Greater Boston Lab Limits Have Other Cities Hoping For A Life Science Tidal Wave

Kendall Square, across the Charles River from Boston, is the hub of the U.S. life science industry, but the latest chapter in the neighborhood's ongoing space issues may finally push companies to relief valve markets beyond New England.

“When you get down to a vacancy rate that’s 2%, it causes a need for folks to look elsewhere,” Colliers International Director of Research Aaron Jodka said. “That creates an opportunity for a suburban market or New York, San Diego or Washington, D.C., to ramp up and try to lure away tenants. It becomes a more competitive national landscape.”

Direct lab vacancies in the East Cambridge submarket have been hard to come by for several quarters, and the entire city of Cambridge closed Q2 with a 2.5% vacancy rate for its overall 12.1M SF lab market. While the low vacancies have seemed daunting on paper, there has been a dynamic for several years of more sublease space available than direct vacancies, enabling companies to still enter the market. 

That is no longer the case. Sublease availabilities in the area are now virtually nonexistent; there has been a 78% decrease in sublease space on the market within the last 12 months, according to Colliers.

“It gets to the core of the market and how strong it is,” Jodka said. “Tenants want to be here, and many need to be here and are willing to take any and all space to achieve that goal.”

Other regions — like the Bay Area, Raleigh-Durham, North Carolina, and New York City — could become more appealing to smaller companies with no room to grow in Greater Boston. New York is putting up $100M to back an Applied Life Sciences Hub, part of a greater $500M life science initiative proposed by New York Mayor Bill de Blasio in 2016. 

“The reality is a lot of cities would love to have the kind of life science cluster of activity and business that we do,” Related Beal Executive Vice President Stephen Faber said. “It’s without a doubt a growth industry that will continue to grow.”

Finding More Elbow Room In Boston

New England isn’t ready to let its life science top dog status take a walk to other markets. 

The tight Cambridge market has pushed the boundaries of where life science companies are looking to set up in Greater Boston. From Boston Landing and Harvard’s campus expansion in Allston to the Seaport, developers are pursuing lab-capable projects in a variety of neighborhoods across the Charles River in Boston. 

Related Beal acquired 27 Drydock Ave. in the Seaport for $147M in 2016. The 286K SF building is next to the Innovation and Design Building, and the developer purchased it with the intent of making it appeal to research and development organizations. In less than two years, Related announced six new or extended leases from life science tenants like Gingko Bioworks and MetaStat. 

The combination of new and extended leases absorbed an additional 185K SF at the building, which was a signal to the company the Seaport had legs as a life science cluster. 

“All existing tenants located at 27 [Drydock] were able to attract and retain the kind of talent that they need in order to grow,” Faber said. “That proved for us the Seaport, even the eastern Seaport, is an excellent location for life science growth.”

The developer also reacquired 451 D St., a 477K SF lab and office building it sold in 2012. Related plans to make building improvements with the intent of attracting more life science tenants. Closer to 27 Drydock, Related broke ground with partner Kavanagh Advisory Group in December on the first phase of the 375K SF Innovation Square, or iSQ, in the Raymond L. Flynn Marine Park. 

The first structure, a 125K SF R&D building, has biotech accelerator Mass Innovation Labs as an anchor tenant. Faber sees Related’s Seaport portfolio as the perfect option for smaller companies getting squeezed out of East Cambridge by bigger pharmaceutical companies that can afford to pre-lease space well ahead of when it hits the market. 

“We’ve followed up with other midsized tenants who are looking to grow and couldn’t find space in Cambridge,” Faber said. “That’s why locations like 27 Drydock and Ray Flynn Marine Park are emerging as cluster areas for life science. The smaller companies can still find 15K or 20K SF.”

Others see the $2.3B Green Line Extension as transit unlocking a new life science corridor into Somerville.

“As companies survey alternatives outside Kendall Square, we’re excited about the product we’ll have,” Union Square Station Associates President Greg Karczewski said. “We absolutely think Union Square can be a relief valve, and it can be a great alternative to some of those companies heading further out to the suburbs.”

Somerville’s Union Square is only a mile from Kendall Square, but it can seem like much farther to the transit-dependent talent many life science companies look to hire. That feeling won’t last for long, as the neighborhood will be a stop on the Green Line Extension scheduled to open in 2021. Neighborhood redevelopment is underway ahead of the station opening, and a significant portion of it is geared toward life science companies. 

Union Square Station Associates is the master developer of a $1.5B transit-oriented development dubbed USQ. The first phase of the 2.4M SF mixed-use project will include 175K SF of lab and office space, scheduled to arrive just as Union Square Station opens to Green Line passengers. At full build-out, the project will have 1.4M SF of office, lab and retail.

“We’ve been monitoring what’s happening with Kendall Square more broadly, and we’re excited by the life science expansion beyond Kendall Square,” Karczewski said. 

While other cities around the U.S. want to boost their life science appeal, Greater Boston remains the top cluster in the country. Regional biopharma companies received $3.2B of venture funding in 2017, and Massachusetts has received the most National Institutes of Health funding for the last 23 years, according to Jodka’s Q2 2018 Greater Boston Market Viewpoint report. 

With the growth comes a need for more elbow room. Jodka has tracked 1.7M SF of Cambridge tenants moving or expanding to Boston suburbs since 2015. The sustained demand has caused several developers to move forward on speculative development, including King Street Properties at 828 Winter St. in Waltham. 

A May MassBioEd poll showed 83% of local companies plan to hire in the next year, and the state is expected to add 12,000 life science jobs by 2023. Considering the limited lab availability for an industry known for needing space instantly to fuel growth, Faber sees more spec development on the horizon across the region to capture the growth. 

“When these firms need the space, they need it immediately. If you’re not going spec, you’re likely going to sit for a prolonged period of time looking for a build-to-suit tenant,” he said. “We really do need to understand what it is that we have and make sure our continued investment in these companies assures our position in the life science industry. We benefit from it.”