Recently, Cambridge has gained national prominence as a “must-have” market for tenants and investors alike, and the numbers bear it out. With an overall vacancy rate of just 3.6 percent as of year-end 2016 and an average Class A asking rent of $60.20 per square foot, Cambridge’s office sector is one of the nation’s hottest submarkets. Driven by the economic engine of Harvard University and Massachusetts Institute of Technology (MIT), two of the world’s leading research and academic institutions, many of today’s most innovative companies, including Akamai, Amazon, Facebook, Google, IBM, Microsoft, Novartis, Pfizer and Shire among others, have established a meaningful presence here.
The fifth most densely populated city in the United States, Cambridge attracts a demographically diverse community and highly educated, highly skilled workers across all professions. This vibrant pedestrian-friendly city can be roughly divided into three distinct submarkets: East Cambridge (anchored by MIT and Kendall Square), Mid-Cambridge (clustered around Harvard University) and West Cambridge, anchored by the MBTA’s Alewife transportation hub. Each submarket boasts the coveted Cambridge address and the “live-work-play-learn” environments so favored by today’s employers and employees.
Marked by natural and regulatory barriers to entry, office inventory is heavily constrained, particularly in the established technology hub of Kendall Square. Here, the limited supply of product and robust tenant demand have resulted in occupancy levels approaching 100 percent and record-high rents. In fact, of the roughly one million square feet of space under construction, the bulk has been pre-leased. Given the lack of available space (particularly for larger blocks) and high rents, tenants are being forced to seek alternative locations in urban environments with walkable amenities and great access while requiring the all-important Cambridge address.
Submarkets like West Cambridge have been the key beneficiaries of this crucible effect and present a value investment in today’s market. The renaissance in West Cambridge began about five years ago. Since then, nearly 2,000 apartment homes have been delivered to the market. This significant influx of residents led to the revamping of the amenity base, as retailers sought to better cater to this burgeoning population. Around the same time, office tenants in East Cambridge started to look for an alternative to limited inventory and sky high rents. As a result, nearly two million square feet of Class A office or lab space has been repositioned as outdated office buildings have become integral parts of mixed-use, campus-like designs.
West Cambridge, now a thriving, mixed-use neighborhood was the obvious alternative. Today, West Cambridge enjoys the true “live-work-play” dynamic that is required by tenants and has become a top destination for today’s most exciting technology, healthcare and professional service firms. With the westward pressure applied from East Cambridge and Mid-Cambridge, West Cambridge is no longer a release valve; it has emerged as a bona fide submarket.
West Cambridge has an incredibly bright future. Today’s innovative office tenants today are demanding walkable urban environments with access to public transportation and a wide-ranging amenity base. Anchored by the MBTA’s Red Line (affectionately known as the "Brain Train"), the surging residential population and continued tenant in-migration ensure that West Cambridge will be one of Boston’s most exciting areas for years to come.
Gary Porter is an associate in HFF’s Boston office. He is primarily responsible for preforming complicated financial modeling, preparing investment memorandum for all capital markets activities and coordinating due diligence and closing process.
Prior to joining HFF in August 2015, Mr. Porter was an Asset Management Analyst at Jamestown Properties, an Atlanta-based private equity investor. Before joining Jamestown, Mr. Porter began his career in the Real Estate Investment Banking group at Jefferies LLC. Mr. Porter is a 2011 graduate of Wake Forest University, where he received a Bachelor of Science degree in finance.
Connor Allen is a real estate analyst in the Boston office of HFF who is nearing the completion of his second year of experience in commercial real estate and finance. He is primarily responsible for performing financial and market analysis, preparing offering documents and coordinating the due diligence process for both the debt and investment sales groups.
Mr. Allen joined the firm in January of 2017. Prior to joining HFF, he worked at Transwestern as a Research Analyst. Mr. Allen is a graduate of Babson College with a bachelor’s degree in business administration and a dual concentration in real estate and finance.