Metro Boston Commercial Rental Market Report

Commercial Rental Market Conditions in Metro Boston’s Business Districts:!A Guide for Boston’s Main Street Organizations

Sponsored by: B O S T O N M A I N S T R E E T S P R O G R A M !Department of Neighborhood Development!!!!!!!Conducted by: F I N E P O I N T A S S O C I A T E S , L L C !www.FinePointAssociates.com!Peg Barringer, Project Director Rachel Mutschler, Research Assistant!!!November 2014!!

This project was only possible due to the contributions of time, information and insights on the part of many individuals. Thank you to everyone that participated in this project.

Acknowledgements

Alana Olsen, Allston Village Main Street Ali Carter, Brighton Main Street Andy Martineau Town of Brookline Andy Zarro, JP Centre/South Main Street Arthur Allen, Nuestra Comunidad Development Corporation Betsy Cowan, City of Boston, formerly Egleston Square Main Street Christina DiLisio, Roslindale Village Main Street Emily Reichert, Green Town Evelyn Darling, VietAID, formerly Fields Corner Main Street Gary McCabe, Town of Brookline Gerald Robbins, Hyde/Jackson Main Street Jennifer Efron, Washington Gateway Main Street

John Maudoin, Fields Corner Business Lab John Tyler, Maverick Marketplace Karenlyn Bunch, ABG Realty Linda Schwartz, City of Somerville Luke Breckenridge, Roslindale Village Main Street Marcia Thornhill, Nuestra Comunidad Development Corporation Max Gruner, East Boston Main Street Michael Iceland, West Roxbury Main Street Mimi Graney, Executive Director, Union Square Main Streets Molly Rubenstein, Artisan Assylum Pardis Saffari, City of Cambridge Roseann Foley, Fields Corner Main Street Steve Rumpler, City of Boston

Sponsored by: B O S T O N M A I N S T R E E T S P R O G R A M !Department of Neighborhood Development!Contacts: Steven Gilman, [email protected] !Kay Kaigler, [email protected] !!

Conducted by: F I N E P O I N T A S S O C I A T E S , L L C !www.FinePointAssociates.com!Peg Barringer, Partner, Project Director, [email protected] Rachel Mutschler, Research Assistant

FinePoint Associates, LLC, “Commercial Rental Market in Metro Boston’s Commercial Districts”

Contents 1. Purpose, Introduction and Methodology………………………….………………………..…4 2. Ten Trends impacting Real Estate in Boston Commercial Areas………………………….....6 3. Retail Space....…………………………………………………………………………………8

• Lease Types, Rent and Vacancy

• Price Factors for Retail Space

• Retail Market Conditions Data 4. Office Space ………………………………………………………………………………….15

• Lease Types, Rent and Vacancy

• Price Factors for Office Space

• Office Market Conditions Data 5. Collaborative Space………………………………………………………………………….21

• Models of Collaborative Workspace • Collaborative Space Market Conditions Data

6. Information Sources ………………………………………………………………………… 23


Purpose, Introduction and Methodology Purpose The purpose of this research report is to serve as a primer on commercial leasing and market conditions for Boston’s twenty Main Street Organizations. One of the roles of Main Street Organizations is to facilitate business recruitment and real estate development that will be beneficial to their business districts. By providing information about commercial trends, price variables, real estate terms and lease types, we hope to equip Main Street Organizations to work collaboratively with property owners and real estate professionals in this pursuit. The market research provides information about commercial rental pricing and other market conditions in each district within the context of the Greater Boston market. We hope this report will be helpful to Main Street Organizations, property owners, and development professionals as they consider revitalization opportunities. Introduction In this study, we look at three types of real estate: retail, office and collaborative workspace. We review trends, market conditions, price-determining factors, how space is typically classified/categorized and various types of lease instruments. Our research has a particularly focus on real estate located in commercial districts. Metro Boston is home to a multitude of commercial districts that offer retail and services for residents and visitors as well as provide office space for thousands of employees. Some of these commercial districts draw customers from throughout the region, while others are local-serving commercial centers that primarily cater to nearby residents. This study, completed in the summer and fall of 2014, looks at market conditions in major submarkets of Boston and Cambridge, thirteen Boston Main Street Districts and three commercial districts in Somerville and Brookline. Information pertaining to large regional-serving commercial areas such as Back Bay, Downtown Crossing and the Seaport is provided for the purpose of context and comparison.

City/Town Commercial Districts/Submarkets Researched

Boston Major Submarkets Back Bay, Downtown Crossing/Financial District, Seaport

Boston Main Street Districts Allston Village, Brighton, Dudley Square, East Boston, Egleston Square, Fields Corner, Grove Hall, Hyde/Jackson, Jamaica Plain Centre/South, Roslindale Village, St. Marks Area, West Roxbury and Washington Gateway

Cambridge East Cambridge/Kendall Square, Harvard Square

Somerville Davis Square, Union Square

Brookline Coolidge Corner


Methodology and Data Limitations We conducted a search of published reports and data from real estate resources such as: CBRE, Colliers International, Urban land Institute, Marcus & Millichap, CoStar, Cushman & Wakefield, and LoopNet. We also searched real estate listings for available rental spaces and current rent levels. We contacted Main Street Organizations and many other government resources and real estate professionals to obtain information and perceptions. In all, we interviewed or obtained information from 10 Main Street Directors and 15 other informants familiar with the commercial rental market in Boston and surrounding communities. Precision with regard to rental rates, particularly in smaller commercial districts, is limited by several factors. Current rental rates at the neighborhood level are not available in any published source and many property owners and real estate brokers that we contacted were not willing or able to provide this information. The review of current real estate listings provided some good data, however there were only a small number of rental listings for each commercial district, and in some cases there were none. The results of this study for commercial districts outside of the major submarkets are heavily derived from the “on the street” knowledge of the Main Street Directors and other informants rather than a large database of rental property criteria and rates. Current asking rents are different (typically higher) than the rents that existing tenants in the district may be paying. The information presented in this report is a mixture of asking rents and existing rent rates. Finally, it should be noted that we found rental rates and types of leases (e.g., net versus gross) could vary greatly from building to building within each district making it difficult to obtain a meaningful average rate, which is why we have provided ranges.


