Boston

Down 1 Place

2012 Rank: 9

2011 Rank: 8

Employment vs. Retail Sales

10%
Year-over-Year Change Employment Retail Sales

5% 0% -5% -10%

08

09

10

11*

12**

Retail Completions
2.0
Square Feet (millions)

1.5 1.0 0.5 0.0

he redevelopment of South Boston will stimulate the local economy and enhance retail sales within the core, while new projects in the suburbs will appeal to national retailers. Construction is under way on the $1 billion redevelopment of Pier 4 and Fan Pier in South Boston. The projects will attract major corporations, including Vertex Pharmaceuticals, to the area, while encouraging builders to restart delayed projects such as Seaport Square and Waterside Place. The potential economic output of the developments will entice retailers to expand in South Boston, while boosting the daytime population in the area. Meanwhile, prime shopping corridors in Back Bay, such as Newbury Street and Boylston Street, will garner keen interest from creditworthy tenants, keeping vacancy tight in the core. In the suburbs, the Merrimack Premium Outlet mall will come online by year end, with commitments from major retailers, including Saks Fifth Avenue OFF 5TH. Once complete, an estimated five million shoppers are expected to visit the mall each year. Investors will reposition their portfolios to include a greater selection of real estate as a hedge against volatility in other investment vehicles, helping boost sales activity this year. Risk-averse buyers will target single-tenant buildings occupied by a creditworthy tenant to produce steady cash flow. Soughtafter areas within state Route 128 will present prime opportunities for these well-capitalized investors, where assets occupied by national chains will command returns hovering near the low- to mid-6-percent range. Private buyers, meanwhile, will purchase smaller multi-tenant properties with a solid tenant lineup secured under long-term leases. Assets situated in the core with a toprated tenant will change hands in the low- to mid-7-percent area, while assets in peripheral neighborhoods will trade 150 basis points higher. 2012 Market Outlook

Redevelopment Efforts Boost Economic Output, Enhancing Retail Performance

08

09

10

11

12**

Asking Rent and Vacancy Trends

Asking Rent Vacancy

$22
Asking Rent per Square Foot

8% 7%
Vacancy Rate

$21 $20 $19 $18

6% 5% 4%

2012 NRI Rank: 9, Down 1 Place. Despite strong job growth, Boston fell one spot in the index as tech-heavy markets moved ahead. Employment Forecast: Boston employers will add 46,000 workers to payrolls this year, a gain of 1.9 percent. Last year, 41,000 jobs were created. Construction Forecast: Builders will ramp up activity in 2012, completing 1.2 million square feet, expanding inventory by 0.7 percent. Vacancy Forecast: An uptick in leasing activity will help reduce vacancy 60 basis points to 5.7 percent, the lowest level in six years. Rent Forecast: Asking rents will rise 1.4 percent in 2012 to $21.46 per square foot. Effective rents will grow 2.0 percent to $19.33 per square foot. Investment Forecast: Foreign and institutional investors will acquire larger, performing grocery-anchored shopping centers near major transit corridors and hold for seven years to preserve capital. Well-occupied properties with a solid anchor tenant will produce initial yields in the low-7-percent range.

08

09

10

11

12**

Sales Trends
Single-Tenant Multi-Tenant

$300
Median Price per Square Foot

$225 $150 $75 $0

07

08

09

10

11*

* Estimate

** Forecast

Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA

Market Forecast
page 14

Employment: 1.9% s

Construction: 1.2M s

Vacancy: 60 bps t

Effective Rents: 2.0% s

2012 BLACK TEXT VERSION Annual Report