets within New England,
10%
ra
LIFE INSURANCE COMPANIES
CMBS lenders continue to bring substantial capital flows to lending markets,
but have suffered from significant volatility due to fickle bond investors. Spreads
increased by over 100 basis points in the 2013 summer fallout, but have since
stabilized and continued to compress heading into year-end 2013. CMBS lenders
issued $48 billion in debt in 2012, which is expected to increase by approximately
2005
2007
2009
2011
2013
Source: CBRE, Inc.
3
80% to $90 billion of debt in 2013. While CMBS continues to be a viable option,
it comes with some pricing risk for borrowers that cannot lock interest rates until
the loan closing. CMBS lenders have been particularly competitive on large
deals, secondary market transactions and high-LTV mortgages. Furthermore, as
Debt financing is readily available for most transactions, including transitional
the pricing between GSA lenders and CMBS lenders compresses, the latter will
assets and certain development projects. Lenders remain focused on
continue to grow its market share in the multi-housing space.
fundamentals, pursuing assets in well-located submarkets with strong borrowers,
and a preference for stable cash flow.
The lending market can be characterized as highly liquid, albeit somewhat
unpredictable due to rate volatility and a still-cautious appetite for risk. Office
properties continue to garner scrutiny from the lending community, especially
in suburban or secondary locations.
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
“Lenders remain focused on fundamentals, pursuing assets in
well-located submarkets with strong borrowers, and a preference
for stable cash flow. ”
Capital M arkets
38
nd
s,
es
ss
nd
Capital Markets
COMMERCIAL BANKS
DEBT & STRUCTURED FINANCE MARKET FORECAST
Local banks have been a differentiator for debt markets in New England. This
For most assets, interest rate increases have had little to no impact on asset
lender type has been extremely successful at winning deals under $40 million
pricing in 2013. Commercial real estate remains an attractive investment vehicle,
due to their creative financing structures, competitive pricing and flexible terms,
while traditional fixed-income instruments are producing historically low yields.
especially for short-term loans. With a 25-year high of bank deposits versus loans
Foreign and domestic investors are flush with capital and seek to take advantage
outstanding, the bank community still has plenty of capital to lend. Balance sheet
of inflation-hedged assets with attractive interest rates. Historical data suggests
lending has been strong and will continue to grow as the economy improves.
that treasuries have some room to run with negligible implications on property
values due to a cap rate spread that is still wider than the 2007 peak. This outcome
December 2013
Commercial Real Estate Mortgages Rates
Commercial
Commercial
Multifamily
With economic fundamentals improving and a large number of pre-recession
loans set to mature in the next three years, debt issuance from all lender types is
Multifamily
expected to increase. CMBS maturities are expected to be between $40–60 billion
in 2014, increasing to more than $100 billion in 2015, $130 billion in 2016 and
5.5%
close out to $150 billion in 2017. Although much of the underlying collateral will be
sold, or commercial banks and life insurance companies will refinance the loans,
5.0%
a sizeable portion of the refinance proceeds may be sourced from CMBS lenders.
4.5%
The operative question will be whether CMBS lenders (and the ultimate buyers of
the bonds) can once again get comfortable with exit risk at the end of the new loan
4.0%
term and values that are driven by a low cap rate environment. The right protective
measures appear to be in place, so we will presume for now that the market
3.5%
3.0%
Jan 11
Source: CBRE, Inc.
xed
tate
disruption in lending markets.
COMMERCIAL REAL ESTATE MORTGAGE R ATES
6.0%
would be contingent on continued improvement in the economy and no material
remains disciplined as we advance into the next phase of the capital markets cycle.
Jul 11
Jan 12
Jul 12
Jan 13
Jul 13
Diverse Commercial Real Estate Lending Base
Lender Composition
1H
2013
24%
2012
23%
7%
5%
18%
26%
12%
9%
14%
2011
17%
5%
27%
20%
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
2010
17%
5%
30%
15%
16%
6%
7%
14%
12%
11%
“With economic fundamentals improving and a large number
of pre-recession loans set to mature in the next three years, debt
issuance from all lender types is expected to increase.”
11%
9%
Capital M arkets
7%
12%
11%
39
Capital Markets
GREATER BOSTON RETAIL INVESTMENT MARKET
by Nathaniel Heald, nat.heald@cbre-ne.com
After a strong recovery, the 2013 retail investment market showed improvements across the country. Expanding upon gains made in 2012, 2013 was characterized by
healthy growth in demand and improving pricing across all retail asset classes, led by ‘High Street’ retail and Class B shopping centers. In all, approximately $38.7 billion
of retail properties sold nationally through Q3 2013, as compared to $30 billion for the same period in 2012. Unfortunately, this 30% increase in national retail transaction
volume was not enjoyed in New England, where total retail sales volume remained relatively flat at approximately $1.3 billion as of November 2013 (across 93 properties)
versus $1.19 billion for the same period 2012 (71 properties). Though increasing demand for all retail categories coupled with relatively cheap debt has created a frothy
seller’s market, New England’s 2013 total sales volume was checked by a restricted supply of highly desirable properties.
HOTTEST RETAIL CATEGORIES
EXISTING OPPORTUNITY
High Street: Following Americans’ migration back into major cities, High Street
Mixed-Use: Although major mixed-use projects comprise the majority of new
urban retail has become one of the most popular retail product types across the
development in New England, there remains a shortage of investors with an
country. The ‘best’ properties in the largest markets (including Newbury and
appetite for and a track record of operating several product types under one roof.
Boylston Streets) are consistently trading below 4% going in yields.
Investors with a more flexible mandate and a willingness to hire multi-faceted
Core Supermarket-Anchored Strips: 2012 and 2013 witnessed insatiable
demand for the highest-quality supermarket-anchored product in in-fill locations.
Though virtually none of this product has come to market in New England over
the past few years, ‘whisper pricing’ from institutional investors has generally been
in the mid- to low-5% cap range, with IRR requirements in the low-6% range.
management and leasing teams should find that 2014 will bring opportunities
to acquire large mixed-use projects at a discount to ‘pure play’ (meaning singleproduct type) investments.
FORECAST FOR AN ACTIVE 2014
We anticipate that 2014 will see a significantly higher total sales volume in New
IMPROVING DEMAND
Class B: 2013 saw a marked increase in demand and an uptick in pricing for
the strongest shopping centers in secondary markets. While these properties
are still trading at a significant discount to core, the delta in cap rates has fallen
from approximately 300 basis points in 2012 to 150-200 basis points in 2013.
England, with owners finally coaxed into the market by strong investor demand
and slowly increasing interest rates, which may begin to ease cap rate compression.
In addition, based on early indications, we expect that 2014 will see somewhat
higher-quality properties come to market, taking advantage of pricing which, in
many if not most cases, is stronger than the ‘peak’ pricing seen in 2005–2007.
Improving pricing is a result of several factors, including strong financing terms for
secondary markets, investor willingness to take on slightly more risk in exchange
for significantly more yield, and increased competition due to the general lack of
supply, particularly supply of core opportunities.
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
Capital M arkets
40
Capital Markets
GREATER BOSTON HOTEL INVESTMENT MARKET
by Dave McElroy, dave.mcelroy@cbre-ne.com & Scott Hutchinson, scott.hutchinson@cbre-ne.com
Heading into year-end 2013 and looking towards 2014, the lodging recovery
supply and demand characteristics, which consist of a healthy balance of strong
and fundamental outlook continue to trend positively in the majority of the top 25
commercial, meaningful group demand and a significant portion of leisure travel.
markets across the U.S., though its rate of acceleration has slowed. Room night
demand continues to show year-over-year growth in the U.S., with September
year-to-date up 2.2% and occupancy up 1.5% according to Smith Travel
Research. Supply growth remains just under 1.0%, well below historic averages
(outside of New York City and select markets), as construction financing and
developer equity have been slow to form over the past few years. Anecdotally,
we are seeing a pick-up in construction financing and development-led activity
by the major brands and an uptick in projects in the pipeline, though nothing
An analysis of the local transactions year-to-date in metropolitan Boston
reveals some significant lodging trades and further illustrates the depth and
variety of investor interest in the market. Institutional buyers have included two
REITs (Sunstone and LaSalle), a proprietary brand (Loews) and private equity
(Cornerstone). Direct capitalization rates have ranged from a low of 3.6% to
6.8%. A snapshot of these 2013 transactions follows:
• In January, LaSalle Hotel Properties purchased the 298-room Liberty Hotel
too extreme in terms of new supply. At this point in the lodging cycle, ADR
from a JV between Carpenter & Co. Inc. and HEI Hotels & Resorts for
growth constitutes the bulk of revenue per available room (RevPAR) growth, in
approximately $170 million ($570,000/key).
turn leading to meaningful gains in operating leverage and profitability. ADR
growth in the U.S. for September year-to-date was 4.0%, with RevPAR growth
of 5.6%. On a short-term economic basis, the government shutdown did have
a negative impact on hotel demand, which was most pronounced in markets
with high concentrations of government business. Longer-term, sequestration
• In February, Loews Hotels purchased the 225-room Back Bay Hotel from The
Doyle Collection for $91 million ($404,000/key). Loews plans an $8 million
brand conversion.
• In June, Sunstone Hotel Investors purchased the 1,053-room Park Plaza
has also impacted certain lodging markets dependent on high concentrations of
Hotel from a JV between Donald Saunders, Rockpoint Group and Highgate
government demand.
Holdings for $250 million ($237,000/key), almost double the price it sold for
Locally, Boston’s lodging market is consistently considered one of the top five
lodging markets in the U.S. The Boston/Cambridge market bottomed at 71%
occupancy in mid-2009 and recovered to a robust 79% occupancy as of year-end
2012, and continued to improve throughout 2013. Since 2000, the market has
never dipped below 69% occupancy rate (source: Pinnacle Advisory Group).
Boston’s consistent record of above-trend performance is a product of both its
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
two years prior.
• In September, Cornerstone RE Advisors purchased the 148-room Copley
Square Hotel for $60.7 million ($410,000/key).
• In November, private investor Dr. Gerald Chan purchased the 31-room Veritas
at Harvard Square in Cambridge for $13 million ($419,000/key).
Capital M arkets
41
Capital Markets
GREATER BOSTON HOTEL INVESTMENT MARKET FORECAST
New England is typically a very high barrier to entry market, resulting in consistent demand from institutional investors. Due to limited new supply and a diverse demand
base, the local lodging investment market will remain one of the most sought after gateway lodging markets in the U.S. High land costs and a difficult entitlement process
will preclude irresponsible supply growth in the northeast.
In 2013, Boston saw two new Residence Inn by Marriott properties open. Boylston Properties built a 175-room Residence Inn at 121 Brookline Avenue located adjacent
to Fenway Park (opened in July), and Norwich Partners opened a 120-room Residence Inn at 368 Congress Street on the edge of the Seaport District (adaptive reuse).
Additional lodging developments are planned for National Development’s mixed-use project, known as the Ink Block, and another that just broke ground on Sleeper Street
across from the John Moakley Court House. This boutique Marriott-affiliated property is slated to open in 2015 and offer approximately 135 rooms.
In 2014, eastern Massachusetts, and specifically the Boston hotel market, will continue to benefit from diverse and stable demand generators, including knowledge-based
industries, a growing group segment, an abundance of local tourist attractions and steady, university-generated demand. With a positive fundamental outlook, a robust
convention calendar, relatively stable macro outlook and significant capital at historically attractive rates (though off of early 2013 lows), 2014 is poised to be another
attractive year for hotel transactions and capital financing.
Boston, Massachusetts
Photo by Dave Desroches, www.desrochesphoto.com
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
Capital M arkets
42
Capital Markets
GREATER BOSTON MULTIFAMILY INVESTMENT MARKET
by Simon Butler, simon.butler@cbre-ne.com, Biria St. John, biria.stjohn@cbre-ne.com & John McLaughlin, john.mclaughlin@cbre-ne.com
2013 marked another strong year for the multifamily investment market as transaction volume slightly outpaced the sales volume of 2012 and nearly matched the peak
levels of 2007. There were a total of 33 sales over $10 million in 2013 with sales activity over $1.1 billion (excluding the 11 properties purchased in the Archstone acquisition
by Equity Residential and AvalonBay Communities). Competition for assets has remained strong with cap rates at historic lows averaging 295 basis points over the 10-year
treasury among all asset classes, which is above the 10-year average spread of 195 basis points and signals a healthy investment market with potential to absorb an uptick
in interest rates, particularly for the core infill markets and TOD assets. Interest rates remained at all-time lows for the first four months of 2013, while rates spiked as
much as 150 basis points over the summer. As we witnessed interest rates rise early in 2013, we saw buyers utilize different strategies including shorter-term products and
swaps to achieve the same targeted levered IRRs. We have now seen rates come back to within 100 basis points of their all-time lows.
Boston continues to rank as one of the top three markets nationally for institutional investors, thanks in large part to the underlying fundamentals and the dynamics of the
Boston employment market. As a testament to the strength of the Boston apartment market, REIS has seen effective rents in the Metro Boston Apartment market grow at an
annual compounded rate of 5.1% per year since 1995 with an average vacancy rate of 3.9% over that same period.
