The New England Chapter of the Society of Industrial and Office Realtors and MA NAIOP held its End of the Year Market Review and Forecast for the 2020 commercial real estate market at the Westin Hotel, Boston on Wednesday November 20, 2019. Approximately 380 professionals were in attendance. Here is a quick summary from a panel of experts of the relevant points as it relates to 2019 and 2020. The program commenced with an economic overview by Kelly Whitman, Vice President, Investment Research, PGIM Real Estate. The panel of experts included Kristin Blount, Colliers on the Downtown Boston Market; Rob Byrne, Cushman & Wakefield on the Suburban Market; Ben Coffin, JLL on the Cambridge Market; Rick Schuhwerk, Newmark Knight Frank on the Industrial Market; and Chris Skeffington, CBRE on the Capital Markets. Rob Nahigian, SIOR was the facilitator for this program. He welcomed and addressed the audience to start the program.

The Economy: Kelly Whitman, PGIM Real Estate

Kelly Whitman started her presentation with an overview of 2019 and a preview of 2020. She stated that we are 10 years into this “up” cycle and it has been a long time running. She says that we are in the “goldilocks zone”, not too hot and not too cold. We are experiencing a range of 6-7% for investment returns. The commercial real estate industry however will experience a little difficulty in 2020 leasing space. She sees the cap rate compression cycle as completed and done. Cap rates have stopped compressing but are still positive.

U.S. Real Estate Forecast and Overview

Kelly stated that investors still love real estate investing and there is a great deal of capital and “dry powder” (cash on hand) available. There has been a sustained interest in real estate for the last 5 years across all sectors of real estate and all markets geographically. Real estate pricing a year ago was looking expensive. Interest rates have since declined so now real estate values are looking better. She feels comfortable with real estate pricing especially if compared to U.S. Treasuries and Bonds. She does not see any real red flags. Supply has been disciplined. There is no new demand for retail space.

Overall it’s a landlord’s market. Developers and lenders have been disciplined. However the key word for 2020 is uncertainty since 2008-09. There has been steady growth over the last 10 years and the U.S. GDP is now at 2% which is good.


Kelly’s outlook for 2020 is “more of the same” but at a slower pace with some issues. Expect 2% growth and she does not consider “2% growth” a recession.


Kelly reviewed some economic indicators for any perspective insight on 2020. She stated that the job growth is healthy. However there is softness in manufacturing. Housing starts are flatter. But there is an overall balanced view of risk. Her base line is “more of the same”.


The Tax Act cut impact had a boost on the economy but the Act is now phasing out. Commercial real estate vacancies are tighter on the west coast. Boston has a slowdown in job growth but that is due to the fact that everyone is employed. The U.S. unemployment rate is 3.5% and Boston is 2.9%.

2020 Growth

Kelly felt that the strongest growth will be with labor force growth. She likes the industrial sector over all other sectors. The hottest rent growth will be the coastal industrial markets and markets near large population centers that are currently underserved.

Downtown Boston: Kristin Blount, Colliers

Kristin opened her presentation stating that the downtown market vacancy rate is down and rents are up. Class A rents are up 78% since the last downturn in 2007-08. Class B rents are up 44% since the last downturn.

Structural Economic Changes

Kristin stated that it’s a landlord’s market and many rents are now converting from a modified gross basis to a triple net basis for office space. BackBay rent is $88 psf, triple net which translates to over $100 psf, gross. This is an historical rental rate. The Seaport rents are now at $50 psf, triple net. Annual rent escalators have moved away from $1.00 psf per year to 2-3% compounded annual increases. Tenant improvement allowance is limited to $5.00 psf.

Tenant Demand

Downtown tenant demand is soaring. The average tenant actively seeking space is 25,000 sf. The median size is 10,000 sf. The total tenant demand currently is 5,000,000 square feet and there is not adequate space to satisfy that demand. The driving force for tenants right now is recruiting and retaining talent.

Flex Space

The total flex space market comprises of 2.5 million square feet or 3.5% of the entire market. That demand is here to stay. WeWork is currently the elephant in the room and there are questions if it can survive. It leases 1,600,000 square feet in Boston. They either consolidate, file for bankruptcy or drive more demand but it is definitely a flat market for them.

New Frontiers

Kristin then identified other submarkets outside of downtown Boston that are becoming new hot beds for office and lab space. She identified: Watertown, Alewife, Allston/Brighton, Seaport, Dorchester and Somerville. She noted major office/lab developments in each of these select markets. It was clear that lab space was dominating the need of today’s commercial tenant and the supply of tomorrow. Lab space is taking away from the office supply thus driving up rents for office tenants.

Office Supply

There is 7 million square feet of office space in the pipeline being designed and permitted for development. Space is being leased 2 or 3 years in advance of construction and quickly leasing up the future. This process is leaving little for other tenants.

Her 2020 forecast is that Class A rental rates will rise. We will break $100 psf in the Financial District. She thinks that WeWork will consolidate and more Life Science ventures will demand space in Boston.

Rob Byrne, Cushman & Wakefield covering the Suburban Market

Rob started with some office market statistics on 3Q 2019 vacancies and rental rates compared to 2Q 2019. The total suburban office market comprises of 95 million square feet with an overall vacancy of 12.4%. More specifically, the 495 North market (22.3 million square feet) has a 17.2% vacancy down from 20.4%. Rents are up at $20.54 psf from $19.62 psf. Rt. 495 West (30.1 million square feet) has 16.8% vacancy, up from 15.9%. Asking rents are up from $19.52 psf to $20.83 psf. Metro West has 2.9 million square feet with 17.7% vacancy, unchanged from the 2Q. Asking rents are slightly up at $24.97 psf from $24.77 psf. Rt. 128 North has 12 million square feet, a vacancy of 7.8%, down from 10.5% in 2Q and asking rents are down to $22.33 psf from $23.00 psf. The 128 Central market has 30.1 million square feet, a decreased vacancy to 9.1% from 12.0% and an increase in rent of $33.65 psf from $33.48 psf. Rt. 128 South comprises 10.8 million square feet. Vacancy is now at 14.1%, up from 13.0%. Asking rents are up to $26.71 psf from $23.10 psf.