Ten Trends impacting Real Estate in Boston Commercial Areas 1. Desire for experiential shopping, socializing & recreating - good news for business districts

Even with the popularity of online shopping, there is still a customer segment that wants to touch, hold and try on merchandise. And, there are those that enjoy an experience to accompany their purchase, like a tasting or a demonstration. Plus, people need a place where they can interact with each other, find restaurants and entertainment options, take a yoga class, go the gym, or attend a cultural event. Neighborhood business districts are well positioned to serve as these “social locations” that people seek.

2. Online retail is growing but so is multi-channel retailing; bricks & mortar not disappearing Online retailing continues to grow forcing retailers to rethink business models. This does not signal the end of the brick and mortar store but instead a surge in multiple channel retailing. Today, many bricks and mortar stores, even in neighborhood commercial districts, are participating in e-commerce and serving as wholesalers to supplement their retail “through-the-door” sales. In addition, nationally, there is a segment of previously “purely online” retailers opening brick and mortar locations for the purposes of marketing and serving consumers that desire the entertainment and social aspects of shopping. In coming years, large retailers are expected to trim down store size but not eliminate their bricks and mortar presence.

3. Retail development in Boston is on the rise1 Developers are beginning to respond to rising rents, increasing consumer base and limited developable space. For the first time in decades, Boston’s non-core neighborhoods are seeing significant investment in the redevelopment of previously overlooked space. For example, Dudley Square is the site of five major new developments that includes lots of new retail space and Portside Pier in East Boston will include 70,000 square feet of retail. These projects along with the Ink Block in the South End and Millennium Tower in the Financial District contribute to a retail development pipeline of 7 million square feet in Metro Boston.

4. Some neighborhood districts have vacancies and “less than ideal” tenants on ground floor Some commercial areas, including several Main Street districts, have been experiencing significant vacancy. In some cases, first floor spaces are becoming occupied with tenants that do little to increase foot traffic or enhance the overall business mix. Rather than retail, restaurant or service tenants that contribute to crossover patronage between businesses, first floor spaces are being filled with office tenants or other users that have very little or no walk-in trade and are not open weekends or evenings. Over time, this practice could hurt the leasing environment as the area may become less and less attractive to retail and restaurant tenants.

5. Collaborative workspace is increasing; alternative office space is gaining popularity Business incubator and co-working spaces provide a variety of options for office tenants. These spaces offer an alternative to a traditional lease with additional services bundled into the cost of rent. This work environment option has become increasingly popular among startups and entrepreneurs, with the number of collaborative workspaces in Boston doubling since 2009.2

1 Cushman & Wakefield. Marketbeat Retail Snapshot: Boston, MA. Q2 2014. 2 CBRE Global Research and Consulting. Boston Office MarketView, Q1 2014.


6. Businesses are maximizing efficiency, office tenants are leasing less space per employee

With fewer permanent, full-time employees, businesses are now able to reach a higher density than in years past. The trend appears to be less office space per employee than we are used to seeing. Some spaces in Boston accommodate up to 9 employees per 1,000 square feet.3

7. Tech businesses are moving within Boston These businesses are chasing value and vacancy. The Financial District and Downtown Crossing have become the new tech clusters as areas like Kendall Square see high demand.

8. Large companies are relocating to Boston According the to the Urban Land Institute (ULI), the city has been benefiting from a trend toward urbanization, with a variety of companies moving to the city to be closer to a talented, urban workforce. The lack of appropriately sized available space has led large companies like PWC and Goodwin Proctor to build spaces of their own.4

9. New companies moving in has resulted in increased office rents The influx of large companies into the downtown Boston core has pushed office vacancy rates in the Central Business District below 10%5. Decreased vacancy has led to an increase in average asking rents for Class A office space in the Central Business District to well over $50 PSF and Class B office space close to $40 PSF.

10. Mixed-Use Developments are on the rise

The desire to be close to customers has forced many retailers to rethink their typical size and location requirements. As a result, the ground floors of many new housing developments and office complexes are being occupied by retail. Recent mixed-use projects include the Boston Landing complex in Brighton (with over a million square feet of new office space) and Assembly Row in Somerville (with 100,000 of new office space). These two projects together include hundreds of thousands of square feet of new retail space (and two new MBTA stops.)6

3 Urban Land Institute. Emerging Trends in Real Estate, 2014. 4 CBRE Global Research and Consulting. Boston Office MarketView, Q1 2014. 5 Cushman & Wakefield. Marketbeat Offuce Snapshot: Boston, MA. Q3 2014 6 CBRE Global Research and Consulting. Boston Office MarketView, Q1 2014.


Retail Space Retail properties are dispersed throughout the City of Boston and in the surrounding communities of Cambridge, Somerville and Brookline. While Downtown Crossing and Back Bay are the largest and most well known shopping areas, there are also numerous smaller neighborhood commercial districts. There are 20 Boston Main Street Districts in addition to many other commercial areas. Retail rent prices can vary greatly between these sometimes-adjacent districts, as well as from building to building within a single district. A great many factors go into estimating potential rents for retail space in Boston, and this report will mention some of the most important variables.

A. Lease Types, Rent and Vacancy Lease Types There are a variety of lease types being used for retail leasing. Below, is a description of three major types (gross lease, modified gross/net lease and percentage lease). A triple net lease is the most common type of lease instrument used for retail tenants, however all of these lease types are being employed in the Boston market area and in the Main Street Districts. Percentage leases, which usually are usually also triple net leases, are most typical for shopping centers/malls and for larger free-standing tenants. Gross leases are used more frequently in older commercial properties where the landlord is renting fewer spaces and may find it easier to charge a gross rent rather than to track and itemize additional costs for reimbursement. • Gross Lease: A lease in which the tenant pays a flat sum for rent, out of which the landlord

must pay all expenses such as taxes, insurance, maintenance, etc.