The hot topic this past year has circled around construction and new deliveries
over the next few years. It was a big year for development with a number
APARTMENT DEVELOPMENT PIPELINE – MA (2000-2017 PROJECTION)
Number of Units Delivered/Proposed
Units Delivered
projects opening (nearly 4,000 apartments) as well as others breaking ground
Probable Units
as funding has remained readily available thanks in large part to a ‘build-to-
8,000
core’ strategy from many of the major core pension funds. There is currently a
7,000
healthy pipeline of developments throughout Greater Boston that are likely to
6,000
deliver between 2014 and 2017. In analyzing the permitting and funding status
5,000
of each development, we estimate that this pipeline translates to approximately
4,000
5,300 apartment units and approximately 400 condominium units per year over
3,000
the next four years. While this is a significant increase from 2009 to 2013, the
2,000
trailing five-year average has been well below peak levels between 2006 and
1,000
2008. It is also important to note that many of these prospective developments
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: CBRE/New England
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
2010
2011
2012
2013
2014
2015
2016
2017
still face significant hurdles to clear before they can break ground. Construction
costs continue to rise at a rapid pace (as much as 1.0% per month), which has
caused some projects to be shelved and will likely mean that the prospective
Capital M arkets
43
Capital Markets
supply pipeline is not as robust as some may believe. As demand for both
apartments and condominiums has outpaced new supply over the past few years,
absorption has been very strong as these developments were delivered. While
MASSACHUSETTS HISTORICAL CAP R ATES & 10-YR. TREASURY YIELDS
10-Year Treasury
the Boston market will always reflect some seasonality, with some slowing in the
winter months, the underlying employment market remains a key contributor to
a healthy apartment market and we anticipate that leasing velocity at these new
Metro has averaged approximately 5,100 multi-housing deliveries per year at 50%
apartment units and 50% condominium units, while the current pipeline consists
of 94% apartment units and only 6% condominium units between 2014 and 2017.
A few developers have already taken advantage of the hot condominium market.
Developments such as Millennium Place (reportedly 100% sold out), Lovejoy Wharf
Avg. Cap Rate/Treasury Yield
the pipeline convert to condos? Historically, multi-housing throughout the Boston
Condo Influence
Irrational
Exuberance
Over
Correction
Back to Rational
8.25%
7.75%
developments will continue to be robust.
As new product is delivered, the question is how many of the developments in
Rational Market
8.75%
Average Cap Rate
7.25%
6.75%
244 AVG SPREAD
6.25%
5.75%
5.25%
4.75%
4.25%
3.75%
346 BPS SPREAD
3.25%
2.75%
2.25%
1.75%
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
and Ink Block were each slated for apartments and during construction developers
opted to go condo or offer a mix of for-sale and for-rent options. In addition to
Source: CBRE/New England and Federal Reserve
shifts during construction to condo, the market had its first existing apartment sale
to a condo converter since 2006.
GREATER BOSTON MULTIFAMILY INVESTMENT MARKET FORECAST
As we enter into 2014, we expect transaction volume to remain healthy, building upon a strong finish to 2013 and leveraging the stable market fundamentals and low cost
of debt. Competition for multifamily assets in one of the top rental housing markets in the country will remain high and Class A assets will continue to lead the way as the
preferred vehicle for multifamily investment. Condo conversions are expected to pick up demand, as value-add investors look to achieve higher yields. Alternative multifamily
investments including affordable housing (Section 8 HAP Contract and LIHTC) properties will be on the radar of investors looking for higher yields with good long-term
upside potential.
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
Capital M arkets
44
Connecticut
MARKET OUTLOOK
2014
Hartford, Connecticut
Photo by iStockphoto, www.istockphoto.com
Connecticut
CITY OF HARTFORD MARKET
by John McCormick, Jr., john.mccormick@cbre-ne.com
‘Live, Work, Play’—this is and should be the city’s foundation to build on for the future. Hartford is, again, the place to see and be seen for corporate employers hiring, living
and recreating in Connecticut. Employers and employees alike are seeking, more than ever, to create vibrant environments that capture the convergence of companies,
residences, restaurants, entertainment and parks. These mixed-use spaces naturally appeal to the growing millennial demographic, expanding in today’s workforce and
impacting real estate decisions by Hartford businesses and government. Across both the public and private sectors, there has been a recommitment to the urban lifestyle as
the city forms the environment for UConn’s relocation plans, retail development, government consolidation and corporate relocations back to the city.
Live – The CBD’s multifamily vacancy rate hovers around 3%. This has gained
Work – Suburban migration to the CBD, coupled with strong expansion and early
local and regional attention, bringing five new projects to the drawing board,
renewals, has strengthened the ever-growing workforce of nearly 70,000 people
which will accommodate a need for approximately 950 studio, one- and two-
and led to a record-low vacancy rate of 16.66%, the lowest in the last decade.
bedroom apartments.
• The recent closing and financing for 201 Ann Street, 179 Allyn Street, Front
Street’s multifamily phase and the former Clarion Hotel, have all begun
construction phases for delivery in the fourth quarter of 2014/early 2015.
• In addition, 777 Main Street should be ready to deliver approximately 290 units
in late 2015, and an additional 200 units at 95-101 & 111 Pearl Streets are
anticipated in early 2016.
• Suburban tenants relocating included C.M. Smith, Carlton Fields Jorden Burt,
Whittlesey & Hadley and Microsoft, for approximately 60,000 square feet.
• In addition, Travelers, CareCentrix, Virtus Investment Partners and Cornerstone
Real Estate Advisers expanded by approximately 160,000 square feet.
• Several tenants recommitted to downtown, including Guilford Specialty
Insurance, Webster Bank, Sparta Insurance, Rome McGuigan, Shipman &
Goodwin and William Gallagher, which helped maintain strong occupancy
levels in four downtown buildings.
• The State of Connecticut Economic Development initiative to consolidate offices
resulted in two property purchases in the CBD, 55 Farmington Avenue and
Connecticut River Plaza for 840,000 square feet. Not only will this bring 2,300
“Across both the public and private sectors, there has
been a recommitment to the urban lifestyle.”
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
employees downtown, but it also has removed large contiguous blocks of space
from the available inventory.
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46
Connecticut
ABSORPTION (SF) BY SUBMARKET
City of Hartford
Play – Hartford continues to transform and make strides to improve the amenity
108,212
North Suburbs
-21,533
environment of the city. The new XL Center management company, Global
Spectrum, announced a three-year contract extension with The AHL Hartford
South Suburbs
194,520
Wolf Pack that will further expand the urban entertainment and amenity base
East Suburbs
-335,321
downtown.
• This agreement will include a new commitment to house the University of
West Suburbs
9,664
Connecticut Men’s Hockey East program starting in 2014, $1.8M renovations
to the main concourse area, and an expanded concert schedule, which proves
-350,000
-250,000
-150,000
0
150,000
250,000
350,000
the XL Center will continue to be a vibrant attraction for the CBD.
• Retail openings along Front Street continue to complement the streetscape
with a new Spotlight Theaters and a new Capital Grille; Infinity Hall and Ted’s
Montana Grill are expected to open in early 2014.
CITY OF HARTFORD MARKET FORECAST
Looking toward 2014, we anticipate modest absorption of approximately 120,000
square feet with market rents averaging between $21–24 per square foot gross.
• These attractions helped secure the University of Connecticut’s commitment to
There are limited opportunities for large contiguous block space for tenants
relocate the Greater Hartford campus to the Times Building on Prospect Street
seeking over 100,000 square feet. Alternatively, for the 10,000–30,000 square
in the fall of 2016, which will bring 2,300 students to downtown, in addition to
foot users, there will continue to be 4–7 competitive options for consideration.
the already successful expansion of the Capital Community College on Main
Based upon the existing activity in the market, landlords will continue to be
Street.
aggressive deal markers. For suburban tenants seeking quality space and the
‘Live Work Play’ environment, Hartford has it and the momentum is building.
GREATER HARTFORD OFFICE MARKET SNAPSHOT
SUBMARKET
Central Business District
TOTAL SF
AVAILABILITY
VACANCY
SUBLEASE
YTD ABSORPTION (SF)
AVG. ASKING RENT ($/SF)
7,234,504
18.92%
18.60%
0.58%
126,493
$21.44
Outside Central Business District
1,963,705
10.51%
10.51%
1.25%
(18,281)
$17.31
City of Hartford Office
9,198,209
17.12%
16.87%
0.72%
108,212
$20.91
19.76%
19.76%
0.23%
(21,533)
$16.04
Suburban North
Suburban West
Suburban South
PL
O LD
H
E
C
A
E R 3,078,773
Suburban East
5,315,838
18.74%
18.07%
1.43%
9,664
$20.47
3,313,770
13.58%
13.50%
1.64%
194,520
$18.69
3,263,883
21.40%
14.09%
0.32%
(335,321)
$20.72
Suburban Hartford Office
14,972,264
18.39%
16.54%
0.99%
(152,670)
$19.22
Overall Hartford Office
24,170,473
17.91%
16.66%
0.89%
(44,458)
$19.85
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
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47
Connecticut
GREATER HARTFORD SUBURBAN EAST MARKET
by Jennifer Gosselin, jennifer.gosselin@cbre-ne.com
Tenant demand is strong and new companies looking for space in the East market
may be forced to consider alternative markets in suburban Hartford. Glastonbury
continues to be a very sought-after location in the East market due to its great
Within Greater Hartford’s East market, Class A space options with more than
highway access, strong amenity base, affluent residential community, highly
20,000 square feet of availability are scarce. Currently, 101 East River Road in East
educated workforce and strong school system. Industries targeting Glastonbury
Hartford is the only building that can accommodate this size requirement during
include financial service operations and professional firms, both legal and medical.
2014 and 2015, with full floor availabilities ranging from 19,049–32,388 square
Glastonbury, however, is a ‘Tale of Two Markets’ with 500,000 square feet of Class
feet, and the entire 191,476 square foot building available. The State of Connecticut
A inventory over 96% occupied in Somerset Square and 633,000 square feet of
will be consolidating their leased locations into two buildings that they purchased
Class A/B inventory closer to 78% occupied. This is primarily due to the fact that
in 2013. These include 55 Farmington Avenue and Connecticut River Plaza in
office space in Somerset Square is more updated and within walking distance
Downtown Hartford/450 Columbus Boulevard.
to amenity-rich retail properties. Class A asking rents in Somerset Square have
In 2013, tenants across the East market continued to renew and expand. Some
appreciated to levels greater than downtown Hartford, upwards of $24.50–26.00
important deals of note include:
• Selective Insurance Company renewed in 25,744 square feet at 500 Winding
Brook Drive in Glastonbury.
• UConn Health Center extended its 30,544 square feet lease at 99 Ash Street in
East Hartford (medical office space).
• Janney Montgomery Scott renewed their 5,508 square foot space at 180
Glastonbury Boulevard in Glastonbury.
per square foot. In Salmon Brook Park and Glastonbury Corporate Center, the
average is closer to $21.00 per square foot.
GREATER HARTFORD SUBURBAN EAST MARKET FORECAST
Quality options have been leased over the past several years, which have left fewer
options for tenants seeking to locate in high-end space. If the obsolete properties
were removed from the sample inventory, the supply would be even tighter. Aging
inventory is driving up availability rates with over 221,000 square feet of Class B
New deals in the East market include:
and C available space in the East market that is in need of significant upgrade.
• Envision Pharma, Inc. leased 11,108 square feet at 455 Winding Brook Drive
Another notable trend is the tightening of the medical office inventory in East
in Glastonbury.
• Capital Indemnity Corp. leased 12,275 square feet at 115 Glastonbury
Boulevard in Glastonbury.
• Parsons Brinckerhoff leased 8,500 square feet at 500 Winding Brook Drive,
Glastonbury and then expanded the following quarter by an additional 1,452
square feet.
• Infosys leased 6,397 square feet at 95 Glastonbury Boulevard in Glastonbury.
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
Hartford and Glastonbury. These two submarkets currently have just under 5%
availability and the overall East market has only 7% of the 500,000 square foot
Class A/B medical inventory available. The highly successful Gateway Medical
Office Park constructed on Eastern and Western Boulevard in Glastonbury, ended
the year under 2% vacant, with only one space available for a 2,730 square foot
tenant. Recently coming to market for sale is an investment opportunity at one
of the largest medical office buildings in this market, 622 Hebron Avenue, with a
full tenant roster and rentable building area of 51,000 square feet.
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48
Connecticut
GREATER HARTFORD SUBURBAN WEST MARKET
by Mike Puzzo, mike.puzzo@cbre-ne.com
For the second consecutive year, the West recorded healthy absorption gains
Major employers, with a somewhat limited role, continued to lead the leasing
following a busy year of leasing activity throughout the submarket. Overall,
and user sales activity in the West. United Technologies Corporation, which
the West finished the year with approximately 10,000 square feet of positive
continues to restack and expand Farmington staffing levels, completed a 70,000
absorption, with an availability rate of 18.7%. In the Class A sector, absorption
square foot lease restructure at 9 Farm Springs Road and opened the new UTC
was negative 5,000 square feet for the year with an availability rate of 22.9%.
Leadership Center at 8 Farm Springs Road. Many of the new Farmington seats
Despite the increase in activity, asking rents in the West market have held steady
at an average of $21.60 per square foot for Class A product. The general asking
rate range for Class A space in the West is still very wide, ranging between
$18-25 per square foot, gross. West Hartford is the stand-alone exception with
rents reaching upwards of $32.00 per square foot. The overall increase in activity
levels is encouraging for a market that is still in the midst of recovery.
for UTC have been relocated from the headquarters location at One Financial
Plaza in Hartford, where they trimmed occupancy by nearly 75,000 square feet
during the year. On the user-sale front, the UConn Health Center purchased 195
Farmington Avenue, a property contiguous to its campus, with plans for its own
use. The building, which had been taken back by its lender, was purchased for
$5.4 million, or approximately $122 per square foot.
Both UTC and UConn Health Center needs have created a displacement trend
in the market and forced several tenants to seek out space alternatives. These
transactions included ProHealth Physician Partners, which will relocate from
HARTFORD AVER AGE ASKING RENTS BY SUBMARKET
4 Farm Springs Road to 3 Farm Glen Boulevard for 30,000 square feet to
accommodate UTC’s growth; and three tenants from 195 Farmington Avenue
totaling approximately 15,000 square feet to accommodate UConn. Those include
City of Hartford
Alliant Insurance for 4,800 square feet at 40 Stanford Drive, and Plymouth Rock
Assurance for 4,300 square feet at 20 Batterson Park Road.
North Suburbs
Medical space is not currently included in the Hartford West statistical dataset,
however, we would be remiss not to mention the development along Farmington
South Suburbs
Avenue at the UConn Health Center and its surrounding area. As a result of the
State of Connecticut’s “Bioscience Connecticut” initiative, there are more than
East Suburbs
900,000 square feet of new construction projects currently underway on the UConn
Health Center Campus. These, and other off-campus projects, are intended to
West Suburbs
make Farmington the premier research, genomics and medical cluster in central
$0.00
$5.00
$10.00
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
$15.00
$20.00
$25.00
Connecticut.
