Facebook Expanding In Cambridge By Nearly 300K SF In Boost For Market

Facebook has agreed to occupy 267K SF of office space in Kendall Square, a massive workplace commitment amid a market buoyed by ever-growing life sciences investment.

The tech giant could close this quarter on a deal to sublease the office space at 50 Binney St. from biopharmaceutical company bluebird bio, brokerage firm Newmark said in its second-quarter report last week. The Boston Globe reported the deal Monday evening.

The Facebook sublease comes alongside bluebird giving over another one of its Kendall Square spaces to a national behemoth. Vaccine maker Johnson & Johnson has also signed a 166K SF sublease with bluebird at 100 Binney St., according to a Lincoln Property Co. report.

The large deals are helping to push the Boston area's sluggish office market’s return to pre-pandemic absorption, vacancy and average asking rents, researchers with Colliers, Hunneman and Newmark said.

Bluebird was scheduled to move into 50 Binney St. this month and pay $99.50 per SF to Sanofi subsidiary Aventis, which has a direct lease with building owner Alexandria Real Estate Equities, according to Securities and Exchange Commission filings. 

Facebook already occupies 130K SF of office space at the adjacent 100 Binney St., also owned by Alexandria. The company had been searching for a larger space over the past year, according to Newmark Director of Research Elizabeth Berthelette. 

“I think it’s a good example of continued growth in those national, blue-chip tech companies,” she said. “We’ve seen Google and Amazon continue to expand in the market. You can also look at the Whoop lease in Kenmore Square as a homegrown tech company also expanding.”

A Facebook spokesperson declined to comment Tuesday, while representatives for bluebird, Johnson & Johnson and Alexandria didn't respond to requests for comment. 

Vacancies in Boston's office market improved slightly from the previous quarter and now sit at 15.1%, the lowest mark since the onset of the coronavirus pandemic, according to Newmark. Absorption improved by nearly 1M SF from the previous quarter to negative 110K SF in Q2, Hunneman reported. 

Average asking Class-A rents today sit between $60 and $80 and Class-B rents hover between $55 and $60, according to Hunneman, with Class-B rates declining with greater speed. Tenants today can find rent discounts of up to 20% on Class-A sublease space and are securing on average a record $90.50 per SF in tenant improvement allowances in June 2021, according to Avison Young. 

Tenants are also securing more free rent per lease as they overwhelming migrate to quality, Class-A assets, according to Colliers National Director of Capital Markets Research Aaron Jodka. Employers are likely prioritizing amenities and other post-pandemic friendly environments to encourage workers to return, he said.

In more good news for office owners, office-to-lab plays have taken as much as 6.2M SF of inventory off the market, according to Hunneman. The chunk amounts to 1.5% of Boston office inventory, more than just a blip on the radar, Hunneman Director of Research Tucker White said.

“It seems like a little bit,” he said. “You say 1.5%, but that can be the difference between underwriting different loans.”

As a result of the encouraging macro trends, investors are pouring money into Boston more than any city nationwide, encouraged by life sciences demand and the plethora of office conversion plays.

Boston has surpassed Manhattan as the nation’s most liquid CRE market for the past two quarters, a recent Real Capital Analytics study found. Manhattan took a gut punch during the pandemic, and its typical share of approximately 16% of U.S. office investment volume has recently been sliced in half, Jodka said. 

The demand for life sciences space has driven Boston's surge as a liquid market; for example, Alexandria last month bought two East Cambridge offices with redevelopment opportunities for a combined $815M, months after they had sold for $468M. 

“We see office investors, putting a share of their overall office allocations — this could be pension funds, investment managers, etc. — into life sciences,” Jodka said. “That is creating new opportunities for investors to get into Boston.”

That demand is showing up in asset prices: The average lab building sold for $601 per SF in Q2 in the Boston area, 116% more than office assets' average price per SF of $278, according to Avison Young. Investors poured a combined $1.3B into lab and office assets in Q2, according to Newmark.

Boston’s investment volume was propped up by two megadeals earlier this year: BioMed Realty's purchase of a Brookfield Asset Management portfolio for $3.45B, and Alexandria’s $1.5B purchase of 401 Park St. and 201 Brookline Ave. in Fenway with Samuels & Associates. The two deals are still the largest office transactions in the country this year.

Investors are also putting money into other asset classes fueling Boston's commercial real estate landscape. Two multifamily assets have sold for more than $300M in the past month. Industrial developers have turned to buying vacant office assets to tear them down to build warehouses in an emerging trend, White said.

“You see an opportunity to convert a property to its best use, you’re going for it,” he said. “If you were to pool all the different sales transactions, I’d be willing to bet a good chunk of that is a conversion or planning a conversion.”