• Modified Gross Lease or Net Lease: A lease in which there is a provision for the tenant to pay, in addition to rent, certain costs associated with the operation of the property. A gross lease can be “modified” to include or exclude any individual expense within the base rate “bundle.” Sometimes a lease is referred to as single net, double net or triple net depending on the degree to which the tenant is responsible for operating costs. Example:

Single Net Lease – A single lease where the tenant agrees to pay a monthly base rent and a pro rata share of the property taxes. Double Net Lease (NN) – A lease where the tenant agrees to pay a monthly base rent and a pro rata share of the property taxes and the property insurance. Triple Net Lease (NNN) – A lease where the tenant agrees to pay a monthly base rent and a pro rata share of the property taxes, the property insurance, and the maintenance (including common area utilities).

• Percentage Lease: A percentage lease, sometimes used in retail leasing, includes a provision

calling for the landlord to be paid a percentage of the tenant's gross sales as a component of rent. There is usually a base rent amount to which "percentage" rent is then added. Properties that are leased this way are also typically leased on a triple net basis.


The variety in lease types being used can make comparing rent levels challenging. Obviously, a rent rate of $20 PSF using a gross lease is not the same as $20 PSF using a triple net lease. Rents are typically quoted as triple-net (NNN), though some properties particularly outside of the Central Business District are being offered with taxes, utilities, or common area maintenance included. Rent A recent Cushman & Wakefield report paints an optimistic picture for Boston retailers citing modest but positive population growth, increases in household income and a propensity toward in-town living – all trends that bode well for retail demand. Retail rental rates have been slowly increasing in almost every area of Boston over the past 3 years. Real estate publications provide some insight into rental rates. The CoStar Retail Report and the Marcus & Millichap Retail Market Overview cite average asking retail rent for the Boston Metro Area to be around $16-18 per square foot (PSF)7. The Cushman & Wakefield Retail Snapshot estimates average asking rents to be higher at around $22 PSF8. However, it should be noted that retail rental rates vary widely. Location is a major factor -- highly trafficked and dense urban areas command higher rents due to a greater volume of potential customers. Retail rents in Boston’s most popular commercial areas can exceed $100 PSF. Tenant type can also play a role in rental rates. Anchor tenants pay less than non-anchor tenants because they typically rent larger amounts of space and draw customers that patronize surrounding businesses, potentially making adjacent spaces easier to rent. Our survey of retail rental rates found an extremely large rent range, $10-150 PSF, depending on the submarket area and other factors. As noted in the previous section, variation in lease types pose difficulty when trying to compare rents. For this report, we have attempted to report retail rents that approximate a triple-net calculation in most cases, however, rent rates quoted for Boston Main Street Districts and other commercial districts outside of the major submarkets represent a mix of triple net and modified gross lease rates. Predictably, retail rents are highest in the areas of Boston best known for shopping, such as Back Bay, where rents can be in excess of $150 PSF for prime space with good access. Asking rents in Downtown Crossing have increased to historical highs ($80 -$100 PSF) due to significant infrastructure improvements, mixed use developments, and successful retail anchor and restaurant openings.9 Outside of Downtown Crossing and Back Bay, high retail rents are found in Boston’s Seaport District ($70 – 100 PSF), Harvard Square (which can be over $100 PSF) and in the Coolidge Corner area of Brookline ($30-70 PSF). Retail rents in the Boston Main Street (MS) districts range from $10 to 40 PSF. The districts near the top of the price range ($30-40 PSF) include Allston Village, JP Centre/ South and Washington Gateway. Middle range rental prices in the $20-30 PSF range are common in Brighton Center, 7 CoStar Group, The CoStar Retail Report, Q3, 2014; Marcus & Millchap, Retail Market Overview, Q3, 2014 8 Cushman & Wakefield. Marketbeat Retail Snapshot: Boston, MA. Q2 2014. 9 CBRE, New England Market Outlook. 2014


Dudley Square, East Boston, Egleston Square, Hyde/Jackson, Roslindale Village and West Roxbury. (Retail rents in Somerville’s Davis Square and Union Square also fall into this mid range). Lower rent areas ($10-20 PSF) include St. Marks Area, Fields Corners, and Grove Hall. It should be noted that commercial districts outside of Downtown Boston frequently have a great range in rents and are often areas in transition, making average rent calculations less useful. With such a great range in prices, it is important to look at some of the variables that affect the rates as we have done in Section B.

Vacancy Nationally, the retail vacancy rate is estimated around 10%, while in Boston the rate is estimated around 6%.10 Vacancy rates vary greatly by location and can change quickly. Of the Boston neighborhood commercial districts we researched, vacancy is lowest in Allston Village, Brighton Center, Dudley Square, Egleston Square, and Hyde/Jackson Square -- these areas all report vacancy below 5%. On the other end of the spectrum, Grove Hall, St. Mark’s Area, Fields Corner and West Roxbury report retail vacancy rates over 10%. For more detailed retail rent and vacancy information, see chart at the end of this section. B. Price Factors for Retail Space

The following section describes some of the key variables that impact retail rental rents, particularly in neighborhood commercial districts.

Proximity to the Center of the District Proximity to the center of a district is one of the most important factors in determining rents in Boston’s commercial areas. A location that is on a less desirable street or distant from a major intersection can result in a significant price penalty. For example, in the Washington Gateway MS district, rents are considerably higher near Union Square and decline closer to the intersection of Washington Street and Massachusetts Ave. In the Jamaica Plain Centre/South district, the rents are highest in the heart of the Centre Street commercial node with lower rents on South Street.