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49
Connecticut
HISTORIC HARTFORD ASKING RENTS vs. AVAILABILITY
Hartford Asking Rents
Suburbs Asking Rents
Hartford Availability Rate
Suburbs Availability Rate
30%
$25
BIOSCIENCE CONNECTICUT INITIATIVE
Size
Est. Cost
Est.
Completion
Jackson Laboratory for Genomic
Medicine
189,000 SF
$291M
2014
UConn Outpatient Pavilion
300,000 SF
$203M
2014
UConn Research Renovations
238,000 SF
$138M
2014/2016
11 Stories/169 beds
$318M
2016
N/A
$163M
2018
Major Projects
UConn Patient Care Tower
25%
$20
20%
$15
UConn John Dempsey Renovations
15%
$10
10%
$5
In addition to the above projects on the UConn Health Center Campus, Metro
Realty Group has added its sixth building in the Farmington Medical Arts Campus
with the completion of 505 Farmington Avenue. This 64,000 square foot building
is fully leased to Connecticut Children’s Medical Center (CCMC) and will function
as a pediatric surgery center. The former Regus facility at 406 Farmington Avenue
is currently undergoing a complete renovation and reuse to 15,000 square feet of
medical space and is fully leased to Hartford Healthcare for 15 years.
Rounding out general office activity in the West, we saw a host of intra-market
relocations as well as a number of lease renewals, and even a few new requirements.
• 5 Batterson Park Road in Farmington secured two new requirements, with
Hartford Healthcare for 41,000 square feet and Catamaran for 18,000 square
feet.
• Growing healthcare technology company eVariant signed a lease for 14,500
square feet at 308 Farmington Avenue and relocated from sublease space in
Simsbury earlier this year. Arch Reinsurance relocated from 10 Waterside Drive
and expanded slightly with a 13,500 square feet lease at 74 Batterson Park
Road.
• Additional leasing activity deeper in the Farmington Valley included Global Jet’s
lease for 10,300 square feet at 30 Tower Lane in Avon, and the accounting firm
of Saslow Lufkin & Buggy’s lease for 15,000 square feet at 175 Powder Forest
Drive in Simsbury.
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
5%
$0
0%
2006
2007
2008
2009
2010
2011
2012
2013
• Major lease renewals during the year included McKesson/Moore Medical
Group for 49,000 square feet at 1690 New Britain Avenue; vanZelm Heywood
& Shadford for 25,900 square feet at 10 Talcott Notch Road; and Segal
Companies for 12,900 square feet at 30 Waterside Drive, all in Farmington.
GREATER HARTFORD SUBURBAN WEST MARKET FORECAST
The West market started the year with a strong pipeline of activity that played out
during the year. While we are reasonably confident that 2014 will be good year
for this submarket, the pipeline is not nearly as strong as it was a year ago. This,
coupled with the fact that 2014 will not be a big lease rollover year for the West,
we expect absorption to be only moderate. Farmington and West Hartford will
continue to lead the West in terms of absorption and rent growth. Avon, Simsbury
and especially Southington—where 83% of the space we track in three buildings
is vacant—will continue to keep upward pressure on overall availability rates
given the number of commodity space options that have been slow to secure new
tenancies.
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50
Connecticut
GREATER HARTFORD SUBURBAN NORTH MARKET
by Bob Botters, bob.botters@cbre-ne.com
Leasing velocity across North Hartford’s Office market was slow throughout 2013,
Insurance as a tenant, vacating from 2 Waterside Crossing and relocating to the
as the majority of activity was generated from medium and small-sized tenant
stable ownership of Griffin Land’s 5 & 7 Waterside Crossing.
demand. In contrast to last year’s high volume of large block requirements over
50,000 square feet, the North market saw modest negative absorption of 21,000
square feet in 2013, pushing availability up by approximately 75 basis points
to 19.8% year-over-year. Despite the slowing demand, the North market remained
stable, with no major departures and no new additions to supply.
In contrast to the high vacancy of Vision Equities’ properties, 175 Addison Road,
which is 89% leased, is home to the remaining large block vacancies. This
“Tenancy in Common”-owned property has 616,000 square feet of office/flex
space and is in good overall condition. Despite being well maintained, the
industrial portion of 175 Addison Road has suffered from pricing challenges and
Vacancy, availability and asking rates were relatively flat in 2013, with most
subsequently has been placed under control of a special servicer. Ownership
properties showing modest rent increases and slight reductions in tenant
teams in the North market that continue to maintain and invest capital into assets
concessions. Class A effective rates increased for the second consecutive year,
will compete for future tenant demand and outperform the market.
ranging from $16.25–18.25 per square foot, full-service gross up $0.25 per square
foot. As market conditions improved, new tenant build-out allowances decreased
an average of $2 per square foot year-over-year, ranging from $15–23 per square
foot. Refurbishment allowances for renewals also decreased by $1 per square foot,
ranging from $3–7 at the end of 2013. Most of the quality spaces available were
absorbed in 2012, leaving the existing large block inventory virtually unchanged
for 2013; tenants seeking 25,000–50,000 square feet of office space had the
same six options in the market at the end of 2013 that had been available at the
SUBURBAN NORTH OFFICE MARKET FORECAST
For the first time ever, there was positive absorption in the aggregate over a rolling
10-year period, totaling 81,000 square feet. With no new construction on the
horizon, availability may soon begin to tighten. If 2014 has even a modest level of
positive absorption, we could see a shift from the North’s longstanding
‘tenants’ market’ to a more balanced market for landlords.
end of the prior year.
Two of the greatest challenges for the lingering large block vacancies are the
aging conditions of assets and the financial stability of a few owners in the midst
of foreclosure proceedings. Half of the large block vacancy is located within the
Vision Equities’ portfolio, a five-building portfolio in Windsor that has suffered from
a 57% vacancy rate and deteriorating physical assets. Over the last eight years,
the properties have fallen into disrepair due to a lack of general maintenance and
“With no new construction on the horizon,
availability may soon begin to tighten.”
capital improvements. As a result, these properties have recently lost Hanover
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
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51
Connecticut
GREATER HARTFORD SUBURBAN SOUTH MARKET
by David Barnes, david.barnes@cbre-ne.com
Throughout 2013, several existing buildings across the South market traded
The healthcare industry is undergoing a similar experience. Physicians for
hands. New owners that invested capital and improved their facilities saw office
Women’s Health is consolidating their operations into a new 10,000 square foot
space slowly being absorbed. With the steady decrease in the availability of good
lab facility in Rocky Hill that will better serve their clients throughout the state.
quality space, vacancy rates continued to decline quarter-over-quarter. There are
Community Health Network exercised their purchase option and acquired their
a variety of different industries that fuel demand in the south market. During 2013,
second building, bringing their occupied space to over 60,000 square feet
education, engineering and healthcare businesses have all been growing and
in Wallingford. Also in Wallingford, HealthyCT, a non-profit health insurance
expanding their footprints in the Suburban South market.
company, has expanded to over 11,000 square feet.
Just over the Hartford line, the Capitol Region Education Council (CREC) is
underway with the development of a 100,000 square foot magnet school, and the
GREATER HARTFORD SUBURBAN SOUTH MARKET FORECAST
Art Institute has completed a 32,000 square foot build-out for a new campus—
The Suburban South market is conveniently positioned in the state, whereby it
both in Wethersfield. University of Connecticut, Albertus Magnus, Yale University
attracts those companies looking to be just outside Hartford as well as those
and Quinnipiac University are each expanding in their own sector.
looking to be north of New Haven. This area is poised to benefit from the State of
Several engineering companies are expanding and positioning themselves for the
Connecticut DECD’s incentive plans. As the universities and the bioscience industry
future development. VHB has committed to a 10-year lease for 13,000 square feet
at 100 Great Meadow Road in Wethersfield. Burns & McDonnell has increased
their footprint to over 50,000 square feet in Wallingford.
grow, many smaller ‘feeder-type’ companies will want to locate in the center of
the state so they are more accessible and are able to tap into multiple labor pools.
Space in the Class A buildings is slowly being absorbed. This market compression
will eventually result in the renovation of some older Class B buildings that will
need to stay updated in order to compete for new tenants.
“Education, engineering and healthcare businesses
have all been growing and expanding their footprints
in the Suburban South market.”
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
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GREATER HARTFORD INDUSTRIAL MARKET
locally is the fact that land in the traditional Mid-Atlantic distribution center markets
by Christopher Metcalfe, chris.metcalfe@cbre-ne.com
has become increasingly scarce.
The Greater Hartford Industrial market followed its recovery in 2012 with another
In order to accommodate this modern demand, build-to-suit activity remained
strong performance in 2013. Market fundamentals were strongly positive again
robust in Connecticut in 2013. Each of the following companies settled on
for 2013, with over 356,000 square feet of positive absorption, causing the overall
Connecticut for an industrial new construction project this year after a multi-state
vacancy rate to fall from 13.6% at year-end 2012 to 13.2% at year-end 2013. With
search:
3.4 million square feet absorbed over the past two years, Hartford has recovered
Tenant
Square Feet/Deal
City/Town
77% of the negative absorption realized in 2009 and 2010.
Amazon.com
1,000,000/To Own
Windsor
Driving the strong fundamentals in the market were the following several large
Dollar Tree
1,000,000/To Own
Windsor
blocks of space absorbed by national and regional users:
Win Wholesale
200,000/To Own
Middletown
FedEx Ground
240,000/Lease
South Windsor
Polamer Precision
150,000/Manufacturing To Own
New Britain
King Industries
80,000/Manufacturing To Own
Waterbury
Tenant
Square Feet/Deal
City/Town
Jade/ADS
309,600/Lease
Newington
Red Thread
105,000/Lease
North Haven
ATI Metals
111,000/Lease
East Hartford
Foreclosure activity has been very limited in this recovery, and 2013 continued this
Shelton Brothers
73,000/Lease
Enfield
trend with very limited activity across distressed industrial assets. Portfolio owners
Brooks Brothers
120,000/Lease
Enfield
were well prepared, generally, with lease terms bridging the downturn and healthy
Nixon Medical Uniform
53,000/Sale
East Hartford
debt ratios.
Permastellisa
100,000/Lease
Bloomfield
Pratt & Whitney/Wood Group
50,000/Lease
Bloomfield
GREATER HARTFORD INDUSTRIAL MARKET FORECAST
The nature of industrial demand in Connecticut has shifted over the past 5–10
2014 will mark the first year of transition between the one million plus square
years. Hartford was once a tertiary market where companies would establish
foot absorption figures that we have experienced over the past three years, to a
a small outpost, taking in product from large distribution centers in large markets
more modest 500,000 square feet as quality product continues to dry up. We
for distribution here in southern New England. As modern logistic models have
have been predicting the return of speculative construction in the summer of 2014
eliminated the need for these small outposts, demand for spaces under 50,000
for several years, and this will come to modest fruition with at least one project
square feet has softened substantially. However, as a result of this shift, Connecticut
scheduled. However, as land holders look to minimize leasing risk, the trend in
has become a desired location for the large distribution centers, which formerly
new construction will be large build-to-suit activity. Vacancy will continue to move
resided almost exclusively in the Mid-Atlantic states. Adding to this demand strength
downward toward the static range of 8-10%, with any margin above attributable
to third-generation, less-desirable inventory.
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different investors. UConn Health Center purchased 195 Farmington Avenue
for $135 per square foot; local investors Mark Siegal and Brad Baran acquired
CENTRAL CONNECTICUT INVESTMENT MARKET
by Patrick Mulready, pat.mulready@cbre-ne.com
2013 was a surprisingly strong year for office and industrial investment sales in
Central Connecticut. On the heels of three stagnant years in the local investment
market, more square feet of office product traded hands for more aggregate
dollars in 2013 than this market has seen since the 1980s. A total of 18 office
buildings were sold between 2009–2011 (the annual market average the previous
Farmington Mountain Office Park for $4,750,000; and Industrial Builders & Realty
bought 2 Batterson Park Road.
Increased demand from occupiers is also driving sales. MGRE Real Estate acquired
525 Brook Street as a vacant asset and subsequently leased the building to CREC.
Keystone Companies purchased 103 Woodland Street from VNA Healthcare, a
division of Hartford Healthcare, and subsequently long-term leased the building to
St. Francis Hospital.
five years was 17). In 2012, 21 office buildings totaling 2,870,000 square feet sold
This flurry of office building trades is fueled by investor optimism in the market—
for $272 million in aggregate consideration.
both the national economy as well as the fundamentals of Central Connecticut.
This active sales environment continued during 2013 as 12 office buildings totaling
more than 1,400,000 square feet traded hands. These statistics do not include the
sale of Blue Back Square, a 450,000 square foot mixed-use project containing
197,000 square feet of office and medical office space. Ronus Properties, the
original owner, sold this project to Starwood Capital Group in West Hartford for
$106,000,000, which represented a sub-8% cap rate. Not only is this sale noteworthy for its size, but also proves that Central Connecticut can attract institutional
investment from outside the market in the aftermath of the credit crisis.
Blue Back Square was one of four office sales that highlighted the market in 2013.
Two others were 55 Farmington Avenue and Connecticut River Plaza in Hartford,
both acquired by the State of Connecticut. In aggregate, the state paid $52,500,000
for these assets, which total 841,000 square feet ($62.00 per square foot). The
fourth significant sale also occurred downtown, which was C3 Capital’s $22,700,000
divestiture of Metro Center to The Fremont Group, a private equity firm headquartered in West Hartford. Equally important as institutional investment from
Starwood was Fremont’s purchase, showing that local investors still believe in the
fundamentals of their own market.
The return of strong pricing is also giving current owners the opportunity to monetize
assets that would have been difficult to sell between 2008–2011. Therefore, the
pipeline of new assets to market is strong, as six office assets are under contract
entering 2014. The market is also awaiting the auction of Goodwin Square, which
is expected take place in 2014. LNR foreclosed on this signature tower on the
Hartford skyline in late 2012 and has elected not to invest additional capital, but
instead sell as an underperforming asset with upside.
