RWH - Q2 2020 Greater Boston CRE Market Report

2020 321 Commonwealth Rd, Wayland, MA 01778
Phone: 508-655-5626
Web : www.rwholmes.com

Q2 REPORT

Greater Boston Market Report

by R.W. Holmes Realty

QUAQ2 2020 RTER OVERVIEW

COVID’S IMPACT ON COMMERCIAL REAL ESTATE

Q2 2020

Q2 OUTLOOK

COVID-19 will certainly have a major impact on the commercial real estate
sector. However, there is such limited data from Q2 that it will take the balance
of the year until the extent of the impact becomes more pronounced.

For now, there is little to no change on asking rents for office, lab, and industrial
space. Landlords are taking a “wait and see approach“.

WHAT WE DO KNOW:
• Activity in the market is from lab and industrial users, with the office market

very quiet.
• Amazon is gobbling up high bay warehouse with new leases literally every

month.
• Office tenants will now focus on “clean” buildings rather than “green”

buildings.
• Goodbye cube farms and benching - hello small private offices.
• Inquiries for satellite suburban offices are increasing but no trends are

apparent yet.
• Work from home will definitely reduce the office footprint for many

companies.

WHAT WE ARE WATCHING:
Sublease Market. Sublease space is increasing in Boston but we are not seeing
signs of major blocks of office space hitting the market in the suburbs. Trip
Advisor placing 100k on the market at their Needham HQ would be one of the
few exceptions to date.

PPP Loans - We will know in the next two quarters whether the funds were
adequate for most companies to survive the economic impact.

PROPERTY VALUES:
With limited transactions it is difficult to pinpoint the COVID effect on values.
This will be compounded by numerous properties that were about to hit the
market and were tabled.

THE BIG WINNER:
Industrial was already the darling for investors over the past couple years. As a
result of COVID, consumers are shopping much more online. The pronounced
shift to e-commerce will be one of the major factors in continuing to drive
demand for industrial space.

REPURPOSE:
What communities will be ahead of the curve and pave the way for older class
B office buildings to be repurposed to high-end corporate housing units and
similar uses? At some point property values will need to be preserved to avoid
a drop in revenue from real estate taxes.

Garry R. Holmes
President

RESQ2 2020 EARCH & DATA

REAL ESTATE FUTURE & COVID

We surveyed our clients regarding returning to the office post-COVID.
Here’s what our initial data shows:

Q2 2020

NUMBERS AT A GLANCE

Are there any challenges that you feel need to be addressed prior to employees
return to the office?

18% 46% 23% 13%

Our current Common areas and There needs to be a I do not feel there are
workspace needs to bathrooms need to be vaccine so everyone has any challenges that
addressed by landlords
be redesigned. an immunity built up. need to be addressed.
so employees don’t
feel exposed.

Does your company have What percentage, if any, of your
a plan in place to bring workforce do you anticipate will be
people back by the end of
working remotely even after the
the year? pandemic has passed?

YNEO1S767%% 0-10%
10-20%
UNKNO7W%N 20% Plus
Unknown/Too Soon to Tell

SQ2UB2020 MARKET DATA

GREATER BOSTON SUBMARKETS

Q2 2020

128 CENTRAL (office)
SUBMARKET NEWS

MARKET RECAP
• Activity picked up slightly in June, but we are still surprised at how few people have returned to the office.
• Lab conversions continue: 6 dated Class B buildings in Lexington are in the process of being converted to lab.

Watertown continues to be a hot spot for lab redevelopments.
• Expect flex/industrial companies to come out stronger – we are seeing expansions from industrial and lab users

who have become more essential due to COVID. They are building new revenue streams and acquiring new
funding.

NOTEWORTHY NEWS
• Boston Children’s Hospital is gaining traction after town meeting regarding their Land Lease and Development

in Needham Crossing: 380 First Avenue and 37 A Street totalling over 400,000 SF for a satellite hospital location
and medical offices. These are the last available plots in the park.
• Investors are slowly coming back to the market, but for specialized purposes. One example being Healthpeak,
who bought The Post, 200 Smith Street in Waltham, in April. Healthpeak has also acquired a 4-building Hartwell
Avenue lab portfolio from King Street Properties and two lab buildings on Cambridgepark Drive in Alewife within
the past 12 months. This is in addition to their partnership with King Street on 45, 65 & 75 Hayden Avenue back
in 2018. In the past 12 months, Healthpeak has acquired 907,000 SF in Greater Boston for just under 1 Billion
dollars.
• Office tenants are struggling to determine their square footage needs. We aren’t seeing many companies give
up their office space entirely, but companies with upcoming leases are struggling to determine how much space
they do need and how to proceed with a long term lease.