Proximity to Foot Traffic Generators Nearby generators of pedestrian traffic can be a factor in calculating commercial rents. These traffic generators can be major public transit stops, anchor retail businesses or universities. For example, in Dudley Square, one or two blocks’ distance from the MBTA bus station can result in a significant reduction in rent. Likewise, in the St. Marks Area MS district, rents are higher near the Ashmont MBTA station in Peabody Square and lower at the end of the district near St. Mark’s Church. Popular coffee shops, such as Starbucks, or local bakeries can drive a surprising amount of pedestrian traffic that can increase retail sales, and thus, rental rates. There is no set amount for how much such a foot traffic generator will increase rents and it is important to remember that the range of such an effect might be limited to a block or less.

10 National Association of Realtors, Commercial Outlook, Q4, 2014, Cushman & Wakefield. Marketbeat Retail Snapshot: Boston, MA. Q2 2014; (The CoStar Retail Report, Q3, 2014, provides a lower estimate for Boston and national vacancy rates, 4% and 6% respectively, based on the CoStar Group’s inventory of properties.)


Building Conditions The conditions of retail space vary greatly in Boston, due primarily to the age of many structures in commercial districts. In areas with low vacancy, it can be anticipated that fit-up costs will fall primarily on the tenant. However, in areas with higher vacancy, the space may need to be extensively renovated to attract a new business. Property owners who are proactive in keeping up their buildings and providing regular maintenance can often charge a substantially higher rent. Brand new space typically commands highest rent as can be seen by the asking prices at the newly developed space by the Jackson Square MBTA station.

Anchor Businesses and National Chains National chains and other destination businesses can offer many benefits to commercial districts, including increasing pedestrian traffic, increasing the size of a district’s trade area, and providing stability by signing longer term leases. These types of tenants often expect lower per square rents due to the fact that their presence will increase the potential rent achievable from adjacent spaces (e.g., a national supermarket chain will pay less PSF than the other tenants in a shopping center). National chains are also adept at negotiating lower rents over longer periods in return for handling their own leaseholder improvements.

Size In general, smaller spaces command a higher rent PSF than larger spaces. However, this is not always the case -- in areas with little vacancy, the size of space affects rents in ways that are linked to basic laws of supply and demand. In districts where large spaces are the norm, such as in Downtown Crossing, smaller spaces may be more valuable on a PSF basis. However, in districts with mostly small spaces – Brighton Center, Coolidge Corner, and Newbury Street for example – a property owner with a larger space that could accommodate a national chain tenant might be able to charge the same rate per square foot as smaller spaces (or possibly higher). Most commercial spaces in Boston Main Street Districts are small. Approximately two-thirds of the spaces are under 2,000 square feet and less than 10% are larger than 5,000 s.f. Properties that fall in between the two typical size categories (i.e., larger than 2,000 but less than 5,000 s.f.) sometimes pose a greater leasing challenge. A 3,500 s.f. space would accommodate neither a large national retailer, nor a typical small retail or service business.

Terms of Lease Lease terms affect the rental prices in different areas in different ways. In areas where the rent has stabilized and where there is little redevelopment occurring, a credit tenant willing to sign a longer lease may be able to negotiate a lower rent. In areas where the private sector or the city is building offices or other retail buildings, the rents may be lowest for short-term or month-to-month tenants so that the property owner can take advantage of an anticipated future upswing in the leasing market. In these areas, longer-term leases may be more expensive. From the interviews conducted in this study, there seems to be a trend towards month-to-month leases in many commercial areas. Property owners are optimistic and are expecting changes in the market, so this flexible tenancy puts them in a position to be able to raise rents as time goes on. While this is advantageous to property owners, it poses difficulty for tenants and the business district. Very short-term leases put businesses in a precarious position where a landlord could kick them out or raise rent with little notice, a situation which potentially might encourage


existing businesses to vacate and discourage new businesses from locating. This has been seen in the West Roxbury and Roslindale Village MS districts. Time of Development or Redevelopment Rent prices are highest in newly redeveloped space. This increase in rents is necessary to cover high site acquisition and construction costs, but it should not be assumed that these prices will be reflected in other parts of the district. However, landlords often begin to raise rents as they see new development happening. Some areas where this is currently occurring, including Hyde/Jackson MS, St. Marks Area MS and Dudley Square MS, are beginning to see increasing vacancies because property owners nearby large redevelopment projects are raising rents to be comparable to newly developed space.

Uppers and Downers Boston has a marvelous variety of building types and the rent levels reflect a similar variety. While some retail space exist above or below street level, these properties are generally more difficult to rent, except in the busiest of areas. Retail spaces a half-story above or below street-level, known locally as “uppers” and “downers,” are common in the South End, and on Newbury Street and Commonwealth Avenue. Because access is more limited, and storefront windows are not at eye level, these spaces receive significantly less in rents than street-level commercial spaces. A previous rental rate study concluded that on Newbury Street, uppers and downers might rent for half the rate for street-level retail spaces. On Commonwealth Avenue, the rent penalty is typically one-third of normal rates.

Outdoor Seating Space In some areas of Boston, such as on Boylston Street near Copley Square, restaurant space commonly allows for outdoor seating on the sidewalk. This seating can significantly increase the amount of space that a business can use to make sales, and thus can increase rent prices. In areas where outdoor seating is less common, such as in Roslindale Village, access to outdoor seating can come with a significant rent premium.

Usable Space Many spaces in Boston neighborhood districts are oddly configured, only partially finished as retail space, include some space on a different level, or for some other reason, contain some amount of space that is less than optimum for retail. These properties typically command less PSF rent than street-level property that is entirely usable.


