FHO Partners\' 3rd Quarter 2010 market report

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Real Estate
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B O S T O N
T H I R D Q U A R T E R 2 0 1 0
MARKET

2. ECONOMY
According to a September report released by the National Bureau of Economic Research (NBER), the
recession that began in the fourth quarter of 2007 officially ended in the second quarter of 2009. Based
on economic indicators such as gross domestic product (GDP), gross domestic income (GDI), wholesale/
retail sales and industrial production, NBER defined the recession’s end as the period at which the economy
reached its trough – not a return to pre-recessionary levels. However, it should be noted that according to
the NBER report, employment did not bottom out until six months later, in December 2009. This has lead
to what analysts refer to as a “jobless recovery” and is the main reason improvement remains lethargic.
At 8.8%, Massachusetts posted a lower unemployment rate than the national rate of 9.6%, and the lowest
since August 2009, according to a September report from the Bureau of Labor Statistics. As we saw at
mid-year, this dip is partly due to discouraged workers dropping out of the work force or settling for part-time
employment. Nationwide, private sector employment grew by 64,000 positions in September. However,
the gain was offset by a loss of 159,000 positions in the government sector as the last of the Census
workers completed their tenure. Given that the economy must create 150,000 jobs per month just to keep
unemployment levels static, we expect recovery and a resulting demand for office space to remain sluggish
through at least the first half of 2011.
High unemployment coupled with stagnant consumer spending, depressed home values and elevated
rates of foreclosure mean that growth will likely remain weak for the foreseeable future. Although eco-
nomic indicators are not improving as drastically as in previous recessions, it is unlikely that the economy
will slide back into another downturn.
MARKET SUMMARY
In the first three quarters of 2010, greater Boston posted negative absorption of 12,216 square feet – a
significant improvement over 12 months ago when absorption totaled negative 5.7 million square feet.
While pockets of leasing activity are keeping the market afloat, we have yet to see a consistent return to
pre-recessionary levels.
With an overall availability rate of 22.7%, greater Boston is still enduring the effects of the market contrac-
tion. Availability rates have decreased nominally across nearly all markets, indicating an improvement is
in sight although it may not be as soon as we had anticipated. Overall asking rents in the region are down
year-over-year, but appear to be flattening since the end of the second quarter.
OUTLOOK
As mid-term elections approach, bringing with them uncertainty surrounding fiscal policy, regulations, taxes
and healthcare costs, many companies are still reluctant to begin hiring and spending in earnest. Until
businesses begin to see discernable signs of recovery, it is unlikely that Boston’s commercial sector will
see a sustained uptick in leasing activity.
While a significant upturn is not likely until mid-to-late 2011, the space that has flooded the market for the
past two years is slowly beginning to be re-absorbed. Insulated by a non-existent construction pipeline, we
expect the region’s recovery will be driven by a lack of supply, rather than a spike in demand.
M A R K E T W A T C H l T H I R D Q U A R T E R 2 0 1 0
Executive Overview
Q3 2009 Q3 2010
DJIA 9509.28 10829.68
US Unemployment (August) 9.7% 9.6%
MA Unemployment (August) 8.8% 8.8%
US Employment (August) 139,433,000 139,250,000
MA Employment (August) 3,167,102 3,171,545
Overall Market Statistics YTD 2010 Summary
The State of the Economy by the Numbers
Unemployment Rate
Greater Boston Market Snapshot
Asking Rent Vacancy Absorption
Boston
Cambridge
Suburbs
Sources: Dow Jones, Bureau of Labor & Statistics
6%
8%
10%
12%
Aug.
2010
July
2010
June
2010
May
2010
April
2010
March
2010
Feb.
2010
Jan.
2010
Dec.
2009
Nov.
2009
Oct.
2009
Sept.
2009
Aug.
2009
July
2009
June
2009
May
2009
April
2009
March
2009
United States
Massachusetts
Q3 2009 Q3 2010
Overall Availability 21.6% 22.7%
Average Rent (Office) $32.08 psf $29.79 psf
Net Absorption YTD 2010 (5,685,889) sf (12,216) sf
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Boston Market Overview
The Boston office market continued to stabilize throughout the third quarter of 2010.
