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Greater Boston's Lab Building Boom Isn't Addressing Market's Short-Term Needs

The surging life sciences market in Boston, Cambridge and beyond has fueled multiple nine-figure deals during the coronavirus pandemic as readily available lab assets dwindle and emerging neighborhoods are entering the race for space.

But in an industry that often needs to occupy lab space within 12 months to start developing products or conducting research, finding it will be increasingly challenging without any more development-ready sites, conversions that take years and discount markets rising in price.

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Kendall Square, pictured on the left side of the river, is Greater Boston’s tightest life sciences market.

"We’ve got an extremely tight market across the board, and it’s making it really challenging for the mid-stage tenants that are out there," JLL Managing Director Don Domoretsky said.

The Boston market has fewer than a dozen existing products that a life sciences tenant can step into, Domoretsky said. All of the lab buildings set to open this month are 100% pre-leased, and 70% of projects set to deliver next year are already pre-leased, according to JLL. Nearly a third of the lab space expected to come online in 2022 is already spoken for.

“There’s more demand than there is supply,” said CBRE Vice Chairman Steve Purpura, who leads the brokerage's life sciences team in Boston.

Purpura said many of the existing conversion projects in Boston will take years before they can deliver, bringing little relief to the market next year.

“Even those projects won’t deliver in 2021, it's more of 2022 and beyond,” Purpura said, adding that he expects another 7M SF or so to come to market in the next three years. "It's much needed, frankly.”

That need has increased this year, as many Boston-area companies, led by Moderna Therapeutics' pursuit of a COVID-19 vaccine, have grown in response to the public health crisis. 

"There’s no doubt, the demand side of the equation, for life science space, lab space, increased as a result of COVID," Purpura said. "The market is growing faster than it ever has."

Kendall Square has for years been the tightest lab market in the country, which has led to a surge in development in Boston and surrounding suburbs. But that development hasn't kept pace as life sciences companies grow to respond to the coronavirus pandemic.

Areas once considered a discount to Kendall Square are seeing land values and lab rents rise rapidly. In Watertown, where life sciences developments have gained a foothold, prices have doubled since 2017 to $80 per SF triple-net, Cushman & Wakefield U.S. Research Director Brendan Carroll said.

“In the Seaport, the numbers would be higher,” Carroll said. “Pricing does remain a discount to Cambridge, to Kendall Square, but really the margin is significantly tightening.”

Industry leader Alexandria Real Estate Equities spent $168M for a development site on E Street in South Boston in October, while developer IQHQ shelled out $179M for an expansive West Cambridge portfolio in the past four months. An opportunity zone fund managed by Columbia Property Trust last month paid $48M for a Somerville property where it plans to build lab space.

Labs in Boston have roughly 7.6% vacancy, while 99.7% of labs in East Cambridge are spoken for, according to Colliers’ Q3 2020 lab report.

“The price of admission, so to speak, has increased in recent months and recent years as the property type has grown,” Colliers Managing Director of Research and Client Services Aaron Jodka said.

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Aerial rendering of the Arsenal Yards development project in Watertown.

The lack of new products brought to Boston’s lab market that are available to lease is a challenge, Jodka said, highlighting IQHQ's purchase of the 27-acre Alewife Park for $125M in July as an example of the speed-to-market challenge currently affecting the market.

The 290K SF office and lab space is currently occupied by GCP Applied Technologies, a construction products tech company that is leasing the space back for 18 months rent-free with a six-month extension option while it relocates its headquarters.

“It [will be] almost two years for that repositioning to take place,” Jodka said.

The exceeding demand for limited supply is evident in Lexington, where Economic Development Director Sandhya Iyer said ground-up development hasn’t occurred for several years.

“Most of the office space that we have needs to be renovated and updated for lab use,” Iyer said. “We have a lot of office space that can be converted to life sciences uses. I don’t see it happening before 2022 or 2023 because of rezoning.”

Translate Bio, a Lexington-based messenger RNA therapeutics company, was lured to 200 West St. in Waltham with a 10-year lease by Boston Properties for 138K SF last month.

“It’s a homegrown company for us, but they’re moving out to Waltham,” Iyer said. "More money equals more space."

Lexington is home to 30 life sciences companies, Iyer said, and has attracted three newcomers from Boston, Cambridge and Woburn this year.

“We’re attracting companies from elsewhere during COVID-19,” Iyer said. “The traction is there. … At the same time, it is difficult to keep up with. With the rates these companies are growing, it’s difficult to spin the current share of properties to the demand that these companies have.”

Watertown, home to a major 11-building Athenahealth campus Alexandria purchased last December for $526M and Wilder Cos. and Boylston Properties' Arsenal Yards mixed-use development, currently has 2M SF of lab space in the planning process, city Economic Development Director Steve Magoon said.

“Watertown, the Boston region, doesn’t have an awful lot of the greenfield sites, things that are undeveloped and waiting for someone to use,” Magoon said. “For many years, the vast majority of projects in Watertown were redevelopment.”

Like Lexington, Watertown has capacity to redevelop or repurpose existing buildings into other uses, Magoon said.

In Cambridge, where vacancies year-over-year hovered in the low single digits, repositioning has gotten creative.

In Kendall Square, Boston Properties and utility Eversource have mulled demolishing a parking lot at 290 Binney St. to build an underground electrical substation while Boston Properties would build a 420K SF multi-use tower.

“Every time you think there’s no land left, they come up with innovative ideas,” said Robert Reardon, former Cambridge director of assessment still working with the city on contract work. “When the land is this valuable, it makes a lot of things that would never be considered feasible possible.”