While the various segments of the Greater Boston commercial real estate industry grapple with how to return to operations safely as the global pandemic persists, the region’s life science sector continues to thrive. Acquisition, development, and leasing of laboratory properties remain robust in Boston and Cambridge as well as in the submarkets, according to a panel of life science property owners recently assembled by ULI Boston for the virtual discussion, “Life Science’s Role in the Metro Boston Economy.”
Moderated by JLL managing director Molly Heath, whose practice is focused on life science and technology leasing in Cambridge, the panel included Rob Albro, managing director at King Street Properties; Bill Kane, executive vice president, BioMed Realty; and Jamie Peschel, managing partner, Longfellow Real Estate Partners LLC.
Anchored by a dense concentration of top-tier universities and research hospitals, Boston/Cambridge is consistently ranked as the nation’s top life science cluster. In 2019, the region landed at or near the top for critical metrics such as employment (95,209 jobs), lab space (30 million square feet [2.8 million sq m]), National Institutes of Health (NIH) funding (5,004 awards totaling $2.6 billion), patents, and venture capital funding ($6.8 billion in 174 deals), according to a report by Genetic Engineering and Biotechnology News. That position is unlikely to weaken despite the pandemic, since panelists predict an increase in the development of biomanufacturing facilities—brought on by disruptions in the worldwide supply chain due to COVID-19, as well as an anticipated upswing in natural disasters triggered by climate change.
Heath reports there is a continued steady demand for lab space as well as a growing demand for biomanufacturing space. A number of significant new leases have been signed post-COVID, and 88 percent of the more than 2.5 million square feet (232,000 sq m) of pre-COVID life science requirements are still being actively pursued. “Many of the requirements in the market have been preceded by some type of capital event, including large rounds of venture capital investment or licensing agreements with larger pharma or biophama, and Greater Boston continues to get a lion’s share of NIH funding . . . so these companies are continuing to expand in the market,” says Heath. (According to market data provider Pitchbook, the first quarter of 2020 was the single largest quarter ever for biopharma venture funding in the United States, with $5.5 billion in aggregate funding across 171 financings.)
Available lab space remains highly constrained, however, with the direct vacancy rate in East Cambridge—the epicenter of the life sciences cluster where asking rents average over $100 per square foot ($1,076 per sq m)—is under 1 percent, and the entirety of the Greater Boston lab market vacancy is at 6 percent. And while over 3.5 million square feet (325,000 sq m) of lab space was scheduled to be delivered in 2020 (prior to construction shutdowns in March), 90 percent of that space is pre-leased, with the remainder expected to be leased within the “next few months,” according to Heath. Of the 4.9 million square feet (455,000 sq m) of additional lab space in the pipeline scheduled for completion by 2022, approximately 47 percent of that is pre-leased, so demand will continue to outstrip supply. Also, little sublease space is available.
With demand showing no signs of slowing, the owners on the panel are remaining active on both the acquisition and development fronts while simultaneously adapting existing properties to meet the needs of their tenants, which are largely continuing their work. “At the start of [the pandemic] . . . we were working quickly with relatively little information as compared to what we have now, so it was a scramble,” says BioMed’s Kane. “We quickly learned that each of the spaces required different adjustments in HVAC and plumbing and filtration as well as social distancing, so it wasn’t a one-size-fits-all.” Fortunately for property owners, lab space is more readily adaptable to many COVID safety requirements than office space. Guidelines for handwashing hygiene and protective equipment (lab coats, gloves, safety glasses, and so on) are already in place. Research labs also tend to be less densely occupied than office space, and panelists say that companies were employing creative strategies to decrease contact among employees, including staggering the shifts of the research teams.
“Research can’t stop, so our buildings are fully operational,” says King Street’s Albro. “Yes, tenants are operating differently—there’s more of a skeleton crew right now—but the labs are still being occupied.” This also means that, unlike other sectors of the commercial real estate industry, tenants continue to pay rent, which allows acquisition and development to continue. What that new development will look like for the industry is likely to change, however, both in the types of facilities that are being constructed and where they will be located.
“One of the fascinating things about this virus is that it’s not only attacking our bodies, it’s also attacking our systems,” says Longfellow’s Peschel. “And what is happening as a result of that is that it is just accelerating trends that we’ve seen [green] shoots of.”
One of those trends is the increased demand for biomanufacturing facilities. While demand for traditional research lab space shows no signs of slowing down in the Greater Boston market, the disruptions to the global supply chain have increased the need for not only localized biomanufacturing facilities, but also supporting infrastructure. Kane says that the supply chain disruptions are causing delays to the way their tenants can perform their work, and adds that according to industry insiders, big pharma is willing to pay a premium for land and labor costs to remain local.
“We could see a remaking on a very localized basis, where there’s a comparative advantage around these types of specialized manufacturing . . . that could create a much more robust industrial economy both around the high-specialty manufacturing and also around the suppliers,” Peschel predicts. “And if we really want biomanufacturing, it probably means making sure that there’s flex space and secondary space and repurposing of assets along the 495 corridor [the outer beltway beyond Route 128 that also forms a semicircle around Boston] to bring suppliers in to service those businesses.”
In 2018, King Street purchased a 100,000-square-foot (9,300 sq m) former newspaper printing facility in suburban Framingham and converted it into a class A biomanufacturing space and R&D laboratory in 2019 after securing an anchor tenant. The firm also recently partnered with a Boston-based investment firm to build biomanufacturing facilities in the Greater Boston market. “It’s something that we’re extremely focused on right now,” says Albro. “We have a number of biomanufacturing tenants in our portfolio, and it’s a growing area. In our minds, it’s the next level of life science.”
Much of the biomanufacturing expansion is likely to take place outside the Boston/Cambridge core. King Street has purchased land in the Devens Industrial Park, located approximately 35 miles (56 km) from Boston, where the firm envisions constructing build-to-suit projects, “because it doesn’t need to be in Cambridge, where the rents and the economics are quite different,” Albro says. “There’s specific needs of biomanufacturing tenants, many of which are not in existing buildings. It’s an evolving industry and one that we think is going to grow a lot.”