The clamor for premium Class A office space along Route 128 over the past six months will likely lead landlords to raise their rents, and could push developers to begin more seriously considering building new space – if rents can continue their uneven and tenuous upward path.
As tenants traded up to core properties in locations like Waltham and Burlington after the recession drove prices to historical lows, those markets experienced a strong tightening of space, quickly shifting the market to favor landlords over tenants, brokers told Banker & Tradesman.
Office space in Waltham’s premium Class A buildings is now leasing for between $32 and $36 per square foot, up from approximately $27 to $33 at this time last year. In Burlington, that space fetches roughly $24 to $27 per foot in most places, according to Mark Roth, executive director for Cushman & Wakefield.
Space At A Premium
Boston Properties, which became one of the largest landlords in Waltham after its 2010 acquisition of Bay Colony Corporate Center, recently raised rents from $27 to $31 per square foot in some of the office park’s better buildings, Roth said. Top spaces in Bay Colony and nearby Waltham Woods are going for about $34 to $36 per square-foot, he added. The city’s Class A space is 15.9 percent vacant, according to information from Jones Lang LaSalle (JLL).
In Burlington, where rents have remained largely flat over the past year, a recent leasing wave has landlords on the brink of rent increases, Roth continued. Within the last 90 days, Ascend Learning took 75,000 square feet at 5 Wall St. and will pay in the high $20s at the new facility. The company is relocating operations from Sudbury and Maynard “and really took [5 Wall St.] to 100 percent leased,” Roth said. Burlington’s Class A offices are 18.8 percent vacant, according to JLL.
“A number of landlords have already raised their rents,” said Jonathan Davis, CEO of the Davis Cos., which owns Burlington Woods in Burlington and Reservoir Woods in Waltham. “We’re seeing much firmer rent quotes from our competition. But you have to remember these rents are coming off of very low levels. We’re coming into the beginning of the spike portion of the cycle. Rents … go up between seven percent and 15 percent a couple years in a row after a recession to come back to a level that reflects equilibrium and demand.”
Davis said he will “definitely” be evaluating his rent structure to identify if alterations can be made.
While some landlords are baiting their hooks with pricier offerings, that won’t be the story across the board, according to Matt Harvey, a principal with CresaPartners who focuses on the Rt. 128 North market.
“Class A has seen a flight to quality for [firms] that wanted be closer to 128,” Harvey opined. “As a result, right now landlords are testing the market, trying to raise rents, and I think they’ll be met with varying levels of success, but I don’t think by any means we’ll see an across the board increase.”
In With The New?
Instead, rent hikes will be on a tenant-by-tenant basis, and will especially apply to a new or unrepresented tenants or a large tenant with few options, Harvey added. But regardless of market dynamics, given the sheer volume of space Boston Properties controls coupled with tightening of Class A in nearby Cambridge, Waltham will see “a rising tide” of rental rates, said Matthew Malatesta, assistant vice president for JLL.
“There are a lot of large users looking for space right now,” Malatesta said, though he would not name any. But there are few spaces in either Waltham or Burlington large enough to accommodate a requirement above approximately 130,000 square feet.
Currently, the largest vacant block of space in Waltham is approximately 130,000 square feet at Boston Properties’ 1100 Winter St., part of the Bay Colony campus. In Burlington, 10 Corporate Drive at Burlington Corporate Center, owned by Washington, D.C.-based Multi-Employer Property Trust, boasts the largest vacant block, at 107,000 square feet.
So if a user much larger than 130,000 square feet wants to be in those markets badly enough, they will need to build their own home. But in Waltham and Lexington – which sits between Waltham and Burlington on Route 128 – a large tenant desiring new construction would require a rent leap into $43 to $50 per square foot range, Roth mused.
But in Burlington, new construction can go for as little as $33 to $38 per square foot. Even so, rents would need to reach into the $30’s per square-foot in Burlington to support new construction, a mark not yet reached, said Mark Norton, a former broker with Lincoln Property Co.
But rather than force new construction, some speculated that tightness in Waltham and Burlington may instead trickle south to other nearby Route 128 markets.
As biotech giant considers moving back to Kendall Square, the logical place for a user requiring roughly 200,000 square feet in the area is the 360,000-square-foot building the biotech company leases in Weston, Davis offered.
