2015 Cambridge Market Outlook


by Adam Brinch, Senior Vice President/Partner, Cambridge Brokerage Team

As usual, last year’s Cambridge statistics were a bit of a mixed bag with absorption being adversely affected by the big defections of CDM and Sonos, and vacancy staying relatively flat, hovering in the 6-7% range for both the office and lab markets.

However the two data points that kept commercial real estate investors happy this past year, asking rents and tenant demand, experienced staggering advances:

  • Office rents were up 35% and tenant demand was up 119% year-over-year
  • Lab rents were up slightly and tenant demand was up 108% year-over-year


To give some perspective, over the past 15 or so years since the early 2000 tech bubble began to rebuild itself, tenants and buildings fit nicely into one of four categories. On the office side, there were office tenants, meaning either a technology titan or new economy start up or service provider in the market to lease traditional space, or one of an existing inventory of office buildings in close proximity to MIT or Harvard or the T. On the lab side, there were lab tenants, meaning a major pharmaceutical company, or a young biotech, which was attracted to, and dependent on the market’s mature inventory of lab buildings–physically robust buildings with appropriate HVAC and MEP systems to support wet chemistry, biology and animal care experimentation.

In fact, the Cambridge market’s delineation of this sort of inventory and expertise in this type of real estate is one of the major reasons that both the high tech and life sciences industries have been so successful. Reflecting on the past year, and what the true market catalyst over the past 12 months was, the single theme that we kept coming back to was the border that began to blur between the historically rigid definitions of “lab” and “office”–bringing you the “la-BOFFICE”. We define it as a hybrid real estate deal where a lab tenant’s headcount growth, in departments ranging from regulatory to safety, HR to sales to data management­, all require strictly office space.

During the course of 2014, something really unique began to take shape as tenants and landlords began to ignore the way buildings were defined, and instead focused on the right real estate to support their businesses. What this broadly meant is lab landlords did office deals in their lab buildings and office landlords benefitted from lab tenants needing immediate growth space in their office buildings. Looking at the “la-BOFFICE” deals that have happened over the past year, some of the best-known pharmaceutical and hottest biotech companies transacted. The irony is that all of these were strictly office deals. Pfizer, Novartis, Biogen, Sanofi, Baxter, Infinity, Sarepta and others accounted for an astounding 550,000 RSF in transactional volume. In years past, most if not all of these companies would have grown proportionally in their need for both office and lab space. The blending together of these two types of real estate set off a chain reaction that rippled through all other aspects of the way the market acts and reacts.

With a majority of office growth coming from the life science industry, “la-BOFFICE” deals happening in both office building and lab buildings are putting upward pressure on rents in both types of buildings, while reducing available options for early and mid stage biotech tenants that need a traditional mix of lab and office space, but whose physical needs require them to be in a lab building. The scarcity and rising rents are causing landlords to re-think their tenancy strategy.

So the final chapter in our story begins to lay the groundwork for the year ahead, with fundamentals favoring office deals over lab and a few lingering thoughts on what sorts of buildings landlords with development projects in the pipeline will decide to build. Will it be pure office or lab-capable buildings with systems that can be upsized if the pendulum swings down the line? With Alexandria, MIT, HYM, and others controlling more than 5 million SF of development pipeline in East Cambridge, we will find out in the near future.

Office landlords are certainly looking forward to 2015, as tenant demand shows no sign of slowing down with 14 active requirements larger than 100,000 SF and a historical high of 4.5 million RSF of combined office and lab demand.

Greater Boston as a whole, and especially Cambridge, is still undervalued compared to other U.S. and global markets when you look at the absolute value of our intellectual capital, our educational network, our healthcare system and our dynamic cluster of new economy tenants.

The only problem, as my partner Greg Lucas is fond of saying with a smile, is “you can’t build dirt.” As tenants from around the globe pour into the market with an emphasis on being in Cambridge and homegrown companies continue their organic growth, the remaining vacancy will quickly be absorbed. The market is in desperate need of a relief valve, and rents will continue to climb. With the InterSystems and Microsoft leases rolling at One Mem, historical top tier office rents will undoubtedly be eclipsed.

For all these reasons, 2015 will be another happy year for landlords. For tenants, with mid-$40s rents, single digit availability and the now necessary live/work/play environment, Alewife is becoming as competitive as the other Cambridge submarkets and a severe lack of availability and rising rents could cause tenants to overstep the borders of the Cambridge city limits and consider suburban alternatives.

To view CBRE/New England’s 2015 Real Estate Outlook click here.

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2014 CBRE/New England Boston Market Overview Highlights

From L to R: CBRE/NE's John Butterworth, Mayor of Boston Marty Walsh, Gubernatorial Candidate Charlie Baker & CBRE/NE's Andy Hoar

From L to R: CBRE/NE’s John Butterworth, Mayor of Boston Marty Walsh, Gubernatorial Candidate Charlie Baker & CBRE/NE’s Andy Hoar

Thank you to all those who attended this morning’s CBRE/New England 2014 Real Estate Outlook; we hope that you found the event both informative and entertaining. For those who missed it, below are a few highlights from the event.

CBRE/NE’s John Butterworth welcomed the audience, which included newly elected Mayor of Boston Marty Walsh, shown here with John, Andy Hoar and keynote speaker, Gubernatorial Candidate Charlie Baker. CBRE/NE’s Ogden White and Peter Conlin jointly gave the Downtown Boston Office overview. The duo discussed two major trends they’ve seen in the market, workplace innovation and urbanization, and the possible implications these trends could have on 2014 fundamentals.

Next, CBRE/NE’s Biria St. John gave an overview on the Capital Markets Multifamily market. He compared current market conditions to past cycles, gave highlights of the booming development pipeline, and announced, “Condos are back!” For the Capital Markets Office market overview, CBRE/NE’s Chris Angelone discussed institutional activity in the Class B market, coined the new term ‘a-hab’ (low- to mid-rise buildings rehabilitated into institutional-quality, Class A standards), and declared, “The CBD is back!”

Gubernatorial Candidate Charlie Baker closed the program by discussing his goals for improving the Massachusetts job market and educational program, with inspiring anecdotes from both his political journey as a Republican candidate in a notoriously Democratic state, and his non-political experience in the public and private sectors.

Look out for future posts from today’s featured speakers giving further insight on today’s topics.