While it is unlikely we will see the abrupt improvement we have seen after past reces-
sions, it appears we have entered an official period of recovery. While market-making
deals are still scarce, an amalgamation of smaller deals in the 30,000 to 50,000
square-foot range has contributed to an uptick in leasing activity.
 At (485,248) square feet (sf), net absorption in downtown Boston remains nega-
tive year-to-date. However, this is a marked improvement over Q3 2009 when
absorption totaled (1.81) million square feet. The Financial District continues to
post the most significant loss of net occupancy with absorption totaling (462,146)
sf. But, like the overall CBD, this is much less severe than twelve months ago
when absorption totaled (1.1) million square feet.
 At 18.7%, overall availability in Boston is down 20 basis points (bps) quarter-over-
quarter, but still up from both Q3 2009 (16.4%) and year-end 2009 (16.9%). This
is the first decline in availability since Q2 2009. Availability in the Financial District
is still elevated (up 2.2 percentage points in the past 12 months), but declined 40
bps to 21.0% quarter-over-quarter.
 We are still experiencing “flight to quality” as evidenced by an increase of 3.2
percentage points in Class B availability in the past 12 months (19.3% in Q3 2010)
compared to an increase of 1.9 percentage points in Class A buildings (17.9% in
Q3 2010) during the same period.
 At $39.75 psf, overall asking rents are down 7.2% year-over-year. Overall asking
rents in Back Bay are down 9.1% in the past 12 months ($41.84 at Q3 2010).
Class A rents have declined 7.0% in the past 12 months while B and C have
declined 5.3% and 3.1%, respectively. At $43.04 psf, overall asking rents in the
Financial District remained flat quarter-over-quarter, but are still down 6.2% year-
over-year. While overall asking rents in the CBD are down year-over-year, it is
worth noting that in the past two quarters, there has been a significant spike in
Back Bay’s Class A rents, both asking and achieved.
 The Back Bay submarket posted significant positive absorption year-to-date. This
is largely due to Bain Capital’s 208,000 sf lease at the Hancock Tower in the
second quarter. However, there appears to be a sustained uptick in leasing activ-
ity – especially for tenants in the 15,000 to 30,000 square foot range moving into
Class A buildings.
Boston Overall Availability vs. Average Asking Rent by Class
Inventory 59,750,735 sf
Availability Rate 18.7%
Net Absorption YTD 2010 (485,248) sf
Average Asking Rent $39.75 psf
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
2008 2009 Q3
2010
20072006200520042003200220012000
Class A Rent
Class B Rent
Class A Availability
Class B Availability
Market Highlights
100,000
1,100,000
2,100,000
3,100,000
4,100,000
5,100,000
6,100,000
7,100,000
8,100,000
9,100,000
10,100,000
Square Feet
2008 2009 Q3
2010
20072006200520042003200220012000
Sublease Direct
Boston Direct Available vs. Sublease Available
Market Perspective
Availablility vs. Asking Rent
5%
7%
9%
11%
13%
15%
17%
19%
21%
23%
25%
$15.00
$19.50
$24.00
$28.50
$33.00
$37.50
$42.00
$46.50
$51.00
$55.50
$60.00
W
ashington
D.C.
Seattle
San
Francisco
Philadelphia
M
anhattan
LosAngeles
Houston
Denver
Dallas
Chicago
Boston
Atlanta
Availability (%) Asking Rent
Availability
Asking Rent

4. M A R K E T W A T C H l T H I R D Q U A R T E R 2 0 1 0
Cambridge Market Overview
Because Cambridge entered the recession from a position of strength (being some-
what insulated due to demand from high tech and life science companies) fundamen-
tals remained comparatively healthy through the third quarter. Large office deals in
East Cambridge contributed to the continued health of the Cambridge office market.
In the lab sector, a dearth of high-quality lab space is keeping asking rents from
experiencing the deterioration seen elsewhere in the greater Boston area.