Retail Rental Market Conditions11 Area Rent Range

PSF Gross or NNN

Average Rent PSF

Average Size (sf)

Vacancy Price Variables Sample Listings

Allston Village MS $17-55 NNN $30 -$35 2,500 2% Location: Proximity to MBTA B line Condition: New construction rents higher

Brighton MS $15-46 NNN & Modified Gross

$15-20 N/A 5% Demand: Bigger spaces are hard to come by and are more expensive.

565 Washington St (Oak Square), $33 psf, 700 sf; 380 Washington St., $53 psf, 900 sf, Modified Gross; 248 Market St., $28 psf, 900 sf

Dudley Square MS $23-34 NNN & Gross

$32 1,070 1% Location: Proximity to MBTA bus station Condition: New construction rents higher

57 Warren St., $2 psf, 1,746 sf, NNN, 54 Warren St., $28 psf, 850 sf; 2179 Washington St., $34 psf, 1,000 sf, Modified Gross; 2201 Washington Stree, 48683 sf, $28 psf

East Boston MS $21 - 28 N/A N/A N/A N/A N/A 104 Meriden St. $28 psf, 3,000 sf; 9 Chelsea St, $21 psf, 14,000 sf.

Egleston Square MS $20-33 NNN $25 1,500 3-5% Location: Rents near corner of Columbus and Washington $20-25 NNN. On Washington Street, rents are higher near Green Street ($27-33), lower near Montebello), $20-25. Urban Edge commercial properties rent at $31-33 sq ft.

3205 Washington Street $37 psf, 3,280 sf; Washington Street at Montebello, 575 sf, $41 psf

Fields Corner MS $15-17 or $20+

N/A N/A N/A N/A Condition: New construction N/A

Grove Hall MS $15-18 Gross N/A 800-1,500 16% N/A N/A Hyde/ Jackson MS $20-31 Mostly

NNN $25 1,200 2% Use: Restaurants are paying slightly higher rents

than other types of businesses in the District with an average rent of $28 per sq. ft. Condition: New construction falls in the $31-33 psf range

225 Centre Street at Jackson Square, 10,128 sf, 4,186 sf, and 762 sf available, $30-35psf.

JP Centre/ South MS $32-40 N/A N/A N/A Some Traffic Generators: Rents higher closer to JP Licks and the post office. Location: Rents are higher on Centre St. than on South St.

Centre Street, restaurant space, 1525 sf, $36 psf; 733 Centre St, 1780 sf, $36 psf in years 1-5, $41psf in years 5-10.

Roslindale Village MS

$19-30 Mostly Gross

$20 700-1,200 Some Location: Proximity to Roslindale Square and parking. Condition: There is an upcharge for recently renovated properties

N/A

St. Marks Area MS $10-20 Mostly NNN

N/A 1,760-2,350 13% Location: Higher rents near Peabody Square; lower rents in the northern part of the district. Amenities: Availability of parking (esp.off-street designated parking for the business). Traffic Generators: adjacent new construction,

N/A

11 See Information Sources at the end of this document for a listing of individuals that were interviewed and provided this information


Retail Rental Market Conditions11 Area Rent Range

PSF Gross or NNN

Average Rent PSF

Average Size (sf)


proximity to transit, and foot traffic

Washington Gateway MS

$32-40 NNN $35-40 2,000 N/A N/A 750 Washington St., $40 psf, 2,027 sf, NNN

West Roxbury MS $15-30 NNN & Modified Gross

$15 900-1,100 14 empty storefronts

Demand: 800 to 1300 square foot spaces move quickly. Conditions: Many landlords fail to support buildout for new tenants and many spaces are falling into disrepair. Owner: Owners are highly selective about who can rent their space.

1858 Centre St., $28 psf, 3,100 sf, NNN; 1895 Centre St., $24 psf, 4,200 sf, NNN; 1747 Centre St, $40 psf, 600 sf, Modified Gross

Downtown Crossing/Financial District

N/A N/A N/A N/A N/A N/A 8 Winter Street, $100 PSF, 2,739 sf & 1,261 sf,

Back Bay12 Up to $150+ N/A N/A N/A N/A N/A 360 Newbury St., $135 psf, 12,000 sf, NNN; 376 Boylston St. $100 psf, 5,400 sf, NNN

Seaport13 Seaport Blvd- $70-100 Ft. Point – $40-50

N/A N/A N/A N/A Location: Rents are highest on Northern Ave and Seaport Boulevard, with lower rents along Fort Point Channel

N/A

Cambridge (Overall) $20-55 NNN & Gross

$35 2,000 N/A Location: Harvard Square has very high retail rents (up to $120 PSF). Condition: new construction/turn key is higher.

1343 Cambridge St, $27 psf, 4,600sf, NNN; 288-296 Green Street $11 psf, 5,000sf, Gross; 997-1013 Massachusetts Ave, $14 psf, 5,818 sf, NNN; 74 Prospect Street, $28 psf, 5,300sf, NNN; 215 Western Ave, $32 psf, 1,500sf, NNN

Union Square $12-30 NNN $23 1,000 6% Location: The central plaza and central parking lot draw the highest rents, with more interest in Bow Street recently.

N/A

Davis Square N/A N/A $28 N/A 3% N/A 376 Highland Ave., $51 psf, 700 sf, Modified Net; 377 Summer Street, $42 psf, 4,600 sf and 4,900 sf.

Coolidge Corner $30-70 NNN & Modified Gross

N/A N/A Some N/A 315 Harvard St., $48 psf, 2,600 sf, NNN; 87 Harvard St, $49 psf Modified Gross, 1,350 sf

12 CBRE, New England Market Outlook. 2014 13 CBRE, New England Market Outlook. 2014


Office Space The largest office submarkets in the Boston Metro area are the Financial District, Back Bay, the Seaport District and Kendall Square/East Cambridge. These areas attract most of the large office tenants -- they are where most of the Class A office space is located and where most of the new office development is occurring. Particularly in the Seaport, this new development is forcing a change in office space availability, with a large increase in Class A space in a historically Class B area.14 (See below for an explanation of office space classes). The office space in the neighborhood commercial districts tends to be predominately small, often located in upper floors above retail, typically accommodating smaller professional service firms. Community health centers and government offices are typical examples of larger office tenants commonly found in neighborhood commercial districts. Most of the office space in the neighborhood districts would be categorized as Class C space with some newer developments considered as Class B space. Office Space Classifications Office space is classified as either Class A, B or C. There is no definitive formula and the differences vary by market. The classifications are used to differentiate office space by characteristics that impact marketability.

