Still in the Thick of the Cambridge Building Cycle

by Lenny Pierce, Research Analyst

One of the most memorable building surges in the Cambridge market’s history occurred between 1999 and 2002, when it saw over 4.4 million square feet of new development across 27 office and lab projects. This spike in building activity, which was coupled with the later stages of the Dot.com era, was preceded by 3 years of only 1.2 million square feet of new construction and was followed by period from 2003-2012 that saw only 1.7 million square feet of new construction – allowing us to confidently identify the ’99-‘02 stretch as the definitive peak of the cycle. The 9-year lull that occurred after this peak period was broken in 2013 when Biogen singlehandedly rebooted the market with the preleasing of new 225 Binney Street and 17 Cambridge Center projects for a total of close to 512,000 square feet. These two developments have been followed by 11 more projects, totaling 3.3 million square feet. This recent uptick in building activity in Cambridge is grounds to assume we’ve entered another building cycle. What is less clear is where we are in that cycle. Without a single banner year as the previous cycle had in 2000 – which had 10 building starts  it is harder to say whether we are ramping up, plateauing, or slowing down. However, two key indicators, the scarcity of uncommitted space within the new developments and the demand for space in Cambridge that will need to be met soon, suggest that there is still plenty of building ahead.

New Development

Source: CBRE Research

Of the 4.4 million square feet built during the ’99-’02 cycle, only 60% was precommitted or owner occupied by specific users prior to commencing construction. Examples of buildings being entirely preleased upon groundbreaking during this period included 500 Kendall Street with Genzyme (350,000 SF) and 35 & 40 Landsdowne Street with Millennium Pharmaceuticals (440,000 total SF), but the remaining 1.89 million square feet was entirely available when construction began. In the current building cycle, on the other hand, there is 3.3 million square feet either complete or under construction so far, with a full 3 million square feet or 90% of it precommitted. Cambridge users who have already spoken for this newly constructed space include Ariad Pharmaceuticals taking the entirety of 75-125 Binney Street (388,000 SF) and Sanofi doing the same with 50 Binney Street (258,000 SF). Owner-occupied projects in this cycle have included Novartis’ 550,000 square feet at 181 Massachusetts Avenue and EF Education’s expansion of their campus by 320,000 square feet at Eight Education Way. Projects like these have spelled a current gap between total developed square feet and precommitted square feet that is over 80% smaller than it was in the ’99-‘02 cycle. Much of this discrepancy in precommitment is due to the fact that the number of spec buildings going into the ground in this cycle is down considerably. In the ’99-’02 cycle, 8 buildings totaling 856,000 square feet, including 100 Technology Square (255,000 SF) went into the ground with no preleasing. Our current cycle, on the other hand, has seen only 2 spec buildings going into the ground, 450 Kendall Square (65,000 SF) and 150 Second Street (120,000 SF). 

cam2

Source: CBRE Research

The lack of spec building and the 300,000 square feet of available space across these new developments is enough to signal that more shovels will need to hit the dirt, but the current demand in Cambridge bolsters this assertion even further. CBRE/New England considers tenant demand in Cambridge to be how much space the market’s current tenants are looking to expand into combined with how much space prospective new-to-Cambridge tenants are looking for in the area. The current net demand for these 70+ companies totals 2.6 million square feet. The overall availability in Cambridge was 2.6 million at the close of Q1 2015 and with the new uncommitted 300,000 square feet under construction that figure goes to 2.9 million square feet. Since this 2.9 million square feet is made up of small blocks across many buildings, the fact that the availability is technically greater than the demand does not mean much. A handful of big users could find homes in preexisting space, but with 9 different groups looking for over 100,000 square feet each, the market will still need to provide more options. 

Click for larger view

Click for larger view

The answer for growing Cambridge tenants and tenants looking to find a new home in said market will be a willingness among developers to raise that 3.3 million square feet of developed square feet, an initiative that wouldn’t necessarily widen the developed-committed gap for long when considering the abundance of upcoming need. Even though each year so far in this cycle has seen building the 3-4 project range, could we see another 10+ project year like 2000, where close to 2 million square feet of space got under way? 2015 could wind up marking the middle or possibly even the beginning of this building cycle, but all signs point to it falling nowhere near the end.

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Boston Area Stacks Up Well in “Creative Class” City Rankings

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The MIT Stata Center, home to MIT’s Computer Science and Artificial Intelligence Laboratory and Laboratory for Information and Decision Systems Source: Finlay McWalter

by Lenny Pierce, Research Analyst

In his 2002 book “The Rise of the Creative Class”, author Richard Florida rated and ranked U.S. Metro Areas in terms of how much of their workforce was made up by the “creative class”. The creative class, as defined by Florida and his team at the Martin Prosperity Institute, includes knowledge workers employed in science and tech; arts, culture, media and entertainment; business and management; and healthcare and education. All in all, the creative class is made up of over 40 million workers–a third of the national workforce. More recently, Florida created a similar list for individual cities instead of entire Metro Areas. Four municipalities in the Greater Boston area made the top 20 list: Brookline, with a 74.2% creative class workforce percentage, Cambridge with 67.9%, Newton with 67.5% and Arlington with 61.1%.

