I recently took part in the NAIOP/SIOR End of the Year Commercial Market Review. Following are some of the key takeaways shared at the event.
Cambridge remains one of the strongest markets we track globally. From tech to biotech and pharmaceuticals, tenants are still willing to pay a major rent premium to be part of one of the world’s premier life science and technology clusters.
If there is a challenge for these companies, it is of course, that supply is highly limited. Currently, office and lab vacancy both remain below 3.0%. This limited supply also continues to put upward pressure on rents. Office rents have hit the low $90’s gross in East Cambridge and achieved lab rents have hit the low $80’s NNN.
That all being said, we do believe there is still room to run. The best of the best talent is coming from MIT and Harvard and these folks are in short supply. Companies want access to this talent and they’re willing to pay to get it. In fact, many are unwilling to look elsewhere.
Case in point, here are some of the biggest Cambridge success stories of 2017:
- From outside the market, Facebook, refused to look anywhere outside of East Cambridge. They ultimately leased 132,000 SF at Alexandria’s 100 Binney Street, which is technically a lab building.
- Intersystems, born and raised in East Cambridge, typically refuses to look anywhere outside their own building. They renewed and expanded into more than 240,000 SF at One Memorial Drive (a portion of which is being converted from garage space to office space).
- Shire continued its expansion at 125 Binney Street, increasing its Cambridge footprint to more than 760,000 SF.
Currently, there is over 2 million SF of demand in the market. Over 90% of the companies looking for office or lab space, both big and small tenants alike, need to occupy within 12 months. This sense of urgency is part of the reason demand for co-working space continues to rise. Right now, there is over 190,000 SF of co-working demand alone in the market.
So, what does that all mean for supply?
- Speed to market is extremely critical: We are seeing buildings under construction lease up fast. For example, 399 Binney Street, Alexandria’s lab building which started construction earlier this year, is already over 70% committed.
- Landlords will continue to invest and reposition existing supply: Intercontinental acquired 1000 Mass Ave from Cambridge College last year. The building was 100% committed, at record rents for Central Square, before the college even vacated.
- Continued demand and rent growth means that there will be new supply: There is currently 7.5 million SF in the development pipeline. This includes spec development like Divco’s 430,000 SF science and technology building at Cambridge Crossing. In addition to much needed supply, these projects will also deliver dynamic retail alongside new residential opportunities, helping to ensure that Cambridge maintains that work-live-play employee experience that is another critical driver for tenants in the market.
For more information on the Cambridge market, please feel free to contact me with any questions you may have.