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The vacancy rate for the 19.7 million-square-foot Cambridge office and lab market decreased from 11.5 percent to 10.3 percent during the third quarter, with more than 150,000 square feet of positive absorption. Year-to-date absorption totals 386,000 square feet, with all of the positive absorption occurring in the lab market.
The lab market continues to be the driving engine of the Cambridge market and with four consecutive quarters of positive absorption, it shows no sign of slowing down. The two largest leases of the quarter were signed by Merrimack Pharmaceuticals (110,000 square feet), a homegrown Cambridge company, and Boston Biomedical Inc. (63,000 square feet), which will open an oncology R&D facility in Cambridge.
Conditions in the Cambridge office market generally favor landlords despite three straight quarters of modestly negative net absorption. The office vacancy rate stands at 10.9 percent, but with some sizeable commitments expected to transact in the fourth quarter and a number of active tenants touring the market, conditions are tight, particularly in the East Cambridge submarket.
Office Market
The 10.3 million-square-foot Cambridge office market has been statistically flat for much of 2012, barely moving from 10 percent at 2011 year end to 10.9 percent at the end of the third quarter. This is not reflective of a lack of demand, but instead represents some larger blocks coming back to the market. The net negative absorption of 13,000 square feet for the quarter, or less than 100,000 square feet year-to-date, has done nothing to deter landlords from feeling bullish and holding firm on asking rents. Given commitments in place that are expected to transact in the fourth quarter and a lack of new office development for the foreseeable future, fundamentals are firmly on the landlord’s side.
The largest office leases executed in Cambridge during the quarter include: Gene Network Sciences subleasing 20,000 square feet at One Charles Park; MAK Technologies subleasing 15,000 square feet at 150 Cambridge Park Drive; PA Consulting renewing for 12,000 square feet at 10 Canal Park; Permabit leasing 11,700 square feet at 1 Alewife Center; and Elan Pharmaceuticals leasing 8,000 square feet at 300 Technology Square.
The market is active, with requirements from tenants of all sizes. Four of the largest — Hubspot, Sonos, Akamai, and Intuit — together combine for over 300,000 square feet of requirements. The Cambridge Innovation Center which currently occupies approximately 140,000 square feet at One Broadway, plans to open a second Kendall Square location by committing to lease 47,000 square feet at 101 Main Street. Other pending commitments at 101 Main Street include Amazon for 47,000 square feet and BioMed Realty Trust for 11,600 square feet. Technology giant Oracle has also committed to expand its footprint at 1 Main Street by approximately 15,000 square feet to 78,000 square feet. In total, RREEF is currently in active lease negotiations with prospective tenants for over 140,000 square feet at 1 and 101 Main Street. Due to this robust activity, the office market is expected to achieve positive absorption by the end of 2012.
Despite the slight increase in vacancy and lack of sizeable transactions during the quarter, the Kendall Square office market remains very tight with limited options for most tenants, especially within a five-minute walk of the Kendall/MIT Red Line Station.
— Mary Sullivan Kelly is senior vice president and chief research officer with Colliers International | Boston.