Cambridge Seeing 'Demand Issue' As Life Sciences Slowdown Continues

Cambridge’s life sciences market is still the top dog in the country, but it is a vastly different one than what real estate professionals remember from just a few years ago.

As the market's life sciences development pipeline continues to slow, Cambridge’s demand, while still stronger than the majority of the country's, is also cooling. At the end of the second quarter, the market posted 192K SF of negative net absorption, the first time recording an occupancy loss since the first quarter of 2022, according to CBRE.

Experts speaking at Bisnow's Cambridge State of the Market event, held last month at the Holiday Inn Boston Bunker Hill in Somerville, said the market they are seeing today is being driven by smaller early stage companies and a normalizing venture capital funding cycle that is down from its pandemic-era peak. 

“We’re dealing with a demand issue,” Patrick Mulvihill, senior vice president of Boston Properties, said at the event. “I do think it is short-lived, but it’s generally because of what is happening in the macro economy and venture capital.”

Although Kendall Square still has one of the tightest submarkets in the region with East Cambridge sitting at 2.4% vacancy at the end of the second quarter, according to CBRE, availability across all of Cambridge increased to 17.6% as new projects and sublease space continued to enter the market.

Sean Coffey, managing director at The Davis Cos., said that there once was 4M SF of new tenant demand in the market, but that has dropped to around 1M SF due to tenants re-evaluating their space as funding becomes sparser and economic uncertainty continues to rise.

"There are significantly fewer tenants in the marketplace than there have been historically," Coffey said. "The function of that 40K SF to 60K SF tenant who was there in spades years ago, who has seemed to have disappeared. There's a real space evaluation going on now."

Some funding has picked up in the Boston metro, but it hasn't been evenly distributed.

In the second quarter, venture capital funding in the Boston-area life sciences sector surpassed $2B for the first time since the fourth quarter of 2021, according to CBRE. The region has also received $3.6B in funding year-to-date, with early stage companies making up the bulk of the funding at 77%.

Some developers are catering to these early stage companies looking to grow out of the incubator stage and into their own space.

In June, Alexandria Real Estate Equities sold two life sciences campuses to Alloy Properties for a combined $365M. The campus at 780-790 Memorial Drive in Cambridge, now dubbed GRO, is being used for startups trying to get out of the incubator stage.

“When you’re graduating from an incubator space, you’re coming out of renting by the bench,” said Alicia Hinds, head of asset management for Alloy Properties. “It’s the perfect opportunity within Cambridge when you want a little bit of independence but a little bit more collaboration as well.”

In the area around Kendall Square, it might have previously been challenging to find any space, but with a slowdown in leasing and a possible oversupply in the upcoming years, according to CBRE, more tenants have the freedom to choose where they want to plant their flag.

Seismic Therapeutic CEO Jo Viney said that for her company, finding space earlier in the pandemic was challenging because demand had skyrocketed, but now she faces different issues. 

“Right now, it’s even more challenging because we are seeing a lot of slowness in financing companies,” Viney said. “It’s relatively straightforward to raise a Series A and get into incubator space, but that next big raise where you really want to move into your own space, that’s taking a lot longer.”

Although there is a slowdown, the Cambridge market continues to be appealing to tenants and developers looking to bring on new projects, even outside of the traditional hub.

A joint venture between Harvard University and Tishman Speyer began construction on the 900K SF first phase of its Harvard Enterprise Research Campus in Allston, which includes two lab buildings, a 343-unit apartment building and a hotel. The group received a $750M construction financing package from Otera Capital in June.

Harvard Allston Land Co. CEO Carl Rodrigues said that the project's proximity to Cambridge became a part of the team's marketing because of its attractiveness to tenants.

“You’ll see projects lean into anchors that are easily marketable, and I think Cambridge is one of those,” Rodrigues said.