Rank City Creative Class Share of the Workforce
1 Cupertino, CA 76.90%
2 Palo Alto, CA 76.40%
3 McLean, VA 75.50%
4 Bethesda, MD 75.10%
5 Brookline, MA 74.20%
6 Potomac, MD 73.40%
7 Cambridge, MA 67.90%
8 Newton, MA 67.50%
9 Arlington, VA 66.70%
10 North Bethesda, MD 66.50%
11 Hoboken, NJ 65.10%
12 Redmond, WA 64.90%
13 Dublin, OH 64.70%
14 Santa Monica, CA 64.20%
15 Sammamish, WA 64.10%
16 Reston, VA 63.60%
17 Ellicott City, MD 63.30%
18 Berkeley, CA 62.40%
19 Mountain View, CA 61.40%
20 Arlington, MA 61.10%

Source: CityLab.com

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The “D” Branch of the Green is one of the three lines, along with the “B” and “C” branches, that are accessible in Brookline. Source: Kinkisharyo

Alex Plaisted, a broker with CBRE/New England’s Suburban team, feels that the appearance of Brookline and Arlington on this list is due to their wealth of semi-urban housing options with close proximity to job centers like Cambridge and Boston. “Brookline and Arlington offer a great quality of life for the creative class worker and are still located close enough to Boston and Cambridge to afford residents a relatively easy commute” Plaisted says. Brookline is accessible by three different Green Line branches and Arlington borders Cambridge, making it a prime residential destination for MIT and Harvard faculty. Brookline also has the advantage of bordering the Longwood Medical Area, a major employment center for those creative class workers in the healthcare industry.

Shire plc's campus in Lexington Source: John Phelan

Shire plc’s campus in Lexington Source: John Phelan

Newton’s place on the list is likely aided by its placement along Route 128, a factor that has made it a center for not just creative class workers but creative class employers. CBRE Research estimates that 220 businesses within Florida’s creative class grouping have locations in the region. According to Plaisted, “Route 128 West affords Newton accessibility from pretty much anywhere, something Brookline and Arlington definitely don’t have.” The highway means that these creative class workers are able to drive within Newton to their jobs, or drive a few exits away to jobs in Waltham (563 creative class businesses), Lexington (188 creative class businesses) and beyond.

Cambridge’s Kendall Square, one of the most strongest life science clusters in the world. Source: Shinkuken

Cambridge’s Kendall Square, one of the strongest life science clusters in the world. Source: Shinkuken

While Newton has its share of employment opportunities for the creative class worker, the city on this list that is strongest in this realm is certainly Cambridge. CBRE Research estimates that 886 businesses within the creative class grouping have locations in Cambridge–many of them falling in the life science and technology categories. Adam Brinch of CBRE/New England’s Urban Brokerage team says this is due to the fact that much of the intellectual property behind science and technology is not just born at institutions like MIT and Harvard, but is fostered into commercialization by said organizations thereafter. “If a student develops intellectual property under the intimate guidance of their professor at MIT, its natural for that student-turned-entrepreneur to want their professor involved in the commercialization of their product, and the early stages of their company,” says Brinch. “This is easiest to do if they set up shop in close proximity to where these professors live and work.” Brinch added that remaining in close contact with tech transfer programs at the various schools is another initiative that makes finding a Cambridge address all the more practical for these groups. The locational magnetism caused by these fundamentals is compounded by the general affinity that technology and life science groups have to cluster around each other–meaning that even those science and tech companies with no immediate connection to Cambridge’s universities will still put a premium on moving there. The eventual result of this dynamic has been a modern Cambridge that is arguably the strongest technology and life science hub in the world.

The four Boston-area cities that made the cut were joined by two predictable geographic competitors: Bay Area and DC area cities. The top two spots on the list were occupied by Cupertino, CA (76.9%) and Palo Alto, CA (76.4%), followed by Maclean, VA (75.5%) and Bethesda, MD (75.1%) before Brookline at the fifth spot (74.2%). Though these four particular cities were just ahead of the highest Massachusetts location, Cambridge and Newton were well ahead of the other Bay Area cities like Berkeley and Mountain View and stacked up comparably to DC area locations like Arlington, Virginia and Potomac, MD. Overall, the Boston area’s competitiveness with DC and Bay Area cities on this list reaffirms the notion of our region being one of immense creative intellectual capital and thus, fertile ground for the birth and growth of creative class businesses.

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