Boston Development Group, Alexandria Deals Latest In Watertown’s Surging Life Science Sector
Greater Boston life science developers are expanding their reach as they look toward a future where not all lab space in the area is concentrated in Kendall Square and along the MBTA Red Line.
The war for talent continues to be top of mind in Boston life science circles this cycle. That has led to companies clustering in congested, pricey areas like Kendall Square and the Seaport and pushed rents to all-time highs.
But developers like Boston Development Group and Alexandria Real Estate Equities recognize talent doesn't always live in Boston or Cambridge, and they are targeting a close-in Boston suburb to try to land life science companies looking for a change.
“Life science clusters will be found in areas where developers have the correct zoning and access to public transportation,” Boston Development Group President Jodie Zussman said. “We like Watertown because it doesn’t have the traffic of Cambridge and the Seaport.”
Boston Development Group acquired a six-property, $18.4M portfolio between April and late November last year, according to Middlesex County property records. The development firm is pursuing a life science project at the five-acre site bounded by Galen and Water streets near the Watertown Yard MBTA bus station.
Zussman declined to elaborate on the scale of the project while BDG seeks zoning changes for the future development. Some of the smaller parcels in the portfolio need to be included in the industrial zoning already designated for the rest of the project before the developer can move forward, according to a letter BDG sent to Watertown officials obtained by Bisnow.
“It is true life science likes to be clustered, and Watertown is becoming a popular place outside of Cambridge for that kind of business,” Zussman said.
Two miles away, The Wilder Cos. and Boylston Properties partnered on Arsenal Yards, a mixed-use redevelopment of Watertown's Arsenal Mall that includes life science space. Boylston Properties also developed LINX on Arsenal Street, a 185K SF biotech project it sold in 2018 to New York-based Clarion Partners.
Alexandria Real Estate Equities owns a 141K SF office and lab building at 480 Arsenal St. The developer, which has most of its Greater Boston life science portfolio concentrated in Kendall Square, closed on a $526M deal in December to buy athenahealth’s 11-building, 835K SF campus on Arsenal Street.
Athenahealth and other companies take up nearly 682K SF at the Arsenal campus while Alexandria expects to redevelop a 153K SF vacant stretch into labs, it disclosed in a filing with the Securities and Exchange Commission. There is also room to develop 200K SF for additional commercial use, bringing the campus to just over 1M SF.
Alexandria, based in Pasadena, California, and one of the nation's most prolific developers of life science facilities, declined to comment for this story, but the real estate community sees its arrival in Watertown as a testament to its future as a life science hub.
"I don’t know if every submarket that claims to be the next hub of life science is going to make it,” Newmark Knight Frank Director of Research Elizabeth Berthelette said. "Watertown is interesting, especially because Alexandria and other landlords are growing there. They are helping to legitimize Watertown.”
Kendall Square and East Cambridge have grown to be the leading hubs of life sciences in the world, in terms of real estate development as well as research funding. Life science firms demand to be in Kendall or close to it. That has translated to the submarket operating with near-zero lab vacancy rates for most of the last five years, according to NKF.
Local leaders have begun to promote the Life Sciences Corridor as an alternative, an initiative that encourages collaboration in wooing life science companies to the five cities along the Red Line.
The transit line passes several of the region’s leading universities, including Harvard and MIT. The cluster spawned by the Life Sciences Corridor is home to more than 730 life science companies, according to the initiative’s website.
But developers have largely stayed closer to Kendall Square, in relief valve submarkets like the Seaport, Alewife and Dorchester — all just a few stops away on the Red Line subway. As the market grows, even the Red Line will no longer be a requirement to be this hot life science development zone.
“There was a time when we would be upset if a corporate entity left Watertown, and we’d wonder what we didn’t do to keep them,” said Steven Magoon, Watertown's director of community development and planning and its assistant town manager. “Understanding our role in the region allowed us to stop doing that.”
Watertown officials noted about six underdeveloped areas in Watertown ripe for redevelopment, including areas where BDG and Alexandria have made acquisitions. Given Watertown’s access to Cambridge and Boston, Magoon said Watertown leaders felt they could pitch their town as a place for life science companies to have room to grow.
Along with developers, life science companies like SQZ Biotech, Kymera Therapeutics, Aileron Therapeutics and Kala Pharmaceuticals have all moved or announced plans to move to Watertown.
“We identified around a half-dozen areas for redevelopment, but weren’t so bold as to suggest all would become life science-dominated,” Magoon said. “In retrospect, many if not most have some life science component in them.”
Along with elbow room for future growth, Watertown is a value compared to Cambridge and downtown Boston. Lab rents in Kendall got as high as $105/SF in Q4 2019, according to Perry data. Class-A lab rent in urban edge submarkets like Watertown was $68/SF while Class-B was $42/SF, according to NKF.
Given the Red Line derailment last June and ongoing traffic congestion across the region, putting labs closer to employees who live in the suburbs could be key to keeping talent, especially as millennials start raising families. That means life science development could expand beyond its historical transit link.
“Companies are finding when they open in a place like Watertown, employees are happy with the shorter commute,” MassBio Vice President of Public Affairs Zach Stanley said. “It’s all about attracting talent. As transportation gets worse, the fight for talent really comes down to that commute.”
But just as companies are fighting for talent, plenty of areas are fighting over which can be the next epicenter of life science activity.
Developers are pursuing life science and innovation projects around UMass Boston in Dorchester. Harvard has selected Tishman Speyer to develop the first phase of its planned Enterprise Research Campus in Allston. Both the Seaport’s eastern edge and the A Street corridor are turning into life science clusters near the Boston waterfront.
It may seem like a life science bubble is forming, but all the 13M SF of lab space built in Massachusetts in the last decade is spoken for, Stanley said.
The life science developments underway are also years, if not decades, away from completion.
“We’re talking about setting a foundation for long-term growth,” Colliers Managing Director Aaron Jodka said. “Life science is the largest share of our employment base it’s ever been. This should be a driver of Boston’s economy for the foreseeable future.”
But to maintain the growth, the region needs to build out far more supply than Kendall Square can hold.
“The demand is there and our role is to make sure life science remains strong,” Stanley said. “Part of that is making sure companies have space that is both adequate and affordable.”