OFFICE MARKET
 The Cambridge office market closed Q3 2010 with a 15.2% availability rate. This
represents a decline of 1.6 percentage points quarter-over-quarter and was large-
ly driven by Microsoft’s commitment to 113,000 sf at One Cambridge Center and
Hubspot taking 37,000 SF at 25 First Street.
 Overall asking rents for office space averaged $35.65 psf. While they have re-
mained flat quarter-over-quarter, average asking office rents have declined 7.2%
in the past 12 months.
 The office market posted positive absorption of 338,229 sf year-to-date –
a notable increase over the (393,731) sf reported at Q3 2009.
LAB MARKET
 In the lab market, availability also declined to 16.3%. This represents a
1.2 percentage point decline quarter-over-quarter and a 30 bp decline in the past
12 months.
 At $49.26 psf NNN, asking rents for lab space are up 2.0% quarter-over-quarter,
but are still down 3.7% year-over-year.
 The Cambridge Lab market posted positive absorption through the first three
quarters of the year, totaling 37,790 sf year-to-date. This marks a slight improve-
ment over Q3 2009 when lab absorption totaled positive 11,089 sf.
 Sanofi-Aventis committed to over 100,000 square feet at 640 Memorial Drive. This
is the largest lab deal executed year-to-date.
Cambridge Overall Availability vs. Average Asking Rent
Office
Inventory 10,046,144 sf
Availability Rate 15.2%
Net Absorption YTD 2010 338,229 sf
Average Asking Rent $35.65 psf
Lab
Inventory 7,751,645 sf
Availability Rate 16.3%
Net Absorption YTD 2010 37,790 sf
Average Asking Rent $49.26 psf NNN
Market Highlights
Cambridge Direct Available vs. Sublease Available
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
22.0%
24.0%
$20.00
$25.00
$30.00
$35.00
$40.00
$45.00
$50.00
$55.00
$60.00
2008 2009 Q3
2010
2007200620052004
Overall Office Rent
Overall Lab Rent
Overall Office Availability
Overall Lab Availability
0
200,000
400,000
600,000
800,000
1000,000
1200,000
1400,000
1600,000
1800,000
Square Feet
2008 2009 Q3
2010
2007200620052004
Direct Office
Direct Lab
Sublease Office
Sublease Lab
4 l FHO Partners
Lab Inventory vs. Availability by Submarket
0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000
Boston
128 Central
495 Central
Inner Suburbs
Cambridge
SubletDirectOccupied (SF)
Market Perspective

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Suburban Market Overview
For the second consecutive quarter, the overall suburban market is displaying a stark
contrast between the office and R&D sectors. While the office market posted positive
absorption, the R&D market is still feeling the effects of contracted demand. Sub-
markets along the 128 corridor were the most active, buoyed by larger deals such
as Dassault Systèmes committing to 320,000 sf at 175 and 185 Wyman Street in
Waltham. Despite elevated availability, the suburban market has not been exposed to
a flood of newly constructed space or the glut of sublease availabilities that weighed
down the region in the recession of 2001 to 2003. As a result, we anticipate that
recovery will be driven by finite supply, rather than a spike in demand.
 The suburban office market posted positive net absorption of 577,365 sf year-
to-date. This is a considerable improvement over 12 months ago when YTD ab-
sorption totaled (1.35) msf. While still negative, overall suburban R&D absorption
totaled (480,352) sf YTD. This is also a significant improvement over 12 months
ago when R&D absorption stood at (2.12) msf.
 Overall availability in the office market remained virtually unchanged quarter-over-
quarter – increasing by only 30 bps to 23.3%. In the past year, availability has
increased by a full percentage point from 22.3%.
 At 28.9%, R&D availability declined a full percentage point quarter-over-quarter
but is still up a full percentage point year-over year (27.8% at Q3 2009).
 At $22.11 and $10.26 psf, respectively, average asking rents for both of-
fice and R&D space remained flat quarter-over-quarter but have declined
7.2% and 4.1% in the past 12 months.