AREAS OF CONCERN
• More space has been coming available: 52 new spaces in June in comparison to 25 spaces in May and 15 spaces

in April. Of these spaces, 15% are subleases.
• We expect more space to be given up until companies determine when and who is comfortable in the office.
• Trip Advisor has 100,000 SF of their Needham HQ available for sublease.
• Some companies with upcoming leases are okay working from home indefinitely until things normalize and they

can accurately determine their needs. This is seen typically with smaller companies under 10,000 SF but there
are a few larger exceptions.

RECAP OF MARKET HEALTH

28,300,000 12.6% $39.50/SF 862,000
TOTAL SQUARE FEET VACANCY RATE AVERAGE RATE (GROSS) SQUARE FEET UNDER

CLASS A & B SPACE CONSTRUCTION

NOTEWORTHY TRANSACTIONS

Lease Lease Sale
1075 Main St, Waltham 140 Kendrick St, Needham 200 Smith St, Waltham (The Post)

40,449 SF 125,000 SF $426,000,000 ($751/SF)
Senior Whole Health IDG Healthpeak

Q2 2020

128 NORTH/ RT. 3 NORTH (office)

SUBMARKET NEWS

MARKET RECAP
• Income based cap rates and sale values did not drop off in Q2 which was seen in Middlesex Investment’s

purchase of 83 Cambridge and RAM’s acquisition of 3 and 5 Carlisle- showing that select office assets
continue to be attractive.
• Lab space continues to be a hot commodity in the market as seen the trade of the former Eisai facility at 4
Corporate Dr., in Andover to life sciences developer IQHQ, Alexandria’s plan to build 130,000 SF of new life
sciences space on Presidential Way in Woburn, and Cummings Properties plans to build additional lab ready
space on Commerce Way in Woburn.
NOTEWORTHY NEWS
• As expected, Q2 leasing activity was slowed by about 60% in the submarket due to COVID. Since lab users
and essential services groups were about the only users that could tour, this is not surprising.
• Medical device start-up Instylla backfilled Augmenix’s 43,000 SF sublease at 201 Burlington in Bedford.
• Eplison’s space of about 150,000 SF is coming back available at 601 Edgewater Drive in Wakefield.
• Site work has begun at Leggat McCall’s project at The Vale in Woburn.
AREAS OF CONCERN
• Q2 was the first quarter we have seen that was entirely affected by COVID. While the office market has seen
a sharp downturn in absorption and new leasing activity, long term sentiment appears unshaken for the
most part with investment trades still happening. True vacancy only saw a small uptick in Q2, and we have
yet to see a major influx of sublease space in the market, thankfully.
• With several new life sciences projects in the pipeline, will we see the adaptive re-use trend of under
performing office assets that is picking up in other markets?

RECAP OF MARKET HEALTH

47,600,000 14.8% $26.20/SF 21,000
TOTAL SQUARE FEET VACANCY RATE AVERAGE RATE (GROSS) SQUARE FEET UNDER

CLASS A & B SPACE CONSTRUCTION

NOTEWORTHY TRANSACTIONS

Lease Sale Sale
4 Corporate Dr, Andover 83 Cambridge St, Burlington 3 & 5 Carlisle Rd, Westford

18,400 SF $4,750,000 ($192/SF) $24,500,000 ($146/SF)
UMass Lowell Middlesex Investment Partners RAM Management

Q2 2020

NATICK/FRAMINGHAM (office)