CENTRAL CONNECTICUT INVESTMENT MARKET FORECAST
Between investors looking to repatriate capital and lenders selling foreclosed
property, the investment market in Central Connecticut is expected to remain
strong for the next 2–3 years. While assets like Goodwin Square and 200 Executive
Boulevard in Southington will be auctioned, other lenders are currently investing
in foreclosed buildings, but are not long-term owners of the real estate. Properties
such as CityPlace II and the five-building portfolio in Griffin Park in Windsor,
that was recently taken back by Aegon, are deals in the market in the very near
future. The potential shift in ownership to new equity sources will redefine the local
office market, as new owners purchase real estate amidst an improving economy.
The suburban market has been active as well. Seven months after RBS Citizens
It will be interesting to see how this shift will affect rental rates and concession
foreclosed on three assets in Farmington, each had been re-sold, and to three
packages for tenants in the market in the next few years.
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GREATER HARTFORD MULTIFAMILY HOUSING
MARKET
by Michael Stone, mike.stone@cbre-ne.com
Operators welcomed strong rental demand throughout 2013, reflecting a changing
development sites at a discount, 2013 was extremely active with development
demographic profile comprising of more ‘Renters by Choice.’ Most of the older,
activity, which brought the return of peak pricing for approved land. Last seen
existing product in this market reflects demand from ‘Renters by Necessity.’ Such
in 2007, entitled land pricing ranged from $25,000–35,000 per approved unit.
changes in the demographic profile of apartment renters are welcomed by the
Nevertheless, due to high barriers to entry and an old housing stock in place, there
industry, and are leading to changes in complex amenities and services being
remains no threat of oversupply in this market.
offered at newer developments.
While suburban apartment development activity heated up during 2013, downtown
Sales volume in 2013 was more brisk than 2012, as buyers and sellers narrowed
Hartford also appears to be staged for a significant development boon that has
the gap in perceived valuation differences. Confidence in rental demand from both
the potential to more than double its existing inventory. Approximately 1,000 new
operators and lenders helped solidify underwriting that may have been difficult
units are proposed for downtown Hartford, nearly all comprising adaptive re-use
to support in prior years, especially with regard to value-add deals. Sales volume
of dilapidated structures. If successful, this will add significantly to the 800+ units
would have been even more impressive throughout 2013 if existing loans had not
developed during the last development cycle, which was considered by most to be
played a major role. Prepayment penalties and a slightly more volatile interest rate
well-received in the marketplace.
environment kept many sellers from entering the marketplace. Further, the returns
being generated from well-occupied apartment complexes were difficult to match
with other investment types.
GREATER HARTFORD MULTIFAMILY HOUSING MARKET FORECAST
The Greater Hartford Multifamily Housing market in 2014 will continue to be a
Pricing and capitalization rates in 2013 matched previous peaks last exhibited
model of stability. Much-needed supply will enter the marketplace in the coming
in 2005–2007, ranging from 5.75–6.25% for Class A apartments. Liquidity
years that will help the market transition into a more modern rental marketplace
throughout the year was plentiful from private equity players, institutional players
with amenities and services that reflect the profile of the new ‘Renter by Choice.’
and lenders. Well-located, value-add opportunities became even more scarce
Significant market liquidity from the private sector will also continue to fuel demand
throughout the year, as did offerings that were free and clear of existing debt.
for apartment investments throughout 2014 and, if interest rates remain low, sales
Ground-up development throughout 2013 was as active as it has ever been;
volume should continue to improve.
moreover, new apartment construction will become a reality over the next few
years in Hartford. While 2012 proved to be an opportunistic year for acquiring
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GREATER NEW HAVEN OFFICE MARKET
by David Hansen, david.hansen@cbre-ne.com
The City of New Haven’s office activity continued to outpace that of the peripheral markets of Greater New Haven in 2013. Following a similar pattern in 2012, suburban
markets lagged behind the Central Business District and the City proper in both leasing activity and development. There was notable growth in both the healthcare and
life sciences industries, even as companies in the region continued on a conservative approach to cost-cutting measures. The overall vacancy rate grew approximately 150
basis points to 15.9% year-over-year, and the average asking rate grew slightly from $20.02 to $20.60 per square foot gross through the same period.
CENTRAL BUSINESS DISTRICT
• The Downtown Crossing development broke ground this year, which will
Department of Social Services (52,000 SF); Teach for America (11,313 SF);
bring the headquarters of Alexion Pharmaceuticals to New Haven, adding
and Bond Construction (5,622 SF). Tenants facing alternatives to fund parking
approximately 500,000 square feet of new and primarily pre-leased office
requirements, averaging 3-to-4 cars per 1,000 square feet of rentable space,
product to the city’s inventory. Alexion has signed a lease to occupy roughly
add upward of $6–9 per square foot to annual rental expenses.
80% of the office space and Yale University has leased the balance of the
property.
• Office space design and workplace strategies are trending toward open area
floor plans across many industries, as office users elect more dense and
• Convenient and accessible parking continues to be a prerequisite for new
efficient work environments while decreasing the average square foot per
tenants entering the New Haven market. As a result, properties that can offer
person. The business plans for office use emphasize collaborative interaction
parking at a reduced or free-rate have a significant advantage in attracting
among employees who typically sit in multi-person work stations, or open
tenants in the marketplace. 370 James Street is the main beneficiary of this
table ‘benching’-style models. Industries that require a measure of client
growing trend, completing approximately 70,000 square feet of leasing
confidentiality, such as legal and financial services, remain in dense private
transactions in 2013. This included such deals as the State of Connecticut’s
office-type floor plans.
GREATER NEW HAVEN OFFICE MARKET SNAPSHOT
SUBMARKET
East Suburbs
TOTAL SF
AVAILABILITY
VACANCY
SUBLEASE
YTD ABSORPTION (SF)
AVG. ASKING RENT ($/SF)
579,765
13.11%
13.11%
0.00%
18,429
$16.30
4,217,884
15.43%
15.32%
0.17%
17,098
$16.97
West Suburbs
1,693,298
28.51%
24.12%
0.00%
(112,497)
$22.41
City of New Haven
5,886,707
14.24%
14.24%
1.19%
(179,815)
$22.77
12,377,654
16.55%
15.91%
0.62%
(256,785)
$20.60
North Suburbs
Overall New Haven Office
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• Cooper Square Realty, Inc. purchased 205 Church Street, the historic former
Union Trust Bank and multi-tenant office building. The new owners retained
Wells Fargo Bank as a tenant and plan to develop apartments in the balance
of the 159,000 square foot building.
NORTH SUBMARKET
• Quinnipiac University enrolled the inaugural class at its newly constructed $100
GREATER NEW HAVEN OFFICE MARKET FORECAST
Looking ahead to 2014, expect ongoing and future developments to positively
impact New Haven and its submarkets. The Downtown Crossing project, even
though it is not slated to be completed until 2015, will begin to impact near-term
employment and retail growth as development plans progress in 2014. The
fundamental building blocks that have spurred growth in the larger markets
will provide the impetus for other developments, such as the Coliseum site and
million Frank H. Netter School of Medicine this year, located at the former
adjacent sites along the former Route 34 connector. We are sure to see further
Anthem Blue Cross campus in North Haven, CT. As a result of the changing
growth in the life sciences and healthcare industries as Alexion establishes itself
health care environment, the school will reportedly focus on producing primary
directly adjacent to the Yale School of Medicine and Yale New Haven Hospital.
care physicians and will implement a unique team model that collectively pairs
The influx of professional-level jobs will also drive multifamily development in
medical students, nursing and other health science students together.
the downtown area, tightening the office market and repositioning office product
• Yale New Haven Hospital completed its merger with the Hospital of St. Raphael
for future absorption in 2014.
to form what is now one of the top 10 largest healthcare facilities in the
country.
• The State’s aforementioned DSS also leased 27,019 square feet in the Signature
91 building at 35 Thorpe Avenue in Wallingford.
WEST SUBMARKET
• Total Mortgage Services, Inc. and the Penner Law Firm purchased 185 Plains
Road in Milford, a 143,000 square foot office building previously owned by
Commonwealth REIT. The brokerage and law firms will relocate their offices,
which are 25,000 square feet and 7,700 square feet, respectively, to that
“The influx of professional-level jobs will also drive
multifamily development in the downtown area,
tightening the office market and repositioning office
product for future absorption in 2014.”
address.
• Yale University and Yale New Haven Hospital leased 10,000 square feet at 48
Wellington Road, Milford, further expanding the hospital’s suburban presence.
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• Bozzuto’s Inc., a large wholesale grocery distributor, renewed its lease at
300 Montowese Avenue in North Haven earlier this year. Bozzuto’s has been
GREATER NEW HAVEN INDUSTRIAL MARKET
by Matt O’Hare, matthew.ohare@cbre-ne.com
operating in this 300,000 square foot, climate-controlled facility formerly owned
by Stop & Shop Supermarkets since 2008. The site is currently owned by New
York City-based Investcorp.
The Greater New Haven Industrial market faced challenges, but remained
Lastly in North Haven, Scarsdale, NY-based Rabin Properties began the demolition
steady in 2013, reporting an overall vacancy rate of 13.7%. As predicted, the
of the existing 1,300,000 square foot former Pratt & Whitney engine blade
North submarket was active during 2013, with a fair amount of significant deals
facility located on a 165-acre site in 2013. This demolition now paves the way
completed in the town of North Haven. North Haven benefits from its extremely
for Rabina to market 500,000-1,000,000 square foot build-to-suit opportunities
convenient location, its connection to Interstate 91, proximity to downtown New
to potential distribution users. The location of this particular site is arguably one
Haven/I-95 junction 10 miles to the south, and downtown Hartford/I-84 junction
of the most strategic in the state of Connecticut and will afford Rabina Properties
just 30 miles up Interstate 91. North Haven has over 6.2 million square feet of
the opportunity to pursue companies looking at sites for a potential build-to-suit
industrial space and currently enjoys a healthy availability rate of highly functional
industrial facility in Connecticut.
industrial product.
The North submarket also featured the only significant industrial investment sale
Two prominent North Haven buildings were targeted by three different industrial
this year. West Hartford-based Freemont Group purchased 29 Research Parkway,
users this year, which plan to move in early 2014.
located in Wallingford off Interstate 91 between Exits 15 and 16. This 185,000
• 297 State Street, a multi-tenant building owned by a joint venture between
square foot facility is in superior condition, well located, extremely functional and
Mountain Development Corp. and Marcus Partners, is now the long-term home
to Red Thread/Steel Case Office Furniture and 1-800 Pack Rat.
touted as one of the premier industrial buildings not only in the Greater New Haven
Industrial market, but the entire New England region. Fremont plans to market the
facility for lease to larger-scale distribution companies.
• The two companies combined occupy over 150,000 square feet of space and
were attracted to the building’s functionality and strategic location with direct
access off of I-91 and proximity to Route 15 (Merritt Parkway) and I-95. The
owners made significant improvements to this former 385,000 square foot
Quad Graphics facility and are poised to continue their leasing efforts into
2014, marketing 227,000 square feet of available contiguous high-bay space
for lease.
• The former Marlin Firearms building, located on Kenna Drive, also traded in
GREATER NEW HAVEN INDUSTRIAL MARKET FORECAST
2014 is predicted to be another challenging year for the Greater New Haven
Industrial market. The high cost of doing business in Connecticut is a major barrier
to job creation. This, as well as high taxes (Connecticut is plagued by a $0.45 per
gallon gasoline tax, one of the highest in the country), has led to out-migration that
has exceeded immigration by 300,000 residents over the past two decades. The
state’s strategic location between New York and Boston, as well as its highly skilled
2013. This 200,000 square foot manufacturing facility, with visibility from I-91,
and educated workforce will retain and allow some industrial-based companies to
was purchased by a manufacturer, who plans to bring a significant number of
grow. However, Connecticut must address its economic issues if it is to attract more
jobs to North Haven when it begins operating in early 2014.
industry and remain competitive with the rest of the country.
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GREATER SPRINGFIELD OFFICE MARKET
by John Reed, john.reed@cbre-ne.com
Recent traditional drivers of the Greater Springfield Office market are the
healthcare and education sectors. In addition to Baystate Health Systems
opening a $45 million emergency room, they have acquired a 34,000 square
The Greater Springfield Office market will continue to improve through 2014.
foot building in the North End for $6.5 million. The Sisters of Providence Health
The growth of existing office tenants together with higher education, healthcare
System has continued this trend with their $20 million Mercy Medical Center
and non-traditional uses are the main force behind the improvement. National
expansion. In Northampton, Cooley Dickinson Health, an affiliate of Mass
and local existing tenants comprise the base of the activity in the downtown
General Hospital, committed to 40,000 square feet at the newly completed
Springfield and suburban markets. These companies provide valuable services
Northampton Professional Center.
and create meaningful jobs as they service the local area.
The other growth sector in the Springfield CBD is higher education. Cambridge
Planned downtown projects continue to invigorate the local economy. The MGM
College completed their relocation from the suburbs and opened an 18,000
Resorts International-backed casino slated for the South End and the planned
square foot operation at Tower Square. Bay Path College committed to downtown
Union Station renovation in the North End will help both sections of the city.
Springfield with a 10,000 square foot urban campus at 1350 Main Street.
Together, these two projects represent almost $900 million in investment in
Meanwhile, UMass had circulated an RFP for a CBD location and just recently
Springfield. Interest grows around the Springfield casino project since the other
announced it will take 27,000 square feet in Tower Square. North of Springfield,
local municipalities that were competing for the one western Massachusetts
Holyoke Community College recently completed the conversion of a 22,000
location did not garner local support, thus leaving MGM Resorts in the South End
square foot facility on Jarvis Avenue in Holyoke as a high-tech health science
of Springfield as the only western Massachusetts contender.
center for its nursing and radiological technology program.
As the economy continues to solidify, the available inventory of CBD and suburban
space diminishes. Approximately 10–11% of the Greater Springfield suburban
market is vacant, and Springfield’s total vacancy is 12–13%. Rental rates are
consistent; rates on a gross basis for Class A CBD office space range from $15–20
per square foot, while Class B space averages $10–13 per square foot.
