Tech, Biotech Help Pump Up Office Market
Long considered a lower-price alternative to higher profile office markets to the east, and historically comprised primarily of a few large corporate users, the Mass Pike I-495 West office market is quietly undergoing a resurgence and transformation fueled by organic growth of local companies, with technology and biotech firms leading the way.
The region's susceptibility to macro-economic volatility resulted in an exodus of several prominent corporate tenants during the recent recession, leading to a peak 34.2-percent availability rate in the Mass Pike I-495 West region. With formerly single-tenanted buildings focused on finding multiple tenants to backfill their large vacancies, the region's growing technology and biotechnology sector has recently leased a significant amount of available office space.
The sector's growth can be largely attributed to:
• The return of equilibrium to the financial markets;
• The increased availability of venture financing;
• Cheap credit; and
• The return of business confidence, enabling growth plans to move forward.
Meanwhile, traditional office tenants in the region — who shed space over the past several years — are extending their leases or relocating due to mild growth despite a new emphasis on space efficiency.
Now tracked by CBRE/New England at 27.4 percent for the second quarter of this year, the availability rate in the Mass Pike I-495 West market has moderately decreased over the past several years. While several large transactions, such as Quest Diagnostics' consolidation and expansion in Marlborough, the TJX Cos.' purchase of the former Fidelity Campus, and Boston Scientific's expansion in Marlborough have largely been attributed to a market resurgence, the underlying growth in the 10,000- to 60,000-square-foot range is also largely responsible for driving the recovery. With a steadily declining availability of mid-sized blocks and a continuing theme of tenant “flight to quality,” rents at marquee office addresses have climbed 5 to 10 percent year over year, a trend that will continue as larger tenant demand will remain strong with several seeking space of 50,000 to 100,000 square feet, and rumors of several prospective tenants looking for space of more than 200,000 square feet in the coming year.
The region will also benefit from increased interest from price-sensitive tenants along the Route 128 belt, as the growing rent gap between the two markets will cause value-oriented tenants to look west.
Additional notable transactions in 2013 included Bose Corp.'s 251,000-square-foot renewal in Westborough; Cavium Networks' 60,937-square-foot expansion in Marlborough; Boston BioMedical Associates' new 20,010-square-foot lease in Marlborough; PerkinElmer's continued expansion on Elm Street in Hopkinton; and Oxford Immunotec's new 14,451-square-foot lease in Marlborough. Multi- tenant office parks are also thriving, with Westborough Office Park almost fully leased, and strong activity along Boston Post Road in Marlborough.
But while the outlook for the I-495 West market remains bullish, the region still faces challenges. As a byproduct of the previous generation of office users, many large, functionally obsolete buildings remain vacant and are difficult to lease due to poor base-building conditions and difficulties in subdividing floor plates to the in-demand size ranges. This problem will continue to plague the region, as Intel has announced plans to close its Hudson manufacturing facility and Monster.com will relocate from Clock Tower Place in Maynard to Biogen's Weston location. The other primary issue confounding the market is the lack of newer product. With no office construction over the past decade, tenants that want strong curb appeal and modern construction will have to look elsewhere, as current market rents and vacancy statistics are unable to justify new speculative construction.
Though challenges remain and vacancy rates continue to rise above other submarkets, strong tenant demand and positive sentiment in the region will continue to push the I-495 West market forward.
This report was authored by Chris Tosti, Bob McGuire, Rob Walles, Alison Powers and Sam Crossan of CBRE/New England, a commercial real estate brokerage.
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