‘Mistimed Construction’: Boston Life Sciences Developers At Risk As Buildings Sit Empty
The once-booming life sciences leasing market in Greater Boston slowed dramatically just as dozens of speculative projects were under construction, leaving a huge amount of vacancy that could put developers at risk of losing their buildings.
The Boston area had 37 life sciences buildings sitting completely empty as of the end of the second quarter, 9% of its total inventory, according to Colliers data shared with Bisnow. Of the 41 buildings that have completed construction since the start of last year, 13 of them remained fully vacant.
The region’s vacancy rate has soared over the last two years, ending Q2 at 21.5%, up from 3% in the same quarter of 2022 and 10% in 2023, according to Colliers. This spike was caused by new projects delivering huge amounts of available space to the market, and with CBRE tracking another 8.1M SF still under construction that is less than a third preleased, researchers estimate vacancy hasn’t hit its peak.
"From an investor's perspective, mistimed construction is really the heart of the problem. There's so much new lab product delivering that there's no way that the current level of demand can keep up," Colliers Research Director Jeff Myers told Bisnow. "As a result, vacancies are rising very, very rapidly."
With projects standing vacant, the lenders that provided financing for construction will likely step in if things don't change soon.
"We fully expect lenders to become more involved and take control of certain projects over the next year to two. That is going to happen," JLL Executive Managing Director Bob Richards said. "There just is not enough demand right now to support the amount of vacancy in the market."
"This is the most dramatic correction in the history of life science real estate in the United States," Richards added.
Colliers and CBRE provided Bisnow with several examples of buildings that have delivered over the last year and a half but still haven’t announced any tenants.
One of those buildings is BioMed Realty’s 601 Congress St. in the Seaport, a property it acquired in 2021 for $362M to convert from office into 492K SF of life sciences space branded the Seaport Science Center.
"We have strong long-term conviction in the Boston-Cambridge life science market and are in active discussions with prospective tenants who are interested in best-in-class lab buildings," a BioMed Realty spokesperson wrote in a statement to Bisnow.
Another new building that hasn't announced tenants is Beacon Capital Partners' first phase of its 2 Harbor St. campus, a 381K SF lab building completed last spring. New England Development's 367K SF 20 CambridgeSide in Cambridge also hasn't announced any leases.
Beacon Capital Partners didn't respond to Bisnow's request for comment, and New England Development declined to comment.
Across the Boston suburbs, several additional projects also haven't publicized any leases, including Spear Street Capital's 550K SF Watertown Exploratory Labs at 705 Mount Auburn St. in Watertown and US2's 192K SF at 10 Prospect St. in Somerville.
Spear Street Capital and US2 didn't respond to Bisnow's requests for comment.
Developers that have delivered new buildings without signing any leases face a risk of distress as loans begin to mature.
"There's a distinct possibility that could happen," Myers said when asked about new buildings going into distress. "If you think of the prospects of a lender or developer having on their portfolio a brand-new, empty building, that's obviously less than ideal. That's not cheap."
Overall availability in the Greater Boston life sciences market has reached an all-time high of 11M SF, including 3M SF of sublease offerings as tenants try to reduce their footprints, according to Colliers. In addition to putting developers at risk, this availability has also made it a favorable market for tenants looking to do deals.
This high availability stands in stark contrast to the state of the market three years ago, when vacancy was nearly zero and tenants had to compete to find any space to grow.
"Back in 2021, we were looking at vacancies that were less than 1%, and there was only a couple hundred thousand square feet of total space available," Myers said.
"At the tightest part of the market, you were being asked to take space well in advance of it being built. You were being asked to sign lengthy, long-term leases. You were maybe even taking more space than you needed because you didn't know what the opportunity was going to be the next time you needed to grow. Today is the opposite."
Last year still saw several notable leases signed, including SmartLabs’ roughly 172K SF at New England Development's 100 CambridgeSide project in Cambridge, the largest lease of the year, according to MassBio's annual industry snapshot.
Other notable transactions included Novo Nordisk's 166K SF lease at Alexandria Real Estate Equities' 50-60 Sylvan Road in Waltham and Orbital Therapeutics' 166K SF sublease from Bristol-Myers Squibb at 100 Binney St. in Cambridge.
This summer has seen a bump in tenant activity in July and August due to an increase in venture capital funding, according to Richards. From 2022 to 2023, Massachusetts-based biotech companies saw an $8M increase in funding, according to MassBio.
Richards said it isn't clear yet that this is the start of a larger recovery, but he hopes the trend of increased activity continues. And he remains optimistic about the future of the largest life sciences sector in the country.
"This industry is going to continue to evolve and emerge and expand, and great products in established urban submarkets are going to do well," Richards said. "Is that going to happen in the next 12 to 18 months? Maybe not, but eventually, quality will rise to the top."