The office market is becoming a difficult place to find affordable quality space. Rental rates are now over $40-45 psf. Some buildings are reaching $50 psf. Job growth is a problem for many companies as its difficult to find new hires in all subsectors.

Old vs. New

Rob summarized that we lack state of the art quality office space. The buildings constructed in the 1980s and 1990s are old functional space and out of date. Millennials are moving back to the suburbs after growing up. There is a push on demand by companies for suburban office space to satisfy the Millennial movement to suburban housing. There is a demand for office building amenities to meet the needs of these millennials as new hires are difficult to find.

There is a total of 2.5 million square feet for sublet in the market which is 2.7% of the office suburban market.

Life Sciences

The lab effect has been extremely impactful in the suburbs. The drive for life science space has driven the rental rates to high numbers. There is a large drive of current space absorption and large demand for more space. This is triggering 1 million square feet of speculative development.


Rob had 4 conclusions.

1. Access to labor talent is 100% the suburban office demand driver. Millennials are living downtown, getting older and moving to the suburbs whether they thought that they would or not. It’s happening. They are moving to the suburbs and there is large demand for suburban office space.

2. There is limited large blocks of space. This demand is driving rental rates.

3. The demand for lab space is effecting office supply as many buildings are converting to lab space and the lab space tenant. This conversion leaves little for suburban office demand.

4. Headwinds of the economy will play a role.

Ben Coffin, JLL on the Cambridge Market

Ben started his presentation with a summary of the market statistics. The office market in the total Cambridge market has an average rental rate of $90.34 psf, triple net, a total inventory of 11.1 million square feet and a vacancy of 3.2%. The total lab market is comprised of 10 million square feet, an average asking rent of $97.30 psf, triple net with a vacancy rate of 1.6%. These rents convert to over $100 psf on a gross basis.

Tenant Demand

There are 49 active tenants looking for space in Cambridge. The total demand of those 49 tenants is 2.47 million square feet. The average tenant demand is 50,272 square feet. Ben stated that to date, the lease velocity for lab space is 1.6 million square feet and for office is 906,000 square feet.

E. Cambridge

Ben said that E. Cambridge is “on fire”. Rents are well over $100 psf, triple net. The lab space vacancy rate is 0.8% and the office space vacancy is 1.4%. Basically there is no space available. Tenants are pre-leasing new developments under construction and projects that have not broken ground. After all this preleasing, the first year that any space will now be available will be 2022.

W. Cambridge

Rental rates are on the rise here as well. From 1Q 2019 to 3Q 2019, rent growth on a quoted rental basis is up 20.3%.


Ben is bullish about the Somerville market as well. Right now as a developer, you have to build speculatively for lab tenants if you want to attract the tenant demand. Waiting for a build-to-suit is not timely. There is currently not adequate space supply.

Rick Schuhwerk of Newmark Knight Frank on the Industrial Market

Rick started with a statement that in 2007 it seemed like a dead end for the industrial market. There were a lot of industrial vacancies with a 20% vacancy rate in 2007.

Now, ecommerce is the driver going back 18 months from today. For every $1 billion in sales, there is a 1.25 million square feet of new warehouse demand.

Today online sales equals 11.6% of total retail sales and it’s expected to rise to 16.2% by 2023.

Tenant Demand

Today there are 91 active tenant requirements seeking 11.5 million square feet of demand. The demand is big and will be satisfied in the next few months. Therefore the current industrial vacancy rate in the Boston market could be below the U.S. average of 4% in the next 45-60 days. We are running out of industrial space. U.S. online sales are growing by $70 billion per year. There is a western migration. Since 2002, over 100 buildings in the Boston area have been demolished equaling 6 million square feet. These sites are being used for other higher and best uses that are not industrial.

Since 4Q 2018, the Rt. 495 beltway has 2.5 million square feet of speculative development. The Worcester Connector is attractive as it can accommodate 11 million square feet in multiple sites combined. The Rt. 128 corridor is saturated with urban infill. Everything is being pushed out of Boston. Rt. 2 out by Rt. 495 will become popular. Rt. 146, Lancaster and Fitchburg are becoming popular due to the lack of space.

Chris Skeffington, CBRE on the Capital Market

Chris started with a macroeconomics observation. In the first half of 2019, foreign capital was attracted to the U.S. The U.S. cities that attracted foreign capital based on the square footage of supply purchased were in this order: 1. Seattle

2. Boston

3. Los Angeles

4. Manhattan

5. Chicago

Chris then summarized the Boston capitalization rates for office and life science buildings. For office sales, he cited 100 Summer Street sale at 4.5% cap rate; 99 Chauncy at 5.01% and 75 State Street at 4.8% cap rate.

For Life Science buildings, the Osborne Triangle sold at a 4.68% cap rate, 1030 Mass Ave sold at a 4.53% cap and the Linx in Watertown sold at a 5.96% cap rate.

For industrial product cap rates, the Boston Metro area experienced an average cap rate of 5.71%; 150 Charles Colton, Taunton sold at a 3.6% cap rate and 1 Tech Drive in Peabody sold at a 5.9% cap rate. Chris stated that these cap rates convert to a price per square foot range of $150-175 psf. He cited some examples of tenant demand and said the demand would continue.

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