SUBMARKET NEWS

MARKET RECAP
• So far, the Natick/Framingham Office market appears to be weathering COVID-19 with minimal collateral

damage. For starters, the markets two biggest movers, Definitive Healthcare, (55,737 SF of positive
absorption) and Boston Heart Diagnostics (57,014 SF of negative absorption) largely cancel each other
out and were both set in motion prior to COVID-19. Putting aside those two outliers, the statistics seem
to refute the prediction that an extended shutdown would force many companies to go out of business
and in turn flood the market with space. In fact, while leasing activity was largely nonexistent during the
quarter, it is at least reassuring to see that negative absorption during this same time accounted for less
than 45,000 SF total for the entire market.
NOTEWORTHY NEWS
• Life Sciences and Medical related users appear to remain largely resilient during the pandemic, as
evidenced by King Street properties ability to bring 33 New York Avenue to 100% occupancy with the
signing of over 43,000 SF of lab space to CRISPR Therapeutics. At Campanelli’s newly acquired 492 Old
Connecticut Path, Definitive Healthcare will be increasing their office footprint from 40,000 SF to over
95,000 SF.
AREAS OF CONCERN
• Several large users have informed their landlords of their intention to give back space. International Data
Group (IDG) who has been a fixture at 3 and 5 Speen Street in Framingham for over 25 years that they will
be vacating over 130,000 SF by this time next year. IDG will be relocating their scaled down operation to
125,000 SF in Needham. At 175 Crossing Boulevard, Boston Heart Diagnostics plans to sublease 57,014
SF and down size into a smaller footprint within the park. We are told this consolidation is a result of
advancements in their technology which has allowed them to shed space.

RECAP OF MARKET HEALTH

8,460,000 11.7% $26.30/SF 0
TOTAL SQUARE FEET VACANCY RATE
AVERAGE RATE (GROSS) SQUARE FEET UNDER

CLASS A & B SPACE CONSTRUCTION

NOTEWORTHY TRANSACTIONS

Expansion Lease Sale
33 New York Ave, Framingham 6 Mercer Rd, Natick
492 Old Connecticut Path, Framingham $1,800,000 ($125.09/SF)
43,470 SF
55,737 SF CRISPR 2-4 Mercer LLC.
Definitive Healthcare

Q2 2020

495 WEST (office)

SUBMARKET NEWS

MARKET RECAP
• To date, the 495 West market has hung on quite well statistically with little impact to the vacancy rate over

the past 2 quarters.
• While there is speculation that a lot of companies will no longer require office space, that still remains to

be seen. There has been some activity from companies out of Boston considering smaller outposts closer
to employees homes, and with more space for social distancing.
NOTEWORTHY NEWS
• While the office market has been quiet as companies try to sort out the future of their space needs, single
story flex demand continues to be strong.
• Office tenants are starting to tour space again, but the volume is far from the historical norm.
• Private & institutional investors remain bullish on Marlborough as evidenced by Greatland Realty Partners’
$66,000,000 office investment in “The Campus”.
AREAS OF CONCERN
• Landlords are maintaining their asking rents. Should they be more aggressive to attract companies into the
“Boro’s” before Landlords in other markets start reducing rental rates?
• Over the past two months, only 51,000 SF has been put on the market for sublease, with most of the
spaces below 5,000 SF. However, 34,475 SF of the 51,000 SF came on the market within the last 3 weeks.
Will larger blocks of space hit the market later this year that will significantly impact the market?

RECAP OF MARKET HEALTH

11,900,000 19.4% $21.00/SF 150,000
TOTAL SQUARE FEET VACANCY RATE AVERAGE RATE (GROSS) SQUARE FEET UNDER

CLASS A & B SPACE CONSTRUCTION

NOTEWORTHY TRANSACTIONS

Lease Lease Sale
125 Fisher St, Westborough 734 Forest St, Marlborough
Campus Dr, Marlborough
85,000 SF 17,997 SF
Columbia Tech Adcole $66,000,000 SF ($113/SF)
Greatland Realty Partners

128 NQ22020 ORTH/RT. 3 NORTH (industrial)

SUBMARKET NEWS

MARKET RECAP
• Sales at 6 Enterprise in Billerica (25,000 SF), 33 Glen in Chelmsford (36,000 SF), and 31 1st in Lowell (25,000 SF)