• Class A space is the highest quality in the market. It is best looking, best constructed with high quality building infrastructure. It is well-located, has good access and is professionally managed. It commands the highest rents and attracts the highest quality tenants.

• Class B space is typically a little older but is not functionally obsolete and is still well maintained with good quality management. Finishes are fair to good; systems are adequate.

• Class C space is typically older, located in less desirable areas and often in need of renovation with outdated technology and infrastructure. This space commands the lowest rent.

A. Lease Types, Rent and Vacancy

Lease Types As with retail leasing, there are a variety of lease types used for office space. The major lease types are described below. Single tenant office buildings typically use triple net leases. Multi tenant office buildings frequently use full service or modified gross leases with base year expense provisions. However, many lease variations occur in the marketplace. In older multi tenant buildings located in Boston Main Street districts, upper floor office space is frequently rented with gross leases that do not include janitorial service but do include utilities.

• Full Service Gross Lease: In a full service lease, the landlord pays property expenses, including taxes, insurance and common area maintenance (CAM) out of rents received from tenants. The landlord also pays for utilities used by the tenant and janitorial costs.

14 Colliers International, Greater Boston Market Viewpoint, 2014


• Full Service Gross Lease with Base Year Expense Provision: The full service gross

lease may contain provisions to pass on escalating operating costs to the tenant. In this case, the landlord quotes a rental rate that includes paying the taxes, insurance premiums, utilities, and CAM in the base year. In order to protect himself from escalating costs, the landlord will include a provision in the lease that requires the tenant to pay the increment that the expenses increase over the base year during all subsequent lease years.

• Modified Gross Lease (possibly with Base Year Expense Provision): When used for office tenants, a modified gross lease often includes all of the usual expenses such as property taxes, insurance, and CAM but excludes utilities and janitorial services (these expenses must be covered by the tenant and separate utility meters are required). A modified gross lease may also contain a base year expense provision for paying escalating operating costs. It is important to note that a modified gross lease can be “modified” to include or exclude any individual expense within the base rate “bundle.” In other words, tenants and landlords can negotiate which expense items are included in the base rent.

• Triple Net Lease (NNN) – A triple net lease is a net lease where the tenant agrees to pay a monthly base rent and a pro rata share of the property taxes, property insurance, and maintenance.

Rent15 A recent Newmark Grubb Knight Frank report stated that it was a strong year for the Greater Boston Office Market with an influx of tech and life sciences. This report showed the average asking rents for Greater Boston overall (roughly bounded by Route 495) at around $34 PSF with a vacancy rate of 12%.16 The major metro submarkets are commanding significantly higher rents and experiencing lower vacancy. Rents are averaging around $50 PSF in Boston’s Central Business District (CBD) and close to $60 PSF in East Cambridge/Kendall Square. Vacancy is estimated to be less than 10% in the CBD and less than 7% in East Cambridge. Rent levels vary significantly by class of space and location. The following table shows estimates for office space rental rates17.

Space Type/Location Typical Rental Range PSF Boston Major Submarkets (Back Bay, Financial District, Seaport) Class A – High Rise $55 - $80 Class A – Low/Mid Rise $45 -$60 Class B $30 - $45 East Cambridge/Kendall Square Class A $50 -$70 Class B $42 - $52 Boston Neighborhood Commercial Districts Class B and Class C Not Specified (estimated at $12- $27)

15 For this report, we have reported office rents based on a gross PSF lease calculation unless noted. 16 Newmark Grubb Knight Frank, Boston Office Market, 3Q 2014 17 Colliers International, Greater Boston Market Viewpoint, 2014


Average asking rents for all classes of space in the major office submarkets range in the mid 40s to low 60s. The East Cambridge/Kendall Square area has the highest average rent at $61 PSF, followed by Back Bay at around $54, the Financial District at $49 PSF and the Seaport district very close behind18. In Boston, office rents outside of the top submarkets are significantly lower. As mentioned, the office space located in the neighborhood commercial districts is predominantly considered Class C space with some Class B space. The Boston Main Street Districts receiving the highest office rents include Dudley Square, Allston Village, and West Roxbury, with average asking rents in the $25-27 PSF range. Other Main Street Districts such as Roslindale Village, St. Mark’s Area, Grove Hall and Uphams Corner have average office rents in the $10-20 PSF range. In Cambridge, outside of the top submarket of Kendall Square, rents are around $45 PSF in the Harvard Square area and lower near Alewife at $36 PSF. In Somerville, Davis Square office rents are around $33 PSF while Union Square offers very low cost space around $12 PSF.

Vacancy While the office vacancy rate in the U.S. is estimated around 16%, the office vacancy rate in the Greater Boston area is lower -- estimated close to 12%. Major Boston submarkets such as Back Bay, the Seaport and Kendall Square appear to be faring even better with vacancy rates well below 10%, according to a Cushman & Wakefield Report for third quarter of 2014. Office vacancy rates in the Boston Main Street Districts range widely. For more detailed office rent and vacancy information, see chart at the end of this section.

B. Price Factors for Office Space

The following section describes some of the key variables that impact office rental rents, particularly in commercial districts.

Size of Space Smaller office spaces (under 2500 s.f.) tend to receive slightly higher PSF rents than larger ones, with some price premium for a larger space that can be easily subdivided.

