The Greater Boston commercial real estate market has seen signs of recovery across all sectors and sub-markets, according to a new report from CB Richard Ellis.
The largest single office lease in Boston’s history was signed in the second quarter when Vertex Pharmaceuticals leased approximately 1.1 million square feet of space in the Seaport District.
Investment sales activ¬ity in both the Class A and B mar¬kets returned in the second quarter, most notably the pending sale of 33 Arch St. to TIAA-CREF for $368 million, which was first reported by Banker & Tradesman. Additional Class A assets for sale include the State Street Financial Center at One Lincoln St. by Fortis Property Group and Exchange Place at 53 State St. by Brookfield Properties. The Class B market has seen recent transactions like 121 High St. selling to Glanz Properties, and 131 Clarendon St. to Brookline Savings Bank for its new corporate headquarters.
In Cambridge, Vertex’s defection to Boston will leave more than 700,000 square feet of lab and office space vacant whose fate is still unclear, but is certain to have a significant impact on the market over the next few years as their locations are brought to market or redeveloped. And investment sales activity in Cambridge was limited, with the one notable transaction being 733 Concord Ave., a lab property, which sold to King Street Properties for $6.3 million, or $151 per square-foot, the report says.
The Cambridge office market experienced 22,000 square feet of positive absorption in the second quarter of 2011. Google increased its existing Cambridge Center location by adding an additional 63,000 square feet. The tech giant then acquired ITA Software, which added an additional 100,000 square feet to Google’s Cambridge footprint. This positive movement was offset by Akamai placing 77,000 square feet on the sublease market. This activity has led to an office vacancy rate of just 9.5 percent, tipping the scale to a landlord-friendly market for the first time since the recession began.
West Cambridge saw old friend The Blackstone Group emerge as the winners of two foreclosed Cambridge properties at 125 and 150 CambridgePark Drive, which combine for roughly 440,000 square feet of space, as first reported by Banker & Tradesman. Blackstone is expected to pay in the neighborhood of $80 million, far less than the $127.9 million Archon paid for both properties in June 2007. Blackstone previously acquired the properties in 1999 for $84 million, before selling to JP Morgan in 2001 for $98 million. Barclays Capital then took the properties back at a foreclosure auction last year after the buildings were lost by a subsidiary of the Archon Group.
A combination of tenants going out of business and defecting to the suburbs led to negative absorption of 70,000 square feet. However, Biogen Idec. moved more than 300,000 square feet of administrative space out to Weston in 2010, only to have new CEO George Scangos state that the move to the suburbs was a misstep. Shortly thereafter, rumors surfaced that Biogen had signed letters of intent for more than 500,000 square feet in East Cambridge. The increase in large user demand led to a spike in asking rents, which reached $54.55 per square foot this quarter, according to CBRE.
In the suburbs, the sales market continued improving as financing became more readily available and prices stabilized, CBRE reports. In this more stable environ¬ment, equity that has been waiting on the sidelines has become more active. Unicorn Office Park’s owner – a New York-based equity fund whose assets are managed by JP Morgan – went with an offer submitted by National Development, as reported by Banker & Tradesman. The Newton-based developer is expected to pay in the neighborhood of $80 million for the six-building, 640,000-square-foot office complex. Colony Realty Partners sold 690 Canton St. in Westwood for $34.5 million, or $209 per square foot. And 200 Newport Ave. in Quincy sold for $25 million, or $171 per square foot, to Synergy Investments.
Looking ahead to the second half of 2011, the suburban investment sales market is expected to continue to improve in conjunction with leasing market progress, as long as the low-interest environment holds, CBRE’s market report maintains. Though there are some concerns that the current advancements in the investment sales market are untenable and that the return of so much equity to the market may create a new bubble, but the short-term predictions remain positive.
The suburban industrial market saw activity levels similar to those of the first quarter, as the market continues to recover from the recent recession. In particular, a surge in user sale activity drove the industrial market to a positive absorption of more than 671,000 square feet. Notably, Horizon Beverage purchased 45 Commerce Way, a 403,000-square-foot building with an 18-acre adjacent site in Norton, for $20.6 million. In Woburn, Peterson Party Center acquired 36 Cabot Road and a neighboring land parcel for $7 million, intending to use more than half of the 232,000-square-foot building. And Analog Devices also purchased a building this quarter for its own use at 30 Industrial Way in Wilmington for $4.5 million.
With several additional transactions in process, the third quarter should continue the trend of heightened activity. Rents are beginning to stabilize, though most industrial properties are still leasing at a discount to their historical norms.