Suburban Overall Availability vs. Average Asking Rent
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
$7.00
$12.00
$17.00
$22.00
$27.00
$32.00
2008 2009 Q3
2010
20072006200520042003200220012000
Overall Office Rent
Overall R&D Rent
Overall Office Availability
Overall R&D Availability
Market Highlights
0
2000,000
4000,000
6000,000
8000,000
10000,000
12000,000
14000,000
16000,000
Square Feet
2008 2009 Q3
2010
20072006200520042003200220012000
Direct Office
Direct R&D
Sublease Office
Sublease R&D
Suburban Direct Available vs. Sublease Available
Office
Inventory 74,752,089 sf
Availability Rate 23.3%
Net Absorption YTD 2010 577,365 sf
Average Asking Rent $22.11 psf
R&D
Inventory 52,674,829 sf
Availability Rate 28.9%
Net Absorption YTD 2010 (480,352) sf
Average Asking Rent $10.26 psf NNN
Market Perspective
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
Q3 201020092008200720062005200420032002200120001999
Sublease SF Available Unemployment Rate
Suburban Sublease SF Available
Boston Sublease SF Available
Massachusetts Unemployment Rate
Cambridge Sublease SF Available
Recession Recession
Sublease Available vs. Unemployment Rate

6. M A R K E T W A T C H l T H I R D Q U A R T E R 2 0 1 0
Market Total Total Availability Total Vacancy YTD 2010 Direct Weighted
Inventory Available Rate Vacant Rate Net Absorption Average Rent
BOSTON OFFICE 59,750,735 11,159,213 18.7% 6,749,238 11.3% (485,248) $39.75
Back Bay 12,182,324 1,398,634 11.5% 854,977 7.0% 320,085 $41.84
Charlestown 1,748,336 186,167 10.6% 141,795 8.1% 14,364 $24.35
Fenway 1,911,890 186,682 9.8% 48,318 2.5% (149,082) $30.06
Financial District 28,202,230 5,928,263 21.0% 3,692,461 13.1% (462,146) $43.04
Government Center 1,878,278 372,278 19.8% 287,656 15.3% 35,494 $34.37
Midtown 1,863,609 376,711 20.2% 193,618 10.4% (41,593) $24.89
North Station 1,638,642 338,237 20.6% 99,693 6.1% (82,184) $28.26
South Boston Waterfront 6,187,511 1,851,431 29.9% 1,154,873 18.7% (26,411) $30.06
South Station 4,137,915 520,810 12.6% 275,847 6.7% (93,775) $36.56
CAMBRIDGE OFFICE 10,046,144 1,530,101 15.2% 1,068,911 10.6% 338,229 $35.65
Alewife/West Cambridge 1,714,404 388,018 22.6% 292,739 17.1% (35,553) $26.06
East Cambridge 6,160,198 908,796 14.8% 642,229 10.4% 371,522 $40.69
Mass Avenue Corridor 2,171,542 233,287 10.7% 133,943 6.2% 2,260 $34.16
CAMBRIDGE LAB 7,751,645 1,263,816 16.3% 1,006,757 13.0% 37,790 $49.26*
Alewife/West Cambridge 533,311 50,987 9.6% 50,987 9.6% 20,307 $34.13*
East Cambridge 4,900,679 911,248 18.6% 729,519 14.9% 59,467 $48.46*
Mass Avenue Corridor 2,317,655 301,581 13.0% 226,251 9.8% (41,984) $54.24*
SUBURBS OFFICE/R&D 127,426,918 32,599,669 25.6% 22,017,489 17.3% 97,013 $22.11**
128 Central 41,596,965 9,706,878 23.3% 6,828,260 16.6% 179,785 $25.37**
128 North 9,628,176 2,563,379 26.6% 1,773,178 18.4% 284,967 $19.69**
128 South 14,495,529 3,810,594 26.3% 2,541,054 17.5% (286,471) $18.19**
3/24 South 1,982,663 483,774 24.4% 398,897 20.1% 30,471 $22.05**
495 Central 17,559,942 4,193,311 23.9% 2,706,778 15.4% (47,692) $19.69**
495 North 31,706,695 10,204,769 32.2% 6,554,007 20.7% (336,433) $18.12**
495 South 4,292,816 937,591 21.8% 695,862 16.2% (1,550) $19.92**
Inner Suburbs 6,164,132 699,373 11.3% 519,453 8.4% 1,504 $22.52**
TOTAL 204,975,442 46,552,799 22.7% 30,842,395 15.0% (12,216) $29.79**
*Rents quoted on NNN basis **Average of office rents only
Market Summary
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Glossary of Terms
METHODOLOGY
The information included in this report is the result of a compilation of informa-
tion on Class A, B and C office, R&D and investment properties located in the
Boston area. The information was obtained by FHO Partners from representa-
tives of each property.