“The MGM Resorts International-backed casino and
the planned Union Station renovation represent
almost $900 million in investment in Springfield.”
GREATER SPRINGFIELD OFFICE MARKET FORECAST
The Greater Springfield Office market will continue to improve through 2014.
Interest from non-traditional uses together with the growing higher education and
healthcare sectors will support the Greater Springfield Office market.
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GREATER SPRINGFIELD INDUSTRIAL MARKET
by John Reed, john.reed@cbre-ne.com
The Greater Springfield Industrial market was extremely active in 2013 and
and consolidation of many of these larger warehouses. Now that the economy is
continues to trend toward pre-recession levels. It is expected that this improvement
improving, there is evidence of expansion and decentralization, once again.
will continue throughout 2014 in all industrial sectors. Vacancy rates continue to
decline as better-quality industrial product is absorbed and older, functionally
obsolete properties continue to be negatively impacted. At year-end 2013, the
industrial vacancy rate is approximately 12%.
With quality inventory being absorbed, the focus has shifted to potential build-tosuit transactions. In many cases, this is the only solution for companies needing
modern high-bay distribution facilities or state-of-the-art manufacturing facilities.
Food processing and distribution user demand has grown in the region due to
Springfield’s proximity to other major metro hubs, highway systems, a solid labor
pool and available industrial land. The price of well-located industrial land has
remained at $75,000-100,000 per acre, or $5–7 per buildable foot.
There were a few investment sales in 2013, the most noteworthy being the
former Callaway complex in Chicopee. This 50-acre property is a prime regional
industrial redevelopment site. User transactions include 66 Ampad Road in
Leasing rates and sale prices are recovering, but have yet to return to pre-recession
Westfield; 123 First Avenue and 45 Plainfield Street in Chicopee; and 200 Tapley
values. On the leasing front, rents are in the $2.50-3.00 per square foot NNN
Street in Springfield, which sold for a second time since 2011.
range for ‘as-is’ leases. Tenants are committing to longer leases, such as five- and
seven-year terms, from the one- to three-year terms of the past few years. Sale
prices are still low, as buildings are selling for low-$20s per square foot, presenting
some acquisition opportunities far below replacement cost.
GREATER SPRINGFIELD INDUSTRIAL MARKET FORECAST
The Greater Springfield Industrial market is active and trending toward stabilized
levels. We expect continued improvement in all industrial sectors through 2014.
Over the past year there has been increasing activity from larger regional occupiers;
With vacancy rates declining, we expect steady and modest growth throughout
local and regional 3PLs serving the emerging retail and local manufacturing
2014.
markets fuel this interest. 10,000–50,000 square foot tenants and buyers remain
the most dynamic part of the local market.
Regional distribution requirements ranging from 100,000-500,000 square feet
are returning to the market. In the early 1990s, distributors began to populate
the region with smaller warehouses. This was due to the difficulty in servicing the
growing New England region from larger, 1,000,000+ square foot distribution
“With quality inventory being absorbed, the focus
has shifted to potential build-to-suit transactions.”
centers located in the mid-Atlantic states. During the recession, there was a retreat
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Rhode Island
MARKET OUTLOOK
2014
Providence, Rhode Island
Photo by iStockphoto, www.istockphoto.com
Rhode Island
RHODE ISLAND HISTORICAL OFFICE VACANCY R ATE
Downtown
Suburbs
30%
DOWNTOWN PROVIDENCE OFFICE MARKET
by Alden Anderson, alden.anderson@cbre-ne.com
25%
20%
The Downtown Providence Office market ended 2013 with a vacancy rate of
16.17%, an increase of nearly 15 basis points from the end of 2012. Overall,
there was 81,000 square feet of negative absorption, but 59,000 square feet of
this came from vacancy at One Weybosset Hill. Class A vacancy remains in single
digits at 9.6% and options above 10,000 square feet are scarce.
CAPITAL CENTER
• Asking rental rates increased 2.9% year-over-year, reflecting the desire to be
15%
10%
5%
0
2007
2008
2009
2010
2011
2012
2013
located in proximity to the train station.
• Additional space is being made available at 500 Exchange Street, which will
have an impact on Class A options in 2014.
• One Citizens Plaza is under new ownership and has renewed several leases in
2013, with more renewals expected in 2014.
PROMENADE DISTRICT
• The Promenade District in 2013 consisted of big blocks of shell space.
However, the Foundry has decided to redevelop 25 Holden Street (±165,000
SF) for additional residential units, bringing relief to the competitive set in the
submarket.
FINANCIAL DISTRICT
• The 320,000 square foot building at 111 Westminster Street is focused on
residential uses at the moment and has been removed from the office market
inventory, causing the vacancy rate to increase to 16.01%.
• Asking rents have increased 5.0% year-over-year to reflect the highest asking
• Since 2007, this submarket has had vacancy rates ranging from 23–32%. By
removing 25 Holden Street (±65,000 SF), the vacancy rate in this submarket
fell to 10.5%.
• Rental rates increased slightly to $21.66 per square foot, reflecting the highest
average asking rent since 2008.
rents in the submarket in over 10 years.
EMPIRE DISTRICT
• This submarket is well positioned to accommodate large tenant requirements
that enter the market in 2014, with buildings capable of handling 20,000–
100,000 square foot users.
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JEWELRY DISTRICT
CAPITAL MARKETS
• The proposed South Street Power Station redevelopment represents a dynamic
Investor interest in the Rhode Island market is evident with over $127 million in
collaboration among major stakeholders in Rhode Island, as one of the largest
pending or closed transactions over $10 million in the last 24 months. In 2012,
developments in several years with projected costs exceeding $200 million.
GTECH Center sold to a private investment fund for $51.5 million. In late 2012, 15
Looking ahead, the South Street Power Station should be a catalyst for further
LaSalle Square traded at $29.81 million and 475 Kilvert Street was sold for $13.65
growth in the immediate submarket and downtown Providence as a whole.
million to a private investment group, demonstrating the attention Rhode Island is
• Nearly 45% of available space in the submarket is in two buildings: 3 Davol
Square and 95 Chestnut Street.
• The Jewelry District had modest tenant velocity in 2013, as well as positive
absorption of 5,537 square feet and rental rate growth of 5.7% year-over-year.
getting from private and institutional investors. In 2013 there has been continued
interest, exhibited by the sale of Gateway Center for $13.23 million and American
Locomotive for $19.05 million. Yields still represent a significant spread over what
is available in core markets. It is expected that this investment interest will continue
and grow in 2014.
SOUTH MAIN STREET, RANDALL SQUARE & WESTMINSTER STREET
• The South Main Street submarket experienced single-digit vacancy in the three
previous years, but jumped up to 21.96% in 2013 due to the recent vacancy at
RHODE ISLAND HISTORICAL OFFICE NET ABSORPTION (SF)
180 South Main Street (±25,000 square feet).
• Randall Square had negative absorption of 6,000 square feet in 2013, yet
rental rates remained consistent with 2012 levels.
• 1 Weybosset Hill had 59,000 square feet vacated in 2013, driving up vacancy
in the Westminster submarket to 25.7%.
Downtown
Suburbs
300,000
200,000
100,000
0
In 2013, the Downtown Class A submarket experienced improvements over 2012
that led to vacancy rates remaining in single digits and landlords becoming more
conservative with tenant concessions. Over the last three years, Class A average
-100,000
-200,000
asking rents have increased 3.2% with the majority of deal velocity from large to
mid-size companies. In contrast, the majority of deal velocity in 2013 was below
10,000 square feet. There are several tenants above 10,000 square feet currently
in the market that will make decisions in 2014. Looking ahead, landlords and
-300,000
-400,000
2007
2008
2009
2010
2011
2012
2013
tenants alike will be watching some large tenant expirations, which will occur in
2015, but may impact the market in 2014.
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Rhode Island
SUBURBAN RHODE ISLAND OFFICE MARKET
by Andrew Galvin, andrew.galvin@cbre-ne.com
The Suburban Rhode Island Office market ended 2013 with 39,000 square feet of positive absorption and a 19.56% overall vacancy rate, the lowest level since 2008
and 66 basis points lower than 2012. Space has slowly been absorbed since 2010, averaging 70,000 square feet annual positive absorption due to ill-timed speculative
development and single-digit vacancy rates in 2005 and 2006.
NORTHERN RHODE ISLAND
HISTORICAL OFFICE VACANCY R ATE VS AVER AGE ASKING RENT
Vacancy Rate £ Average Asking Rent
30%
$35
$30
25%
$25
20%
• There was 40,663 square feet of positive absorption in 2013.
• In 2012, the ±317,000 square foot building at 1301 Atwood Avenue in
Johnston was acquired by Hobbs Brook Management, LLC. Major upgrades
were announced in 2013 with the delivery of new space expected in 2014.
• A major deal in this submarket occurred with a 90,000 square foot lead
tenant committing to 1301 Atwood Avenue. While this deal will not be
$20
15%
$15
reflected in the statistics until 2014, it represents a major gain for the Northern
Rhode Island submarket.
• Rental rates increased by 5.8% year-over-year to the highest levels since 2009.
10%
$10
5%
$5
0%
$0
WEST BAY
• The West Bay submarket continued to show improvement in 2013 with 27,000
Capital
Square
Financial
Westminster South Main
Randall
Square
Empire
Promenade
Jewelry
(Richmond)
square feet of positive absorption.
• The vacancy rate fell 135 basis points year-over-year to 14.98%, the lowest it
has been since 2006.
• There is still a lack of significant tenant velocity, but transactions have a more
traditional and longer term with customary concessions compared to the
common short-term deals in the immediate aftermath of the recent recession.
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
Rhode Isl and
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Rhode Island
EAST BAY
• The East Bay submarket has remained soft with 5,000 square feet of negative
absorption and a vacancy rate of 21.52% in 2013.
• The submarket showed weak fundamentals in 2013 with office space at
a significant discount to the other suburban markets, and a lack of tenant
The Suburban Rhode Island market has continued to show signs of improvement
in 2013 with a vacancy rate of 19.56%, the first time since 2008 that the Suburban
Rhode Island vacancy rate has been below 20%. Tenant demand remains soft,
but landlords are experiencing greater market stability. To that end, landlords are
being more guarded in their pursuit of deals, with improved rental rates and less
concessions.
velocity has led to vacancy rates above 20% in five out of the last six years.
• Since 2001, this submarket has never had a single-digit vacancy rate and has
averaged 18.6%.
RHODE ISLAND INDUSTRIAL MARKET
by Gerald Lavallee, gerald.lavallee@cbre-ne.com
SUBURBAN PROVIDENCE
• The Suburban Providence submarket had negative absorption of 12,000
square feet in 2013.
• Despite the negative absorption, average asking rental rates increased by 2%
and there is momentum with the growth of ManuCenter on Allens Avenue, the
success at 148 West River Street and positive absorption at Richmond Square.
These three projects combined comprise 53% of the submarket’s inventory.
AQUIDNECK ISLAND
• Rental rates increased 3.1% year-over-year to the highest levels since 1999,
due to increasing demand and a limited supply of options over 10,000 square
feet. In 2014, large tenant requirements will be faced with few viable options.
• Despite increasing rental rates, there was 11,000 square feet of negative
absorption.
• This submarket is feeling the effects of government spending cuts and will
likely see a meaningful increase in the vacancy rate in 2014.
The Rhode Island industrial market ended 2013 with a vacancy rate of 9.05%,
down 75 basis points from the end of 2012. Much of this had to do with the reclassifications and property additions from single-user to multi-tenant properties.
The total Rhode Island industrial market increased by 5.3 million square feet in
2013, for a total market size of 52,249,096 square feet. 2013 proved to be a
strong year, with active velocity and positive net absorption of 23,894 square feet.
The Rhode Island industrial market continues to see improvement in many areas
and market sectors. A return to local manufacturing operations was one of the
biggest surprises of 2013, as many companies were able to leverage new hightech manufacturing techniques, improve production levels and relocate oversees
operations back home.
NORTH
• Vacancy increased by 44,171 square feet in 2013, down to 7.08% from 7.86%
in 2012.
• Market size increased by 3,031,716 square feet with many new properties
added to inventory based upon new classifications and the additions of
different towns to the North submarket.
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
Rhode Isl and
65
Rhode Island
• The most significant transaction of the North market was Dean Warehousing’s
purchase and relocation to 745 Jefferson Boulevard (635,000 SF) in Warwick,
which left behind 436,000 square feet at 100 Higginson Avenue in Lincoln.
EAST BAY
• Vacancy increased by 195,442 square feet, or 151 basis points, in 2013 to
11.7% from 10.19% in 2012.
• Market size increased by 886,818 square feet, with many new properties
being added to supply based upon new classification.
• Major East Bay transactions include the following:
• US Watercraft leased 109,000 square feet at 373 Market Street, Warren.
• Eaton leased 145,997 square feet at 10 New Road, East Providence.
WEST BAY
• Vacancy decreased by 478,000 square feet in 2013 to 9.44% from 11.69% in
2012.
• Market size increased by 105,885 square feet, with many new properties
being added to inventory based upon new classification.
• Major West Bay transactions include the following:
SOUTH
• The South submarket was added to the overall Rhode Island Industrial
market this year in order to track this submarket in greater detail. This area of
Rhode Island has had a significant impact on population of late, but not on
commercial development. The South submarket has the best opportunity for
substantial development in the future.
• Market size equals 1,484,550 square feet; consisting of the Washington
County, save for Quonset Business Park, which is still being tracked in the
West Bay submarket.
RHODE ISLAND INDUSTRIAL MARKET FORECAST
Rhode Island continues to have a shortage of permitted industrial land with a
lack of infrastructure in many parts of the state. Companies continue to seek out
opportunities to upgrade assets with a flight to quality. Buildings with up-to-date
infrastructure, ceiling heights and prime locations continue to be in high demand,
as many of the older mill buildings have become functionally obsolete and less
competitive in today’s market. The outlook for 2014 looks very promising with
a notable increase in tenant and buyer activity. As inventories of quality product
continue to shrink due to strong demand, the Rhode Island industrial market
could begin to see increased pricing and more interest in land for build-to-suit
opportunities.