all traded hands – a sign that demand is still high. Several spaces are all also coming to market both for lease
and sale that were once held by athletic users that are affected by COVID (15,000 SF at 3 Esquire in Billerica
for lease, 10,000 SF at 10 Micro in Woburn for lease, 25,000 SF at 8 Micro in Woburn for sale). We expect this
trend to continue into Q3 given demand for e-commerce, R&D, automation, and general warehousing and lack
of supply.
NOTEWORTHY NEWS
• Despite COVID, the industrial market has not felt the pain of space coming back based on lack of absorption.
Although leasing activity did drop about 60% in Q2, several large blocks of space were leased (>20,000 SF) and
multiple sales occurred to both owner users and investors alike.
• Calare’s 81,300 SF project at 301 Treble Cove in Billerica is set to deliver later this year. 55,000 SF has already
been pre-leased by Bay State Pools coming out of Cambridge.
AREAS OF CONCERN
• Given the demand for the industrial asset type over office, retail, and hospitality, investor demand has been
very high and did not slow in Q2. What effect will this have on industrial users long term as an already supply
constrained market is seeing trades at record basis levels?
• Now that new construction is starting to pop up in other markets west and south for high bay space options,
will that force some users into relocation out of the north market?
• Given a lack of supply and an overall appreciation in rental rates, will other select asset types troubled before
COVID be considered for adaptive re-use into warehouse/industrial uses?

RECAP OF MARKET HEALTH

94,900,000 5.6% $11.33/SF NNN 81,300
TOTAL SQUARE FEET VACANCY RATE AVERAGE RATE SQUARE FEET UNDER

CONSTRUCTION

NOTEWORTHY TRANSACTIONS

Lease Lease Sale
400 Research Dr, Wilmington 299 Ballardale St, Wilmington
23, 29, 35-37, and 45 Concord St, North Reading
31,400 SF 39,000 SF
Leading Edge Crystal Technologies Spectra Medical Devices $40,000,000 ($139/SF)
Brookfield Property Group

Q2 2020

495 SOUTH (industrial)

SSUUBBMMAARRKKEETTNNEWEWS S

MARKET RECAP
• The Q2 495 South Industrial Market results continue to impress. Both sale and lease transactions of 160-

320,000 SF each were benchmarks of continuous strong activity through the worst of the pandemic months
this spring. Although there was a brief pause in property tours, significant pent up demand for single story
industrial product persists and is expected to continue through the balance of 2020.
NOTEWORTHY NEWS
• There are currently 10 flex/Industrial leases under negotiation for over 315,000 SF with only one new
delivery in this size range of a newly constructed 25,000 SF free standing building at 56 Boynton Road in
Hopping Brook Park, Holliston.
• Additionally, sale transactions continue at a premium price as 16 Forge Parkway, in Franklin recently closed
to Tegra Medical for $16,400,000 ($137/SF) for 120,000 SF.
• The 427,000 SF Campanelli Business Park in Bellingham is under agreement at record pricing to an investor
which is fuelled by Amazon’s long-term commitment for 300,000 SF.
AREAS OF CONCERN
• The biggest challenge going forward will be finding smaller availability for companies looking for 10-50,000
SF warehouses.
• Limited availability is expected to continue for the remainder of 2020, resulting in pricing at a sustainably
high level for the foreseeable future.

RECAP OF MARKET HEALTH

46,700,000 5% $10.15/SF NNN 1,700,000
TOTAL SQUARE FEET VACANCY RATE AVERAGE RATE SQUARE FEET UNDER

CONSTRUCTION

NOTEWORTHY TRANSACTIONS

Sale Sale Lease
51 Alder St, Medway 5 Commerce Blvd, Plainville 1 National St, Milford
$18,600,000 ($114/SF)
$32,300,000 ($112/SF) 322,000 SF
Berkeley Partners Thermo Fisher Scientific Inc. Amazon

Q2 2020

RT 24 (industrial)

SUUBBMMAARRKKEETTNNEWEWS S

MARKET RECAP
• Industrial lease rates for spaces under 100,000 SF remain at pre-COVID rates ($5.50-$7.50/SF) with little

concessions. Rates were probably at an all time high and so far there is no indication they are going down
as there is little inventory and landlords are not yet willing to make concessions. Leasing continues but at a
much lower pace with limited activity and few new signed leases.
NOTEWORTHY NEWS
• As most other markets, April and most of May saw little activity other than prior pre-COVID transactions
closing. For about a month there was almost no new activity at all.
• Any activity that we did see has been for smaller to medium size requirements. We predict that this trend
will continue into the next quarter or two.
• Over 450,000 SF has become available on the market. Coincidentally enough, the new space is not labelled
sublease space. It is anticipated additional sublease space will continue to add to the existing inventory.
AREAS OF CONCERN
• The large (100,000 SF plus) industrial spaces continue to remain vacant with more inventory coming
available such as the recently completed 350,000 newly constructed building at 1025 Elm Street in
Bridgewater.
• The newer hi-bay product, like 1025 Elm Street, has strong demand while several of the other large blocks
of space will be challenged due to clear height. Historically, pre and post recession, the older product can
remain vacant for years.