All of the information gathered is stored in a FHO Partners database which is
updated quarterly. From this database, total inventory, vacancy rate, rental rate
and absorption figures may be calculated and presented.
Total inventory may change from year to year as a result of newly constructed or
newly renovated buildings, recently remeasured properties, or significant change
or deletion of a particular building status. The database is thoroughly checked
and balanced from year to year. The appropriate adjustments are made in order
to balance the figures and calculate the most accurate vacancy and absorption
figures.
DEFINITIONS
Inventory:
Includes all existing competitive office and R&D buildings over 20,000 sf as well
as significant buildings less than that size. Under construction, government,
medical, educational and 100% owner-occupied buildings are not included.
Direct Space:
Space available directly from the building owner. Includes space available for
occupancy within the next 24 months. Does not include space in under construc-
tion buildings.
Sublease Space:
Space available through a lessee to a third party for the remainder of the original
lease term and/or beyond. Includes space being actively marketed.
Vacancy Rate:
Space, available both directly and by sublease, that is currently vacant and being
marketed for immediate occupancy. Does not include space under construction.
Availability Rate:
Available space is generally defined as space that is being actively marketed and/or
available for occupancy within the next 24 months.
Construction Completions:
Buildings which have received their certificate of occupancy in the stated time
period.
Under Construction:
Buildings which have had excavation work commence, but have not yet received
their certificate of occupancy.
Office:
Space designed for general office use. Buildings are generally two or more stories
and offer tenants a higher-level of finish than R&D space.
R&D:
Space designed for high technology, office or light industrial use. Buildings are
generally one or two stories.
Net Absorption:
The net change in occupied space over a given period of time. Calculations are
based on available space.
Rental Rates:
Gross: Rents which include tax and operating expenses, but generally not electric-
ity.
Triple Net:
Rents where the tenant is directly responsible for all tax, operating and utility
expenses.
Weighted Average Rent:
An average rental rate that is weighted by the amount of square footage available
at each respective rental rate.
495
495
90
95
93
95
24
3
2
128
128
3
Chelmsford
Lowell
Westford
Acton
Littleton
Wilmington
Billerica
Andover
Tewksbury
Boxborough
Maynard
Hudson
Marlborough
Woburn
Southborough
Westborough
Hopkinton
Concord
Framingham
Milford
Franklin
Wellesley
Lynnfield
Peabody
Stoneham
Lexington
Bedford
Burlington
Lincoln
Newton
Waltham
Medford
Somerville
Allston
Brookline
Needham
Natick
Wakefield
Saugus
N. Andover
Methuen
Lawrence
Danvers
Beverly
Malden
Revere
Foxborough
Mansfield
Taunton
Brockton
Pembroke
Rockland
Dedham
Norwood
Westwood
Braintree
Weymouth
Hingham
Norwell
Randolph
Canton
Quincy
495 South
128 South
495 Central
3/24 South
Boston
128 North
128 Central
495 North
Inner
Suburbs
Submarket Map

8. ©2010 FHO Partners. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is
made to the accuracy thereof. Information contained herein should not, in whole or part, be published, reproduced or referred to without prior approval.
Any such reproduction should be credited to FHO Partners.
For more information contact:
Ashley E. Lane
Director of Research
FHO Partners
One International Place
Boston, Massachusetts 02110
Direct Tel: +1 (617) 279 4570
Email: alane@fhopartners.com
Bethany A. Bockmann
Research Analyst
FHO Partners
One International Place
Boston, Massachusetts 02110
Direct Tel: +1 (617) 279 4589
Email: bbockmann@fhopartners.com
www.FHOpartners.com
Commercial
Real Estate
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