• Dean Warehousing sold its 635,000 square foot warehouse at 745
Jefferson Boulevard in Warwick.
• Amtrol Inc. leased a 194,000 square foot warehouse at 200 Frenchtown
Road, North Kingstown.
• 275 West Natick Road, a 105,000 square foot mixed-use building in
Warwick (sale).
“Companies continue to seek out opportunities to
upgrade assets with a flight to quality.”
• Toray Plastics leased a 127,000 square foot warehouse at Briggs Road,
East Greenwich.
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
Rhode Isl and
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New Hampshire
MARKET OUTLOOK
2014
Manchester, New Hampshire
Photo by iStockphoto, www.istockphoto.com
New Hampshire
I-93/ROUTE 3 CORRIDOR OFFICE MARKET
by Roger Dieker, roger.dieker@cbre-ne.com
The I-93/Route 3 Office market saw continued positive absorption in 2013 with the year-end vacancy standing at 11.6%, down from 14.2% in 2012 and 15.6% in 2011.
This year’s 11.6% vacancy marks the first time since the beginning of the recession in 2008 that the vacancy rate has returned to pre-recession levels. With vacancy still
above a 10% equilibrium benchmark and new workplace office trends that favor dense, collaborative spaces and companies occupying less rentable square feet, landlords
remain challenged to secure tenants and stabilize occupancy levels. As a result, landlords continue to compete aggressively for quality tenants with turnkey fit-up, moving
allowances and free rent periods. Leasing incentives remain generous for tenants relocating to new space or renewing in place.
MARKET HIGHLIGHTS
• Manchester’s Central Business District saw increased interest from tenants
• Salem Office market vacancy dropped 310 basis points to 10.0% in 2013 from
taking advantage of the quality space recently available as a result of
13.1% in 2012, with several proposed new construction office buildings planned
downsizings after the 2008 recession. Tenants saw enhanced value in the
for 2014.
quality office tower locations with convenient amenities and improved business
synergy in relocating to downtown Manchester.
• Nashua Office market vacancy dropped 340 basis points to 14.0% in 2013
from 17.4% in 2012.
• Approximately 150,500 square feet of office supply was removed from
inventory as the mill building at 300 Bedford Street in Manchester was
converted to apartments.
NEW HAMPSHIRE OFFICE SUBMARKET SIZE (M SF)
Seacoast
I-93/Route 3 Corridor
• Anthem Health Plans of New Hampshire will be relocating to 34,000 square
feet at 1155 Elm Street, leaving 210,879 square feet at 3000 Goffs Falls.
3000 Goffs Falls will be a big story in 2014 with the eventual sale and
21.3
repositioning of this two-building complex on a 34-acre campus near the
Manchester-Boston Regional Airport.
• Harvard Pilgrim took advantage of their lease expiration in Bedford to relocate
to a full floor at 650 Elm Street.
• Primmer Piper Eggleston and Swami solidified their position in the New
Hampshire Legal Services industry by leasing the entire top floor of New
8.3
Hampshire’s tallest building, City Hall Plaza at 900 Elm Street.
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
New Hampshire
68
New Hampshire
NEW HAMPSHIRE HISTORICAL OFFICE AVERAGE ASKING RENT (NNN)
Seacoast
I-93/Route 3 Corridor
SEACOAST NEW HAMPSHIRE OFFICE MARKET
by Kent White, kwhite@cbre-portsmouth.com
As we forecasted at the end of 2012, the Seacoast Office market for 2013
$14
continued its turnaround from the recession years of 2008-2011. Although activity
has not reached pre-2008 levels, the vacancy rate continues to decline and new
$12
construction, especially at the Pease International Tradeport, continues with at least
$10
two more office developments in the planning stages for 2014. Although pockets
of the Seacoast remained stagnant in 2013, the economic engine of Portsmouth,
$8
and specifically the Pease Tradeport, continues to see activity going into 2014. All
$6
signs point to a healthy office market in the New Hampshire Seacoast.
$4
NEW DEVELOPMENT
$2
• A good barometer of any commercial market is new construction. During the
four-year period from 2009–2012, there were only three new office buildings
$0
2007
2008
2009
2010
2011
2012
2013
I-93/ROUTE 3 CORRIDOR OFFICE MARKET FORECAST
built in the entire New Hampshire Seacoast, while five new office buildings were
either delivered or under construction in the Pease Tradeport in 2013.
• Speculative construction activity typically signifies a positive shift in the office
market. Currently there are three new projects underway that are 100% or
The Southern New Hampshire Office market will continue to improve modestly
partial spec construction:
in 2014 as office employment continues to stabilize and the remaining vacant
• 100 Arboretum at the Pease Tradeport broke ground this past summer on a
spaces are gradually absorbed. Tenant demand and deal flow will be driven
by companies seeking to consolidate and upgrade to quality options located in
amenity-rich environments. Lease rates should stabilize across the market with
pockets of increasing rates in Salem and Manchester CBD. Lease terms should
lengthen as companies gain confidence to lock up attractive rates within an
improving economy.
new 67,000 SF sister building that is being built entirely on spec. This would
have been unheard of 2-4 years ago.
• 25 New Hampshire Avenue, another new construction project at the
Pease Tradeport, is a new 37,000 SF building being developed by Two
International Group. Portsmouth Regional Hospital pre-leased the first floor,
which kicked-off construction and left the remaining balance of 15,000
SF vacant. Two International Group is not concerned with this remaining
vacancy. The developer remains bullish on the Seacoast and is currently
contemplating a new speculative office building at Pease for 2014.
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
New Hampshire
69
New Hampshire
• Examples of this cross-border relocation trend include Cole Haan’s
headquarters deal to move their corporate office to Greenland from
Scarborough, Maine and OnBrand24’s expansion of their operations from
Beverly, Massachusetts to Portsmouth, New Hampshire.
• Outside of the Pease Tradeport, the last phase of Portwalk, a mixed-use
development in the heart of downtown Portsmouth, is underway and will
include 10,000 square feet of spec office, in addition to 11,200 square feet
of retail, 113 apartments and a 120-room Hampton Inn & Suites.
• Currently, there are several out-of-state companies in the market that are
considering relocating to the Seacoast and represent an upward potential of
250,000 square feet of active demand in the Seacoast Office market.
LACK OF LAND AT PEASE
INTEREST FROM OUT-OF-STATE BUSINESSES
• For many years, the growth of the office market came primarily from local
companies expanding through organic growth. Recently, there has been a
migration by office tenants relocating or expanding to the Seacoast from
surrounding areas in southern Maine and northern Massachusetts.
• The Pease Tradeport has been a model for the entire country, transforming
a former military base to a business park. Since the mid 1990s, Pease has
grown to include over 4,000,000 square feet of commercial space and
directly employs close to 8,000 people. The location, infrastructure and
aggressive developers have all helped foster this successful redevelopment.
• As we approach 2014, Pease is starting to show signs of absorption. There
are only seven land lots available for office development. All other lots have
been developed or are controlled by a company or developer for future
NEW HAMPSHIRE HISTORICAL OFFICE VACANCY R ATE
Seacoast
I-93/Route 3 Corridor
25%
development.
• If current development trends continue over the next few years, there will
be limited or perhaps no room for further office development at the Pease
Tradeport.
20%
SEACOAST NEW HAMPSHIRE OFFICE MARKET FORECAST
15%
As we enter 2014, we expect the Seacoast Office market to continue at its current
pace. Vacancy rates will decline as local and out-of-state companies spur growth
10%
and expansion. Rental rates will increase modestly, as landlords hold firm on
asking rents and reduce concession packages. Any new office developments will
be centered in Portsmouth and the Pease Tradeport, as higher rents will continue
5%
to justify new construction. Surrounding communities like Rochester, Dover and
Exeter should benefit from the limited office supply in Portsmouth as companies
0%
2007
2008
2009
2010
2011
2012
2013
are forced to expand their search for available options. For the landlords that
suffered during the economic downturn, 2014 will be a time to further stabilize
assets and enjoy the benefits of a strong Seacoast Office market.
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
New Hampshire
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New Hampshire
NEW HAMPSHIRE INDUSTRIAL SUBMARKET SIZE ( MSF )
Seacoast
I-93/Route 3 Corridor
I-93/ROUTE 3 INDUSTRIAL MARKET
by Roger Dieker, roger.dieker@cbre-ne.com
42.5
MSF
2013 was a tale of good news and bad news for the I-93/Route 3 Industrial market.
The major positive highlight across the market was a renewed strong demand for
new modern construction facilities over the older, aging inventory. However, this
positive trend was offset by new supply from big box retail closings and defections
by some manufacturers who chose to relocate or expand outside the state. The
net result led to a slight decrease in vacancy in 2013, which continues the recent
trend of flat to slightly positive absorption. The I-93/Route 3 Industrial vacancy
16.4
MSF
rate decreased to 10.9% in 2013, down from 12.1% and 12.2% in 2012 and 2011,
respectively. New high-bay construction in 2013 has added over 800,000 SF
of industrial product to the market and continues to be the bright spot as older
manufacturing facilities remain vacant or are converted to other uses.
2013 HIGHLIGHTS
SOUTHERN NEW HAMPSHIRE INDUSTRIAL MARKET FORECAST
• Exel Logistics’ new 250,000 square foot high-bay warehouse in Bow is the
In the coming year, we expect to see continued positive absorption in the
newest 40'-clear warehouse product completed in 2013.
• Six Stop & Shop grocery stores and six Shaw’s grocery stores ceased operations
in 2013, creating large retail vacancies in Seabrook, Exeter, Goffstown, Tilton,
West Lebanon, Keene, Milford, Manchester, Hudson and Bedford.
• Sturm Ruger elected to expand in South Carolina, passing on the 146,000
square foot former RR Donnelly building in Manchester.
• Several large warehouse users have moved forward with plans to begin
development on the Pettingill Road property located just south of the ManchesterBoston Regional Airport entrance.
industrial vacancy rate, as the unemployment rate remains stable to improving.
New Hampshire’s unemployment rate has continued to improve with the 2013
unemployment rate at 5.1% as of November 2013, down from 5.7% a year ago.
Continued strong employment is the foundation for sustained positive absorption
in 2014 and will boost consumer confidence and solidify improving demand
for manufactured and distribution products. Businesses continue to view New
Hampshire as an attractive alternative to locations in Massachusetts and Maine
due to New Hampshire’s low tax structure. As companies face pressure to cut
costs, New Hampshire will remain a smart value opportunity for companies
considering relocation. Newly constructed industrial product will create vacancies
in older properties. As companies trade-up from old to new facilities, landlords
with aging inventory will struggle to compete. However, the growing number
of available options across the older product will keep average asking rents low
and deliver opportunities to those companies seeking low-cost options.
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
New Hampshire
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New Hampshire
NEW HAMPSHIRE HISTORICAL INDUSTRIAL AVERAGE ASKING RENT ($/SF), NNN
Seacoast
I-93/Route 3 Corridor
$7
SEACOAST NEW HAMPSHIRE INDUSTRIAL
MARKET
by Christian Stallkamp, cstallkamp@cbre-portsmouth.com
Due to heavy leasing activity of industrial space in all ranges in 2012, 2013
became a frustrating year for those businesses looking to expand in the Seacoast.
Over the last three years, options for 30,000 square feet have dwindled
significantly. A tenant seeking 30,000 square feet in Portsmouth in 2010 had 10
$6
$5
$4
$3
$2
viable options in the market compared to just two options today. As a result of
the limited supply, landlords are increasing asking rents and decreasing concession
$1
packages. Lack of good viable inventory and increasing lease terms have placed
pressure on businesses to rethink their options and consider alternative sub-
$0
2007
markets. Looking back at 2013, there were a handful of significant transactions
2008
2009
2010
2011
2012
2013
and positive signs of new construction introduced to the market.
SIGNIFICANT TRANSACTIONS OF 2013
NEW HAMPSHIRE HISTORICAL INDUSTRIAL VACANCY R ATE
• Sig Sauer has continued expanding, taking on an additional 60,000 square
feet at 121 Broadway in Dover after expanding into 210,000 square feet at the
Pease Tradeport.
• FW Webb sold a 28,000 square foot warehouse at 10 Sumner Drive in Dover
Seacoast
I-93/Route 3 Corridor
16%
14%
12%
and relocated into a new 68,000 square foot building at 218 Knox Marsh
Road in Dover.
• New England Footwear grew and expanded into 12,000 square feet at 22
Marin Way, Stratham.
10%
8%
6%
4%
2%
0%
2007
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
2008
2009
2010
2011
2012
2013
New Hampshire
72
New Hampshire
NEW CONSTRUCTION
• Asian Atlantic and Sheds USA now occupy the majority of a new two-story,
65,651 square foot building at 300 Constitution Avenue in Portsmouth.
• Smuttynose Brewery is working to complete a LEED-certified, 34,425 square
foot state-of-the-art brewing facility on Towle Farm Road in Hampton.
Completion is expected in late fall of 2014.
• Cobham Antenna System of Exeter added 105,000 square feet on two levels,
consisting of 70,000 square feet of manufacturing and 35,000 square feet
of office space.
• FW Webb relocated to a new 68,000 square foot building at 218 Knox Marsh
Road in Dover.
SEACOAST NEW HAMPSHIRE INDUSTRIAL MARKET FORECAST
The lack of inventory and available land surrounding the exits on the I-95
corridor will continue to exert pressure on companies looking to stay or expand in
the Seacoast. As these trends continue, companies that want to be in the Seacoast
will begin to look outside of the more desirable Portsmouth market. They will
expand their search into areas such as Dover, Rochester, Epping and Brentwood.
Further, these communities are increasingly becoming attractive alternatives.
The expansion of the Little Bay Bridge, formerly known as the General Sullivan
Bridge, will benefit Dover and Rochester by alleviating the chronic traffic backups and improving access during heavy commuting hours. Communities along
Route 101, such as Epping and Brentwood, are the next logical alternative for
companies that desire to be in the Seacoast; these communities offer easy access
to highway infrastructure and all the utilities needed.