RECAP OF MARKET HEALTH

39,820,000 5.3% $9.22/SF NNN 1,100,000
TOTAL SQUARE FEET VACANCY RATE AVERAGE RATE SQUARE FEET UNDER

CONSTRUCTION

NOTEWORTHY TRANSACTIONS

Sale Sale Lease
555 Turnpike St, Canton 196 Manley St, Brockton 55 Teed Dr, Randolph
$51,000,000 ($75.65/SF) $2,250,000 ($81.30/SF)
12,600 SF
Westbrook Partners Equipment East On Demand Storage

Q2 2M020ARKET SPOTLIGHT

DEVENS: THE GROWING LIFE SCIENCE
MANUFACTURING CLUSTER

DEVENS: THE GROWING LIFE SCIENCE
MANUFACTURING CLUSTER

Devens is already home to several prominent life sciences firms who needed vast space to accommodate their
manufacturing needs. Among the list, notable firms include Bristol Myers Squibb, QinetiQ, Raytheon, and Nypro.
As Mass Development continues their work of growing the business community in Devens, land and tired-buildings are
being sold and redeveloped – particularly into manufacturing or warehouse sites for large users. As GMP space along Rt
128 and I-495 becomes harder to find, Devens has been a relief for companies looking for expansion space at a reasonable
rate.
MAJOR OWNER OCCUPANTS BUYING INTO DEVENS
Among the recent additions to Devens, there are two notable companies purchasing substantial acreage. Commonwealth
Fusion Systems, a MIT spin off backed by Bill Gates and energy giants Equinor and Eni, is in the process of purchasing 60
acres of land in Devens. The Cambridge-based company will develop the land for a new site location to accommodate their
growth – having received $84M in their second round of funding in May 2020. The company is working on creating reliable
fusion power. Commonwealth Fusion Systems hopes to join several other owner-occupants in Devens. Bristol Myers
Squibb owns over 89 Acres (700,000+ SF), SMC owns 325,000 SF, and Integra has over 70,000 SF. All three firms and Bio-
Techne utilize these locations for manufacturing purposes.
Activity from owner-occupants looking for land to develop has increased dramatically in the past few quarters, particularly
from life sciences firms and high-tech manufacturing companies. One very notable aerospace firm is eyeing 12+ acres of
land, and a clean-tech firm is looking at opening an 100,000 SF warehouse/manufacturing facility.
We’re seeing several companies with an existing presence in Devens choose to expand in the area. Bio-Techne, a biotech
company already with a Devens presence, has almost completed their 30,000 SF expansion bringing it to 75,000 SF
total. Little Leaf Farms, a lettuce/greens grower, is looking to close on additional land for their growing operations. When
completed, they will have over 10 acres of growing under glass.
INVESTORS CONTINUE REDEVELOPING
Prominent investors and developers already own several massive Devens facilities in their portfolios. The list includes
investors such as Blackstone, Seyon Group, GFI Partners, Morgan Stanley, and CrossHarbor Capital Partners. Jumping into
the mix are several new players looking to further redevelop Devens.
King Street Properties purchased the old Netstal building at 57 Jackson Road in April 2020. The 24,500 SF light
manufacturing building will be
vacant later in 2020 for King Street to
redevelop. In addition, King Street is
in the process of purchasing 50 acres
of neighboring land to redevelop.
They plan to build several hundred
thousand square feet of life science
manufacturing space.
As more owner-occupants and
investors see the value and growth
opportunities in Devens, we expect
continued development. The need
for manufacturing and warehouse
space that is accessible to eastern
Massachusetts remains strong and we
expect demand to continue to grow.
Devens and surrounding areas will
continue to gain recognition as these
developments continue.

Thank you to all of our clients for your continued
t r u st i n R .W. H olmes over the past 44 years . We
wish you and your families continued health and

happiness during these difficult times.

CORPORATE LEADERSHIP TEAM

Garry Holmes Dean Blackey John Eysenbach Craig Johnston Paul McKeon Arthur Amadei
President Managing Director Executive Vice Senior Vice President Director of Senior Vice President
President Finance

Robert Strelke Jim Bartholomew Mike Ogasapian Elizabeth Holmes Samantha Ludwig
Vice President Vice President Assistant Vice Director of Corporate Marketing
President
Services Manager