Industrial Trends ReportThird Quarter 2011

Boston, MA
Office Graphs

Vacancy & Availability Rates

25% 20% 15%

Industrial Momentum Curbed

Advancement toward industrial market stability in Greater Boston abruptly came to a halt during the third quarter as tenants moved out of more space than they filled for the first Office Graphs time since the start of 2010. The 354,000 square feet of negative net absorption recorded represents a loss of over one third of the gains in occupancy experienced through the first two quarters of the year. The vacancy rate increased accordingly, rising 20 basis points to 13.7 percent - the first increase in five quarters. Negotiation momentum shifted further in tenants favor as average asking rates, already standing at comparatively low levels, fell across all prodOffice Graphs uct types. Average asking rental rates for general industrial product saw the most significant drop, falling two percent to $7.04 per square foot, triple net the lowest level since 2007. Several substantial corporate consolidations and relocations in the North and South submarkets induced the market retraction. The most substantial tenant move-out took place in the South, where the Boston Apparel group vacated 618,000 square feet of warehouse space at 35 United Drive in West Bridgewater after laying off 300 employees. In the North, Johnny Appleseeds moved operations to Pennsylvania leaving 180,000 square feet of general industrial space at 39 Tozer Road in Beverly. Although industrial leasing fundamentals in the overall market weakened during the quarter, certain segments showed signs of strength. One particular bright spot was the West submarket, where tenants absorbed 241,000 square feet the only submarket to post positive absorption. Quiet Logistics, a two-year-old company that uses robots to fulfill orders for e-tailers, took occupancy of 200,000 square feet of distribution space at 66 Saratoga Boulevard in the Devens Industrial Park. The move - motivated by access to a highly qualified labor force in the immediate area and the ability to expand its footprint at the park- brought 300 much needed jobs to the area. The R&D/Flex segment also experienced an improvement during the third quarter. Benefitting from space demands amongst local world-class technology companies, the R&D/Flex market posted its fifth consecutive quarter of positive net absorption as tenants filled 94,000 net square feet. One technology company aiding this trend is venture-backed nanotechnology firm QD Vision, relocating and expanding from 25,000 square feet in Watertown into 60,000 square feet at 29 Hartwell Avenue in Lexington. Just as the industrial leasing market saw its fair share of set-backs, so did the investment sales market. Buyers stuck to the sidelines as sale transaction velocity retreated from levels seen earlier in the year. The $56.7 million in closed third quarter transactions stands 16.9 percent lower than the second quarter total of $68.2 million and 36 percent less than the first quarter level of $88.6 million. (continued on next page)

25% 10% 3Q 09

1Q 10

3Q 10

1Q 11

3Q 11

20%

Vacancy

Availability

15% 25%

1,200 800 10% 20% 400 3Q 09 1Q 10 3Q 10 1Q 11 3Q 11 0 Completions vs. Absorption -400 15% (in Thousands of SF) -800 -1,200 3Q 09 1Q 10 3Q 10 1Q 11 3Q 11 10% 1,200 09 3Q 1Q 10 3Q 10 1Q 11 3Q 11 800 400 0 -400 $11 -8001,200 -1,200 800 $9 3Q 09 1Q 10 3Q 10 1Q 11 3Q 11 400 0 $7 Absorbed Completed -400 $11 $9 $7 -800 $5 -1,200 3Q 09 3Q 1Q 101Q 10 10 10 11 11 3Q3Q 11 3Q 3Q 1Q 1Q 11 09

Asking Rental Rates

($/SF/Yr./Triple Net)

$11 1Q 10 3Q 10 1Q 11 3Q 11

FoRecasT n Lease rates will remain low as landlords offer attractive rental rates to entice tenants. Page 1 n LEED certified and green buildings will remain favorable for future-oriented investors. n The recent retreat by CMBS lenders could jeopardize growth in the investment market.
2011 Grubb & Ellis Company

$5 $9 3Q 09 $7

$5 3Q 09

1Q 10

3Q 10

1Q 11

3Q 11

General Industrial

R&D/Flex

Warehouse/Dist.

n While physical location remains key for many users of industrial space, some companies will consider location alternatives based on other factors such as lower Page 1 property taxes and city incentives in efforts to contain costs.
Prepared by: Tim Van Noord Senior Research Analyst 617.772.7275 tim.vannoord@grubb-ellis.com

Grubb & Ellis Boston 470 Atlantic Avenue, 11th Floor Boston, MA 02210 www.grubb-ellis.com

Page 1

Industrial Trends ReportThird Quarter 2011

Boston, MA
By submarket Central North South West Totals By property Type General Industrial R&D/Flex Warehouse/Distribution Totals 71,099,396 70,282,031 100,855,273 242,236,700 8,937,589 9,675,340 14,548,495 33,161,424 12.6% 13.8% 14.4% 13.7% 18.7% 20.4% 21.1% 20.2% (259,988) 94,421 (188,918) (354,485) 104,687 561,716 (89,039) 577,364 145,000 117,200 262,200 Total sF 34,210,092 86,300,220 73,060,474 48,665,914 242,236,700 Vacant sF 4,523,428 11,367,364 10,555,272 6,715,360 33,161,424 Vacant % 13.2% 13.2% 14.4% 13.8% 13.7% Available % 17.8% 20.7% 20.4% 20.6% 20.2% NET ABsorpTIoN Current Year To Date (4,592) (82,775) (507,890) 240,772 (354,485) 292,362 506,864 (244,507) 22,645 577,364 Under Construction sF 117,200 145,000 262,200 AskING rENT WH/Dist r&D/Flex $7.99 $5.51 $4.79 $5.49 $5.49 AskING rENT $7.04 $9.90 $5.49 $7.16 $11.84 $10.05 $8.85 $9.48 $9.90