Parking and Transit Parking is a valuable amenity and office spaces that come with dedicated off-street parking command higher rents. However, in many of the neighborhood districts, dedicated parking is rarely available. Proximity to public parking lots can also impact pricing. Public transportation to accommodate employees and customers add significant value to office space. Proximity to MBTA stations results in higher office rents. Tenant location preferences have shifted in the past few years, with increased interest the Seaport and MBTA Red Line.19

18 Newmark Grubb Knight Frank, Boston Office Market, 3Q 2014 19 CBRE, New England Market Outlook. 2014


Quality of Space The quality of space, level of interior finishes and amenities offered to the tenants (e.g. kitchenettes, bathrooms) can all impact the rent. Newer renovations with excellent telecommunication infrastructure will deliver higher rents. Some neighborhood offices are being offered with Wi-Fi included in the monthly rent to make it more economical for smaller tenants and make move-in and set up easier. Year of Development As with retail space, how recently the space was developed or redeveloped can have a great effect on the price of office space. Rents are highest in newly developed space. Frequently, new office space is built pre-leased and to specific criteria, and in these cases, it should not be assumed that these similar rents can be charged for other nearby buildings.

Tenure Rents are typically lower for long term tenants, even if they have recently renewed their leases. Tenants who have been in a building from 4 to 10 years often pay lower PSF rents than new businesses coming in because landlords save money by not having to remarket the space, pay a broker commission and bear the cost of tenanat fitup/renovation. In addition, the landlord considers that the tenant is a known commodity and has a track record of paying rent in a consistent and timely manner. Conversely, where the rents have not yet stabilized due to city redevelopment efforts in the area (e.g., Mattapan, Dudley Square), rents may be lowest for short-term leases or for month-to-month tenants.


Office Rental Market Conditions20 Area Rent Range

PSF Gross or NNN

Average Rent PSF

Average Size (sf)


Allston Village MS $15-40 Gross $25 800 0% Location: Proximity to MBTA B line and parking. Condition: New construction

215 Brighton Ave, $24 psf, 725 sf, Modified Gross

Brighton MS N/A N/A N/A N/A N/A N/A 380 Washington St., $15 psf, 5,000 sf, Modified Gross; Oak square, 705 sf, $31 retail/office

Dudley Square MS $22-35 N/A $27 1,676 8% N/A 57 Warren St., $28 psf, 1,746 sf; 150 Dudley St., $28 psf, 5,000 sf, Modified Gross

East Boston MS N/A N/A N/A N/A N/A N/A N/A

Grove Hall MS $8-14 Both $14 400-3,000 N/A N/A N/A Fields Corner MS N/A N/A N/A N/A N/A N/A N/A Hyde/ Jackson MS N/A N/A N/A N/A N/A N/A N/A. JP Centre/ South MS N/A N/A N/A N/A N/A N/A N/A Roslindale Village MS

$12-20 Gross $12 300-600 40% Location: Proximity to Roslindale Square and parking.

N/A

St. Marks Area MS $10-20 Mostly NNN

N/A 1,760-2,350 13% Location: The higher rent amounts are near Peabody Square, the lower amounts in the northern part of the district. Amenities: Availability of parking (esp. a lot or off-street designated parking for the business). Traffic Generators: adjacent new construction, proximity to transit, and foot traffic

1654 Dorchester Ave, $20 psf, 800 sf

Washington Gateway MS

N/A N/A N/A N/A N/A N/A N/A

West Roxbury MS $22-29 Gross $25 300-1,400 N/A Lease Terms: landlords are looking for longer term tenants. Availability: good inventory is keeping office rents low.

1895 Centre St., $29 psf, 605 sf and 455 sf; 1427 Centre St., $32 psf, 750 sf; 1858 Centre Street, 3,142 sf, $28 psf, NNN; Centre St, $14psf, NNN; 1842 Centre St, 400sf, $22 psf with shared facilities, Gross.

Financial District21

N/A N/A $49 N/A 11% N/A 100 Summer St., $45 - 60 psf, multiple listings; 27 School St., $35 psf, 6,300 sf, Modified Net; 372 Washington St., $36 psf, 4,500 sf; 40 Court Street, $27 psf, multiple listings.

20 See Information Sources at the end of this document for a listing of individuals that were interviewed and provided this information 21 Cushman & Wakefield. Marketbeat Office Snapshot: Boston, MA. Q3 2014.


Office Rental Market Conditions20 Area Rent Range

PSF Gross or NNN

Average Rent PSF

Average Size (sf)


Back Bay22 N/A N/A $54 N/A 9% N/A 17 Arlington St., $46 psf, 1,300 sf; 216 Newbury St., $70 psf, Modified Gross; 360 Newbury St., $49 psf, 14,000 sf; 38 Newbury St. $103 psf, 350 sf; 75 Park Plaza, $59 psf, 8,000 - 45,000 sf, Modified Gross

Seaport23 N/A N/A $44 - 48 N/A 5-9% N/A 320 Congress St, $36 psf, 3,500 sf

Kendall Square/ East Cambridge24

$42-70 Gross $61 7% Location: Proximity to Kendall Square correlates with high demand for Class A space

727 Mass Ave., $45 psf, 2,400 sf, NNN (Kendall Square)

Harvard Square/ Mass Ave25

Gross $45 6% 1166 Mass Ave, $32 psf, 1500 sf (Harvard Square)

Union Square $6-15 Both $12 N/A 4% Age: Union Square's existing building stock is on the older side and there is currently no new construction within the district. Owner: A big factor is the landlord and the overall quality of the property. Access: The Union Square area is not immediately adjacent to rapid transit as of 2014

66 Union Square, $24 psf, 1,500 and 3,000 sf, Modified Gross

Davis Square26 N/A N/A $33 N/A 5% N/A 259 Elm St., $30 psf, 3,500 sf; 20-40 Holland St, $28 psf

Coolidge Corner N/A N/A N/A N/A N/A N/A 8 Alton Place, $35 psf, 880 sf, NNN

22 Cushman & Wakefield. Marketbeat Offuce Snapshot: Boston, MA. Q3 2014. 23 CBRE Global Research and Consulting. Boston Office MarketView, Q1 2014. Newmark Grubb Knight Frank, Boston Office Market, 3Q 2014 24 Newmark Grubb Knight Frank, Boston Office Market, 3Q 2014 25 Cushman & Wakefield. Marketbeat Office Snapshot: Cambridge, MA. Q2 2014. 26 City of Somerville Assessor’s Department. Rent Schedule FY 2014. May 13, 2014.


