Boston Lab Vacancy Surpasses 30%
With the last of the millions of square feet of new supply from Boston's pandemic-era lab boom finishing construction, the market is in for a long and slow recovery.
The Boston area has more than 16.1M SF of vacant lab space on the market, a 10M SF increase from three years ago, according to JLL's 2024 Q4 report. Life sciences supply was eight times that of demand in the fourth quarter.
The market saw 2.2M SF of life sciences projects deliver in the fourth quarter, capping off a three-year period in which 21.2M SF was built in the region. With the new supply, JLL reported the market's vacancy rose from 27.7% in Q3 to 31.1% at the end of Q4.
The new developments are coming into an extremely different market than the one they started construction in. Tenants are in no rush to move or expand, and those that are leasing are concentrated in the established clusters closer to Boston.
The environment has become tricky for landlords to attract tenants, and those in less desirable submarkets face the risk of financial distress.
"There's going to be some ownership groups or some assets that are not going to be able to live to the day where the life sciences market is healthy again," JLL Director of Research Mark Bruso said. "There is just so much supply versus so little leasing today."
Of the 722K SF of lab space absorbed last year, 40% of that activity was in East Cambridge, with another 54% in the Fenway, Seaport or Watertown submarkets, according to JLL.
"There's a definitive flight to established submarkets," Bruso said. "The folks that are doing deals, they seem to be gravitating towards the market that were, frankly, around before the bubble formed, right, like Seaport, Fenway, Watertown, East Cambridge."
Bruso said that the activity in these markets isn't as surprising because the life sciences companies moving now want to be in a neighborhood they know well, has been around for a while and is home to similar companies.
"Everyone knows them, and, in fact, everyone is sort of accustomed to those being the core markets," Bruso said. "I think that is probably something that those other markets will have to contend with as being new, and there's so much supply right now."
Bruso said that he expects more divestments for assets in less desirable submarkets farther from the core. Near the end of the year, the owners of three office-to-lab conversions moved forward to divest their assets, JLL reported.
"What we started seeing in December were a few buildings that had to, not under their own volition, go to market or hand the keys back to the lender," Bruso said. "That's probably the first of what will be a few of those in 2025. It's definitely a first of the trend."
In November, the Boston Business Journal reported that insurance company MetLife was in the process of selling its 109K SF Burlington BioCenter building for roughly a third of the $109M it bought it for in 2022. The sale is being driven by the property's lender, Northwestern Mutual Life Insurance Co.
Alexandria Real Estate Equities has continued to weed out underperforming properties and sell them off across the market. At the end of 2024, Alexandria had sold off five buildings adding up to $717M.
Biomed Realty was on the receiving end, acquiring four Kendall Square properties, making it the largest owner in the submarket. Biomed bought three properties from Alexandria and another from MIT's real estate investment arm MITIMCO.
Though Bruso said he believes 2025 will fare better than the years before, there is still a long road ahead before the market is healthy again.
"I think there will be probably marginally more demand and more leasing in 2025 than there was in '24 and '23," Bruso said. "This is not a recovery that's going to be a V-shaped recovery. It could be a long U-shaped recovery back to a normal, healthy market."