(continued from previous page) Four of the five third-quarter acquisitions contained a warehouse/distribution component, suppressing prices as well-capitalized investors such as STAG Industrial REIT and Atlantic Management drove the market. For example, Atlantic Management purchased the former HP campus in Marlborough for $8.7 million. This 109-acre, 750,000-square-foot campus traded hands for $11.60 per square foot and represents Bostons largest industrial sale of the year in terms of square footage and the smallest sale of the year in terms of price per square foot. The underwhelming third quarter industrial market news comes as the total number of jobs in the Massachusetts economy was off by 2,800 during August. The decline slows a recovery in which Massachusetts employers have added 48,000 jobs since August 2010. Furthermore, the Associated Industries of Massachusetts Business Confidence Index fell in August into negative territory on its 100-point scale for the first time since September 2010 as employers grew fearful of possible effects resulting from global and domestic economic recessions. While these indicators signal a potential commercial real estate slow down in coming quarters, the current market holds a plethora of strategic opportunities for buyers and tenants seeking to take advantage of cyclically repressed pricing.
Amesbury Salisbury Merrimac Newburyport West Newbury Haverhill Groveland North Andover Tyngsborough Dracut Lowell Lawrence 495 Tewksbury Andover Ipswich Boxford Topsfield 95 Newbury Rowley

Grubb & ellisBoston Real estate Professionals

North 128 Bradford A. spencer Senior Vice President 617.772.7215 bradford.spencer@grubb-ellis.com south 128 Lance Carlton Associate Vice President 617.772.7213 lance.carlton@grubb-ellis.com Investment Anthony W. Biette Vice President 617.772.7205 anthony.biette@grubb-ellis.com Central 128 Tom Aitken Senior Vice President 617.772.7202 tom.aitken@grubb-ellis.com Metro West Hank Amabile Senior Vice President 617.772.7207 hank.amabile@grubb-ellis.com

Metheun

Georgetown

Hamilton Essex Gloucester Wenham Middleton Manchester-by-the-sea Danvers Westford North Reading Beverley Billerica Wilmington Lynnfield Littleton Peabody Carlisle Reading Salem Harvard Wakefield Boxborough Bedford Burlington Marblehead Acton Swampscott Woburn Stoneham 495 Saugus Lynn 95 Concord Winchester Melrose Lexington Stow Maynard Bolton Malden Nahant Lincoln Medford Everett Arlington Revere 128 Hudson BelmontSomerville Berlin Sudbury WestonWaltham Cambridge Watertown Wayland Brighton Marlborough Newton Brookline 90 93 Framingham Chestnut Hill Northborough Southborough Wellesley Jamaica Plain Dorchester Needham Natick Hyde Park Westborough Ashland 128 Cohasset Milton Quincy Dedham Dover Sherbon Westwood Hopkinton Hingham Braintree Scituate Holliston 93 Medfield Norwood 495 Randolph Weymouth Canton Millis 3 Norwell 95 Holbrook Walpole Milford Medway Rockland Avon Stoughton Norfolk Hanover Abington Marshfield Sharon Franklin Brockton Whitman Pembroke Bellingham Hanson Wrentham Foxboro Duxbury East Bridgewater Easton Mansfield West Bridgewater Plainville Halifax Kingston North Attleboro Bridgewater Norton 495 Plympton 295 Middleborough Raynham Attleboro Chelmsford 93

Rockport

Taunton

Industrial Submarkets
Lakeville

C S N W

Central South North West

INDUsTRIaL TeRms aND DeFINITIoNs

Total SF: Industrial inventory includes all multi-tenant, single tenant and owner occupied buildings at least 10,000 square feet. Industrial Buildings Classifications: Industrial buildings are categorized as warehouse/distribution, general industrial, R&D/flex and incubator based on their physical characteristics including percent office build-out, clear height, typical bay depth, typical suite size, type of loading and typical uses. Vacancy and Availability: The vacancy rate is the amount of physically vacant space divided by the inventory and includes direct and sublease vacant. The availability rate is the amount of space available for lease divided by the inventory. Net Absorption: The net change in physically occupied space over a period of time. Asking Rent: The dollar amount asked by landlords for available space expressed in dollars per square foot per year in most parts of the country, and dollars per square foot per month in areas of California and selected other markets. Industrial rents are expressed as triple net where all costs including, but not limited to, real estate taxes, insurance
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and common area maintenance are borne by the tenant on a pro rata basis. The asking rent for each building in the market is weighed by the amount of available space in the building. * Grubb & Ellis statistics are audited annually and may result in revisions to previously reported quarterly and final year-end figures. Reproduction in whole or part is permitted only with the written consent of Grubb & Ellis Company. Some of the data in this report has been gathered from third party sources and has not been independently verified by Grubb & Ellis. Grubb & Ellis makes no warranties or representations as to the completeness or accuracy thereof.