Collaborative Space Collaborative workspaces come in many forms. From open flex space to a cluster of unique businesses in adjacent offices, collaborative working offers a variety of options for a range of business types. The collaborative model provides a variety of benefits. By sharing facilities, costs are reduced, equipment and resources may be shared, and entrepreneurs gain access to a professional network. The number of collaborative spaces in Metro Boston has doubled since 2009, with new ones popping up everywhere from Kendall Square to Downtown and now out to the neighborhoods. Collaborative spaces have begun to emerge within and nearby Boston’s Main Street districts. Two examples include Maverick Marketplace in East Boston and Fields Corner Business Lab in Fields Corner -- with possibly more on the way. Models of Collaborative Workspace27

• Traditional Business Center Space is separately leased, though, in some cases, the lobby and reception may be shared.

• Shared Use

Dedicated office spaces share meeting rooms, bathrooms, and kitchen.

• Co-Working An open floor plan (perhaps with a few private offices) emphasizes a collaborative work environment and typically hosts events, trainings, and offers business support. These spaces operate with flexible lease terms, which can vary greatly (hourly, monthly, annually).

• Incubator or Accelerator

An open floor plan provides the setting for startups to grow their business with peer support. Businesses are curated surrounding a mission or industry and support is highly formalized. Lease terms vary.

• Maker Space

Catering to the creative industries, maker spaces generally feature a large amount of shared space paired with specialty tools and equipment. Lease terms vary, and many members are individuals rather than formalized businesses, though some may have an online retail presence. Many may offer classes to the general public.

27 Adapted from “Collaborative Workspace Training”, Jen Faigel, Urban Idea Lab, May 2014.


A Sampling of Metro Boston’s Collaborative Workspaces28

Neighborhood and Type

Name # of Businesses

Total Size (sf)

Lease Type Spaces and Rent Private Office Sizes (sf)

Vacancy (%)

East Boston MS

Incubator

Maverick Marketplace

Retail, technology, health and wellness

17 3,188 Gross (included: mentoring, heat, light, electricity, taxes, trash)

$51/sq ft for a private space

145-300 0%

Fields Corner MS

Coworking

Fields Corner Business Lab

Nonprofits and professional services

8 (current) 4,500 Gross (included: Utilities, Wi-Fi Conference Rooms, Access to a copy/fax machine Coffee, water)

Private office $450+/month; Dedicated workstation $300/month; Flexible workspace $100/month

85-185 Newly opened (leasing up, 75% vacant)

Kendall Square

Incubator

LabCentral

Life sciences and biotech startups

8 (current) 25 (max)

28,000 Gross (Included: permits, waste handling, lab equipment, access to conference rooms, event space, and kitchens)

Private lab suite: $14,000-$16,000/month; Private office: $900-$2,450/month; Individual bench: $3,600/month; Lab Desk: $400/month

300-650 N/A

Union Square (nearby)

Incubator/ Coworking

Greentown Labs

Cleantech

40 33,000 400/mo desk, $36/year for lab space

Union Square (nearby)

Maker Space

Artisan’s Asylum

Makers, artisans, robotics

250 people 40,000 Gross (Included: Wi-Fi, parking, loading dock, access to various types of equipment)

For use of tools and equipment: Weekend access: $60/month; Weekday: $100/month. For private space: $2 psf. Temporary flex space: $0.50 psf per day.

50-200 0%

Central Business District

Coworking

Coalition

Small businesses including professional services and marketing

50-60 people (max)

7,000 Gross (Included: Wi-Fi, conference rooms, activities, mail service, kitchenette (with complimentary coffee/water/tea))

$118 psf per year 150-400 N/A

28 See Information Sources at the end of this document for a listing of individuals that were interviewed and provided this information


Information Sources In addition to a search of published reports and data from real estate resources and real estate listings, we contacted Main Street Organizations and many other government resources and real estate professionals to obtain information and perceptions. In all, we interviewed/obtained information from 10 Main Street Directors and 15 other informants familiar with the commercial rental market in Boston and surrounding communities. Allston Village Alana Olsen, AVMS Brighton Ali Carter, BMS Dudley Square Marcia Thornhill and Arthur Allen, Nuestra CDC East Boston Max Gruner, EBMS Egleston Square Betsy Cowan, City of Boston Fields Corner Evelyn Darling, VietAID Roseann Foley, FCMS Grove Hall Karenlyn Bunch, ABG Realty Hyde/Jackson Gerald Robbins, HJMS JP Centre/South Andy Zarro, JPCS

Roslindale Village Christina DiLisio and Luke Breckenridge, RVMS West Roxbury Michael Iceland, WRMS Washington Gateway Jennifer Efron Boston Steve Rumpler, City of Boston Brookline Andy Martineau and Gary McCabe, Town of Brookline Somerville Linda Schwartz, City of Somerville Mimi Graney, Executive Director, Union Square Main Streets Cambridge Pardis Saffari, City of Cambridge Collaborative Workspace John Tyler, Maverick Marketplace Molly Rubenstein, Artisan Assylum Emily Reichert, Green Town Labs John Maudoin, Fields Corner Business Lab

Metro Boston Commercial Rental Market Report

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