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
New Hampshire
73
Maine
MARKET OUTLOOK
2014
Portland, Maine
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Maine
SOUTHERN MAINE MARKET
by Drew Sigfridson, dsigfridson@boulos.com
It may be winter, but Portland, Maine is hot. The energy and enthusiasm within the commercial real estate community in Portland has been palpable in 2013. After a few
years with limited development activity, southern Maine has cranes in the air, with three hotel projects adding 500 rooms on the peninsula, and several residential condominium projects under construction with solid pre-sales in place. Development activity has been coupled with an increasing demand from office users in the sectors of
technology, healthcare, post-secondary education, and bio-medical R&D. The downtown Portland market continues to experience rent stability and positive absorption, but
the suburban market has been slower to recover and has continued to see prolonged office vacancies for spaces over 10,000 square feet. The markets outside of the
Greater Portland area continue to experience slower recoveries. Interestingly, some of the largest transactions in 2013 have been speculative sales of large waterfront land
parcels for mixed-use development projects.
DEVELOPMENT SALES
CAPITAL MARKETS
• The Portland Companies’ site in Portland, consisting of 10 acres with deep-
On the investment side, we experienced significant demand and a limited supply
water frontage and 400,000 square feet of warehouse space and brick
of options. The cap rates for assets in Maine have dipped into the 6.5–7% range
buildings, will be a prime development site for office, hospitality and residential
for high-quality investment properties in good locations, with strong credit and
space with a marina component. Sale Price: $15,000,000.
long-term leases. Some highlights from 2013 include:
• Thompson’s Point, a 29-acre parcel located adjacent to the Regional
• The sale of 70 Gray Road in West Falmouth. This Class A office building,
Transportation Center and Amtrak station just off I-295 in Portland, has
consisting of 142,000 square feet fully leased to TD Bank, sold for
been permitted and approved for an event center, sports medicine clinic,
$31,000,000.
over 200,000 square feet of office space, hotel and residential units.
Sale Price: $7,500,000.
• The former Plummer-Motz School and Lunt School site in Falmouth, consisting
of 66,000 square feet and 20 acres, sold to a residential developer for
$3,250,000. The development will include residential condominiums and
renovations to the existing school buildings for office conversion.
• In Augusta, a former DHHS building consisting of 66,000 square feet on 13.5
acres, sold for $2,000,000 as a vacant, speculative investment. The building is
being redeveloped and re-leased.
• Summit Terrace, a 96-unit apartment complex in South Portland, was sold at
one of the highest price per unit figures we have experienced in this market at
$9,700,000.
• A Lowe’s absolute net-leased ground lease sold in Windham for $12,400,000.
• The Maine Bank & Trust building, a downtown Class B office tower comprised
of 65,000 square feet, sold in August for $5,500,000.
• Husson University purchased an office investment property with some vacancy
to convert space into an educational facility in Greater Portland. The property,
located at 340 County Road, sold in September for $4,300,000.
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
M aine
75
Maine
OFFICE
CBRE/The Boulos Company’s research shows the Greater Portland Office market steadily recovering in 2013. While some national financial services and insurance
companies reduce their presence in the market, several ‘locally grown’ companies are expanding, which is helping to buoy the local economy and the health of the office
market. The downtown market consists of 4.5 million square feet and the suburban market consists of 5.9 million square feet.
2013 MAINE OFFICE MARKET HIGHLIGHTS
RETAIL
• The overall vacancy is at 8.65%, a significant improvement over last year’s
Retail development in Maine continues to be sporadic. Some significant big-
10.83%.
• Portland’s Downtown Class A Office market vacancy is at 8.05%, the first time
that it has been under 10% since 2009.
• Some local companies that have recently moved/expanded, or are poised to
do so, include:
• Putney Vet – 25,000 SF
• Idexx – Additional 70,000 SF
• WEX – TBD
• Vets First Choice – 10,000 SF
• CashStar – 20,000 SF
• Kepware Technologies – TBD
box developments have struggled to retain tenants and remain profitable. In
particular, there are numerous WalMart vacancies as the company transitions
to larger Supercenter WalMart concepts in several markets. On top of this, many
Lowe’s stores have closed in Maine. Highlighted transactions include:
• Market Basket’s entrance into the Maine market, with the acquisition and
occupancy of a former Lowe’s location in Biddeford.
• Hobby Lobby’s first store in Maine through a new construction development
on Stillwater Avenue in Bangor, comprising 55,000 square feet.
• There has been continued expansion in 2013 in core markets from a few
retailers and restaurants including: Buffalo Wild Wings, Panera Bread,
Chipotle, Mattress Firm, Sleepy’s, Men’s Wearhouse, Goodwill, Family Dollar
and Dollar Tree.
• Stone Coast Fund Services – Additional 10,000 SF
• TD Bank renegotiated long-term leases in two properties totaling over
300,000 square feet, signaling their commitment to a significant presence
in Maine.
• McKesson extended their lease at 19 Mollison Way in Lewiston for 60,000
square feet.
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
“While some national financial services and insurance companies reduce
their presence in the market, several ‘locally grown’ companies are
expanding, which is helping to buoy the local economy and the health of
the office market.”
M aine
76
Maine
INDUSTRIAL
SOUTHERN MAINE MARKET FORECAST
The manufacturing and industrial sector is certainly rebounding. Maine has
Looking ahead to 2014, increased demand for commercial space will continue
experienced strong demand from local manufacturers and warehousing/
to be strongest in Portland, and outlying suburban markets will continue to
distribution companies and the vacancy rates for space less than 10,000 square
experience prolonged vacancies in all sectors. For example, we expect a slower,
feet are dropping significantly. Much of the increased demand is coming from the
steady recovery for markets such as Lewiston/Auburn, Augusta and Bangor.
locally grown food producers, construction industries, breweries, new distilling
Residential development will drive demand and increased pricing for land in urban
operations and defense contractors. The ‘Maine-made’ brand is a powerful
environments, and new commercial development projects will be limited until
signature for many of these retail food and beverage producers. Highlights over
vacancy rates are in the 5% range.
the past year include:
• Eimskip relocated its North American headquarters and container port to
Portland’s waterfront
• Over 30,000 square foot expansion of Ready Bros. seafood processing
• Paradigm Windows’ expansion of a manufacturing plant into 110,000 square
feet in Portland
• Allagash Brewing’s expansion of warehousing and distribution into 70,000
square feet in Portland
• MDOT’s purchase of 65,000 SF at 66 Industrial Drive in Augusta
• Molnlycke Health Care’s construction of a $47 million manufacturing plant in
Brunswick
• Portland-based Coffee By Design’s purchase of a 45,000 square foot building
in Portland for coffee roasting operations and product distribution
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
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77
Corporate Overview
MARKET OUTLOOK
2014
Boston, Massachusetts
Photo by iStockphoto, www.istockphoto.com
Corporate Overview
CORPORATE BACKGROUND
CBRE, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company head-quartered
in Los Angeles, is the world’s largest commercial real estate services firm (in terms
of 2012 revenue). The company has approximately 37,000 employees (excluding
CBRE/NE is headquartered in Boston, Massachusetts with regional offices in:
• Hartford, Connecticut
affiliates), and serves real estate owners, investors and occupiers through more
• New Haven, Connecticut
than 300 offices (excluding affiliates) worldwide. company in the prestigious IAOP
• Portland, Maine
ranking of outsourcing companies across all industries.
CBRE/NEW ENGLAND
CB Richard Ellis – N.E. Partners, LP (CBRE/New England or CBRE/NE) is a
• Portsmouth, New Hampshire
• Manchester, New Hampshire
• Providence, Rhode Island
strategic joint venture between Whittier Partners Group, which is the largest
ME
full-service commercial real estate services company in New England, and CBRE,
Inc., the world’s largest commercial real estate services company. This joint
venture combines a national platform and resources with local management,
control and ownership by the key professionals who offer our clients a balanced
service platform.
CBRE/NE has seven offices located in strategic business centers throughout New
England. The CBRE/NE entity, which has existed in Boston since 1900 with the
founding of C.W. Whittier Bro., has evolved and grown by acquisition throughout
VT
NH
the New England region.
Portland
Portsmouth
Manchester
In 2009, CBRE/NE added CBRE/Grossman Retail Advisors, a full-service retail
real estate firm providing services in retailer representation, leasing, capital
markets & debt advisory and retail master planning. CBRE/GRA combines the
network and resources of the largest commercial real estate service company
in the United States with the focus of local knowledge and expertise—providing
a one-stop source for retail clients and creating innovative solutions to complex
problems facing retail users, property owners and developers.
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
MA
CT
Boston
RI
Providence
Hartford
New Haven
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79
Corporate Overview
SELECT AWARDS AND HONORS
For the complete list, please visit our website at www.cbre.com.
Only commercial real estate
services company in the
Fortune 500; #387 in 2012.
World’s Best Property
Consultant
Only commercial real estate
service firm included on the
Fortune’s Global 2000
Highest Ranked Commercial
Real Estate Company in
Fortune’s Most Admired
Companies in 2012.
Named to “Companies that
Care” 2012 Honor Roll; sixth
year in a row
European Property
Brand of the Year
#1 Brand for 12 years in a row
U.S. Green Building Council
Leadership Excellence Award
CBRE Global Real Estate
Advisor of the Year Award for
the fifth time
#4 outsourcing company
across all industries;
#1 among real estate firms
U.S. EPA 2012 ENERGY
STAR Partner of the Year
Sustained Excellence Award (six
consecutive years of Partner of
the Year status)
Top real estate company in
Newsweek’s “green” rankings
World’s Top Brokerage and
Property Management Firm
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
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Corporate Overview
MAJOR SERVICE LINES
BROKERAGE SERVICES
INDUSTRIAL SERVICES
CBRE executes strategic, integrated and comprehensive commercial real estate
CBRE’s Industrial Services group addresses the needs of owners and occupiers
brokerage services for tenants/occupiers, property owners and narrowly-focused,
at every stage of the supply chain with a special emphasis on ports, intermodals
vertical industries in the office, industrial and retail sectors. Clients make
and air-cargo. The group also works closely with research and development,
informed real estate decisions underwritten by world-class and industry-leading
manufacturing, assembly and warehouse and distribution, as well as land
proprietary market research, analytical and consultative services. The Brokerage
acquisition and disposition. These services are founded on a deep understanding
division draws frequently and seamlessly from other CBRE services to provide
of the assignment and or project, a strong belief in specialization, including
clients what they need functionally anywhere in the world, offering a complete
professionals focused specifically on logistics, life sciences, food solutions and
spectrum of commercial real estate brokerage services to owners, investors
special properties, as well as the group’s global occupier practice.
and occupiers of all property types. The firm’s leasing in 2012 totaled 51,900
transactions valued at over $72.9 billion globally.
With a proven track record in successfully marketing client properties for sale,
lease or sublease, CBRE’s Industrial Services professionals are also particularly
CBRE’s tenant representation professionals combine streetwise savvy with
well versed at representing companies in relocations and/or expansions. The
creative problem-solving abilities, and deal-making skills with sophisticated
group offers consulting on land planning, infrastructure design and marketing of
diagnostic and analytical capabilities. Since real estate decisions often have
speculative buildings and are also skilled at arranging build-to-suits for industrial
significant impact on both client business plans and financial statements, CBRE
facilities, providing site selection options and handling land acquisitions/
focuses on providing services to help tenants align real estate requirements with
strategic objectives. Services include current situation analysis and planning, the
development of viable options, comparative analysis of market availabilities and
implementation of the selected alternative, including full project management
services for tenant fit-out. In 2012, CBRE tenant representation brokers performed
dispositions.
LAND SERVICES
CBRE Land Services is a network of experienced professionals focusing exclusively
more than $32 billion worth of lease transactions in the Americas.
on land transactions. CBRE Land Services provides landowners with a comprehensive
Serving as the owner’s agent or sublease agent, the firm’s market specialists
professionals are land entitlement experts and offer extensive knowledge of local
are adept at developing comprehensive strategies to maximize value within
investment and operational objectives—all while remaining sensitive to
budgetary and business constraints. Services include strategic planning,
property positioning, marketing and leasing as well as comprehensive project
management. In 2012, CBRE brokers representing landlord performed more than
$21.6 billion worth of lease transactions in the Americas.
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
ability to evaluate the highest and best use of a particular land parcel. The group’s
market conditions, competitive land parcels and the regulatory environment
to assist land owners in forming a strategy for maximizing the value of their real
estate holdings. Landowner representation services include market analysis and
feasibility studies, demographic and mapping services, and property acquisitions
and dispositions.
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Land Services professionals also bring local market knowledge and experience
Retail Services utilizes proprietary and industry-leading research and technological
combined with national scope to serving the needs of investors and developers.
tools, including operational and competitive analyses, mapping, demographic
This combination helps clients achieve the competitive advantage of quickly
studies, tenant mix comparisons and computerized tracking/reporting software that
bringing their product to market at the best possible time and location. Investor
allows in-house specialists to offer insight into the latest market trends. The group
and developer representation services include market analysis and feasibility
offers services in key market identification, store placement strategy, trade
studies, strategic site selection, financial analysis, demographic and mapping
area trends, customer profiles, market potential reports, deal validation, financial
services and property acquisitions and dispositions.
analysis and consumer marketing, among others.
OFFICE SERVICES
CAPITAL MARKETS
Office leasing and sales represents the largest segment of CBRE’s brokerage
CBRE Capital Markets combines the company’s investment sales and mortgage
activity. The firm has more professionals specializing in the office sector than any
banking businesses into a single, fully-integrated global service offering. CBRE is
other firm. CBRE office brokerage professionals specialize in either occupier/
the worldwide leader in the acquisition and disposition of income-producing
tenant or owner/investors needs. These professionals, unsurpassed in their local
properties for third-party owners, and the firm’s mortgage banking group is a
market knowledge, are supported by unique, unequaled and industry-leading
leader in debt and equity placement for all property types.
econometric forecasting and market research tools to ensure clients make strategic
and informed decisions.
RETAIL SERVICES
CBRE Capital Markets benefits its clients by offering complete capital markets
solutions anywhere around the globe. Investment Properties, working in tandem
with Debt & Structured Finance, assures clients that all alternative recapitalization
strategies are evaluated. When working with buyers of assets offered by Investment
CBRE Retail Services, a division with more than 500 retail specialists in the
Properties, optimal debt structures are often secured, enabling borrowers to obtain
Americas alone, represent clients in all major markets around the world. As
more loan proceeds at attractive terms and sellers to achieve better results. By
focused providers of integrated products and services—including strategy
encompassing debt and equity solutions, the group ultimately provides investors
development, management, finance, corporate services, consulting and leasing—
with the maximum flexibility to achieve their capital needs.
the group provides customized solutions for clients’ retail real estate needs, no
matter how large or complex. Retail Services partners with clients to understand
the business objectives at hand, then develops innovative ways to optimize the
value of their retail real estate assets or company. Whether serving the retailer or
the retail property owner, the division’s professionals act as advisors and become
an invaluable part of clients’ decision-making processes.
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
INVESTMENT PROPERTIES
CBRE Investment Properties is the world leader in the acquisition and disposition
of income-producing properties for third-party owners. With global property sales
transactions valued at over $116.9 billion in 2012, the division provides buyers and
sellers with local and international exposure to opportunities and capital markets.
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Corporate Overview
Investment Properties applies a highly customized and multi-disciplinary approach
to the institutional and private capital markets to anticipate trends and uncover
opportunities. Because of Investment Properties’ activity in the marketplace, CBRE
offers clients the most widespread level of knowledge and experience in this
specialized field. Investment Properties provides services for single assets and/or
multi-market portfolios for all property types. Services include acquisitions and
dispositions, consulting, equity placement, financing, market research, portfolio
planning and valuation.
DEBT & STRUCTURED FINANCE
Debt & Structured Finance provides debt and equity funding options to developers
and owners of commercial properties nationwide. Through its correspondent
relationship with numerous domestic and international investors, the company
originates fixed-rate and floating, construction, forward, standby and participating
loans, as well as joint ventures. The company secures the funding and services
DEVELOPMENT AND INVESTMENT
Trammell Crow Company, founded in 1948, is one of the nation’s leading
developers and investors in real estate. It has developed or acquired over 525
million square feet of buildings with a value exceeding $55 billion. Trammell
Crow Company’s teams are dedicated to building value for its clients through
creative solutions and highly skilled, locally connected professionals in major cities
throughout the United States and in Canada. The company is known for the
quality of its people and for the world-class facilities they create. Trammell Crow
Company serves users of, and investors in, office, industrial, retail, healthcare,
on-airport distribution, multifamily residential and mixed-use projects.
Trammell Crow Company has experienced market leaders in 15 major cities. The
company is an independently operated subsidiary of CBRE, Inc., the world’s largest
commercial real estate services firm (based on 2012 revenues) and currently has
more than $4.2 billion in developments under construction.
loans for all property types including multifamily, office, retail and industrial real
For those who occupy real estate, Trammell Crow Company can execute the
estate, with an average loan size of $15.9 million and loans ranging from $1
development or acquisition of facilities tailored to meet any client’s needs. For
million to over $250 million.
investor clients, the firm offers large strategic joint ventures and capital programs,
Debt & Structured Finance’s success in closing $22.4 billion in originations and
$125.1 billion in loan servicing (reflects loans serviced by GEMSA, a joint venture
between Debt & Structured Finance and GE Capital Real Estate) globally in 2012
opportunity funds and other targeted investment options.
INSTITUTIONAL & CORPORATE SERVICES
illustrates the high level of expertise and customer commitment our investment
Asset Services
bankers offer every client. Areas of expertise include permanent financing,
CBRE’s Asset Services division delivers measurable results to owners and
structured financing, mezzanine debt, tenant-in-common financing, loan servicing
investors across a spectrum of services, including property management, leasing,
and loan sale advertising.
tenant relations, construction and project management, technical services,
risk management, purchasing, energy management, accounting and financial
reporting. Asset Services is the largest practice of its kind in the industry, with a
global property management and corporate facilities portfolio of more than 3.2
billion square feet, reflecting combined CBRE and Trammell Crow Company as
well as partner and affiliate company portfolios.
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
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Corporate Overview
Asset Services’ client-focused, value-added approach provides improved manage-
Corporate Services
ment and leasing efficiency, defined and enhanced market presence, superior
Corporate Services delivers customized, innovative workplace solutions to space
short-term and long-term financial performance and increased tenant recruitment
occupiers worldwide. Strategically positioned to answer corporate, healthcare,
and retention. In addition, clients and tenants benefit from the industry’s
government and institutional clients’ real estate needs, this group combines
leading building management portal—empowering owners, tenants, brokers
unrivaled expertise in transaction services, facilities and project management and
and managers to achieve greater operating ease and efficiency while enabling
consulting with industry-specific expertise and global service delivery to provide
buildings to deliver world-class service. The division’s integrated services platform
clients with long-term, quality account management.
also features creative branding, leasing and marketing strategies, scalable tenant
hospitality services, strategic planning and investment level reporting.
Client Strategies
CBRE’s Client Strategies division drives superior business performance by
maximizing value from real estate assets and management practices. The group
delivers consulting solutions that integrate business intelligence with portfolio
optimization, location analysis and organizational strategies. Client Strategies
also serves clients by driving innovation, researching emerging trends and sharing
leading practices.
Account management teams provide access to the company’s depth of resources,
while the group’s best practices approach to conducting business ensures that
clients have the latest process management tools, benchmarking studies and
performance specifications in the industry. The benefits of the division’s strategic
approach include significant cost savings, enhanced productivity and space
utilization and improved delivery of internal corporate real estate services.
Facilities Management
CBRE manages over one billion square feet for corporate, institutional, not-forprofit, manufacturing, utilities and government space users around the world. The
Client Strategies professionals provide real estate and economic consulting
division delivers the highest level of customer service and value, enabling clients
services to private and public sector clients in the Americas and abroad, earning
to focus on their core business. By partnering with its clients, CBRE’s approach
a highly regarded reputation for innovative thinking, sound research and objective
to facilities management goes well beyond traditional service models. Facilities
advice. Client Strategies meets the needs of three major client sectors—companies
Management provides clients in markets worldwide with efficient, effective methods
that own or lease properties, government agencies and developers/investors.
to improve their financial bottom line, support customer service and improve
The group develops strategic plans that allow clients to manage portfolios more
productivity. By leveraging its extensive facility knowledge, the group enhances
efficiently, eliminate redundancies, streamline operations and find the right
asset value while creating a smoothly functioning workplace.
combination of cost, labor skills and business amenities.
Facilities Management professionals consistently achieve exceptional results by
Client Strategies also helps reorganize clients’ internal real estate operations
introducing leading practices in the areas of organization design, facility manage-
through careful analysis, industry benchmarking and the adoption of best
ment, technology, operating cost management and reporting. The group leverages
practices. Since the group is not transaction driven, Client Strategies partners with
its network of internal experts, strategic partners, alliances and preferred suppliers
each of its clients whether or not a transaction is pending, so they can make well-
to deliver actionable insights and measurable results to give clients a competitive
informed decisions and address complex real estate and economic challenges.
advantage.
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
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Corporate Overview
Healthcare Services
Project Management
CBRE Healthcare Services provides a uniquely comprehensive range of real
As one of the world’s largest teams of professional real estate project managers,
estate and facilities management services to healthcare providers across the
CBRE provides a full menu of project management solutions to address the
country. The group focuses on hospital and medical office development, clinical
challenges that clients—users of and investors in real estate—face across the
facilities management inclusive of energy management, medical office building
globe. The group’s solutions include project management outsourcing strategies,
leasing and management, brokerage services and monetization of non-core real
program management services, interior build outs, project management for
estate assets.
critical environments, moves/adds/changes, capital improvements and building
Healthcare Services offers specialized healthcare real estate staff partnered with
strong local market knowledge throughout the United States. These professionals
renovations and tenant improvements. In 2012, CBRE performed project
management services for clients in excess of $22.3 billion.
manage in excess of $3 billion of healthcare development projects and
CBRE’s Project Management group partners with clients to implement cost-
oversee more than 50 million square feet of facility and property management
efficient, scalable staffing models and introduce industry-leading processes
assignments for hospitals, HMOs and healthcare organizations around the
designed to optimize project management activities and make the most efficient
country.
use of capital. Regardless of size, industry sector or geographic dispersion, the
firm’s project management professionals consistently deliver cost savings and
Portfolio Management
value.
Portfolio Management helps clients find, collect, manage and analyze key
portfolio and operational data to identify portfolio trends, uncover opportunities
Transaction Management
and make sound real estate decisions that support business strategy and drive
As dedicated transaction managers, the group works closely with clients to
value. The division focuses on mitigating risk by monitoring critical dates, mining
develop and manage consistent, portfolio-wide processes for handling brokerage
strategic portfolio data for long-term planning and minimizing occupancy cost
transactions whether on the local, national or global level. This consolidated
savings through lease audits. The group’s full scope of service includes database
management process is most effective when linked to a strategic planning
creation and lease abstraction, ongoing lease administration, portfolio analysis
process that proactively identifies needs and requirements to enable greater
and benchmarking, rent roll preparation and lease payments and desktop and
opportunities for creating value for a range of brokerage activities related to
full-scope lease audit and consultation on technology platforms.
acquisition, disposition and renewal.
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
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VALUATION & ADVISORY
CBRE/NEW ENGLAND CREATIVE & ANALYTICS
CBRE’s Valuation & Advisory Services provides accurate, reliable and timely valu-
Research Services
ations that are critical to the success of every real estate transaction or financing.
CBRE invests heavily in research, analysis and
The group services all types of real estate, ranging from specialty properties such
the latest technological innovations in order to
as hotels, healthcare facilities and regional malls to commercial and residential
properties including office, retail, industrial and multifamily. In addition, the group
handled 118,400 valuation and advisory assignments last year alone.
sustain a premier service delivery platform. Such
investments equip the firm’s clients and professionals with the most current and
accurate market information throughout the world’s marketplaces.
Service products include market value appraisals, highest and best use studies,
CBRE’s research/data gathering operation is the largest and most comprehensive
litigation support, lease analysis, discounted cash flow analysis (using all com-
of its kind in the industry. Offering the most extensive data collection, query tools
mercial cash-flow programs), market analysis, product absorption studies, portfolio
and information capabilities to brokers and clients alike, the Research group also
valuation and analysis, and ad valorem tax appraisals and representation. With
enhances communication with clients via web-based portals. Brokers have online
coverage in offices throughout the United States and abroad, Valuation & Advisory
access to the most current listings, transaction terms, comparables and property
Services can provide expert valuation services in virtually every market worldwide
details, as well as valuable historical data and trends. The group’s comprehensive
with a coordinated single point of contact for all international assignments.
data covers leasing, investment sales, valuation, taxes and operating expenses
as well.
ECONOMETRIC ADVISORS
Econometric Advisors, an independently managed subsidiary of CBRE, provides
objective market intelligence and investment strategy services to a variety of clients,
including institutional investors (both debt and equity) and owners/operators of
office, industrial, multi-housing, hotel and retail properties in major U.S. and
Canadian markets. Leveraging more than 25 years of highly sophisticated forecasting models and proven analytical expertise, Econometric Advisors offers
investment strategy services to clients in such areas as portfolio and individual
Creative Design Services
CBRE’s Marketing department is the largest and most robust in the industry—
from marketing strategy development to collateral production, our consultative
marketing professionals offer clients and brokers a complete in-house marketing
shop. Our designers, writers, web publishers and communications teams support
our clients’ property marketing and special projects needs efficiently and costeffectively.
investment analysis, directional advice, market selection for investment strategies
CBRE offers clients creative graphic design services and support for all property
and fundraising support. Econometric Advisors’ rigorous approach to modeling,
and opportunity marketing. The company’s in-house designers and marketing pro-
forecasting and investment strategy, combined with the transactional knowledge
fessionals utilize state-of-the-art design software and national production vendors
and local market expertise of CBRE, provides clients with consistent, accurate and
to provide quality property marketing. From simple sublease flyers to complex,
comprehensive market information and directional investment strategy services.
multi-location offering memoranda, CBRE designers operate on thorough and
thoughtful company design standards, or where appropriate, custom client design
standards.
CBRE/NEW ENGL AND M ARKET OUTLOOK 2014
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86
MASSACHUSETTS
33 Arch Street, 28th Floor
Boston, Massachusetts 02110
617.912.7000, Fax 617.912.7001
33 Arch Street, 10th Floor
Boston, Massachusetts 02110
617.912.7000, Fax 617.912.7001
CONNECTICUT
CityPlace I, 185 Asylum Street
Hartford, Connecticut 06103
860.525.9171, Fax 860.249.7916
One Century Tower, 265 Church Street, Suite 1008
New Haven, Connecticut 06510
203.777.6262, Fax 203.777.5995
MAINE
One Canal Plaza
Portland, Maine 04101
207.772.1333, Fax 207.871.1288
NEW HAMPSHIRE
14 Manchester Square, Suite 235
Portsmouth, New Hampshire 03801
603.427.1333, Fax 603.422.0705
2 Wall Street
Manchester, New Hampshire 03101
603.626.0036, Fax 603.626.0249
RHODE ISLAND
One Financial Plaza, 14th Floor
Providence, Rhode Island 02903
401.331.0350, Fax 401.831.3903
www.cbre-ne.com
@cbreNewEngland
© 2014 CBRE, Inc. The information contained in this document has been obtained from sources believed reliable. While CBRE, Inc. does not doubt its
accuracy, CBRE, Inc. has not verified it and makes no guarantee, warranty or representation about it. It is your responsibility to independently confirm its
accuracy and completeness. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future
performance of the property. The value of this transaction to you depends on tax and other factors which should be evaluated by your tax, financial and
legal advisors. You and your advisors should conduct a careful, independent investigation of the property to determine to your satisfaction the suitability
of the property for your needs.