Boston's Ballooning Lab Pipeline Won't All Get Built, Experts Say
As more and more new life sciences developments are announced in and around Boston, experts are starting to question whether the market could possibly keep up with the froth.
The region now has approximately 30M SF of lab space, according to Colliers International, nearly twice as much as it had in 2010, when the market sat at 16M SF, according to Cushman & Wakefield.
This year, the market is set to deliver 4M SF of lab space, a roughly 13% increase in supply. In the coming years, the pipeline sits as high as 18M SF, according to some estimates, which would increase the supply after 2021 by more than 50%.
Developers, brokers and researchers are tackling questions of overbuilding for the first time as Boston’s future will be dominated by labs in the wake of a historically difficult year for offices. Record private and public funding is fueling life sciences demand, but not all planned supply could come to fruition.
“Are we overbuilding? That’s the biggest question in Boston right now,” Colliers Managing Director Frank Petz said Tuesday during Bisnow’s Boston 2021 Forecast Digital Summit. “I’d argue, first of all, not everything gets built."
Petz brokered Marcus Partners’ $25M acquisition of Au Bon Pain’s corporate offices in the Seaport in an anticipated lab play. Tishman Speyer's joint venture with biotech investment firm Bellco Capital is developing 105 West First St., which last year secured a full-building lease from gene-editing company CRISPR Therapeutics, making the 264K SF development fully leased 18 months ahead of its scheduled delivery.
“It feels like the highest and best use for every land site anywhere or any existing asset that may have leasing challenges is conversion to life science,” Tishman Speyer Boston Regional Director Jessica Hughes said on the summit. “While some of those will be successful, I don’t think we think everyone will be. There is the potential for oversupply at some point.”
Petz said much of the planning pipeline is un-entitled, early in the permitting process and even further from groundbreaking. There is 8.1M SF of proposed lab development in the short-term pipeline and 10.3M SF in the long-term, according to Avison Young.
"Proposed buildings do not always follow through, and if they do happen they can be a different square footage than originally planned," Avison Young research analyst Christopher Hart said in a statement. "We do our best to estimate square footage and delivery date, but it is constantly changing."
The 4M SF expected to break ground in 2021 is the most in recent history, according to data from Cushman & Wakefield. Data beginning from the great financial crisis in 2009 shows a steady rise of 1M SF added to the market per year beginning in 2013, but a dramatic rise in activity in 2019, and active construction never fell below 3M SF per quarter since.
The demand has been fueled by record venture capital funding reaching $6.3B in 2020, up from 2018’s $5.8B, according to research by Avison Young. Federal funding rose slightly to $3.6B in 2020 in large part due to National Institutes of Health funding for coronavirus-related research.
The money has created a pool of fast-growing biotechnology companies that will need research and development space as soon as possible. At least 16 local companies are on the market seeking a combined 710K SF of lab space, according to CBRE research. The Boston region currently has less than a dozen existing properties for rising life sciences companies to move into.
“There isn’t time to build a building,” Cushman & Wakefield U.S. Research Director Brendan Carroll said. “They overwhelmingly need something that’s already under construction. They almost always need a spec product, so they need something that is as little time as possible until delivery.”
Developers who want a piece of the life sciences pie have already invested in major conversions across the metro region, including at least four sites in the Seaport. BioMed Realty Trust’s recent acquisition of the former John Hancock Life Insurance Co. headquarters at 601 Congress St. is among the market’s most prominent examples.
The changes have caused headaches for city officials, Boston Planning and Development Agency Director of Planning Lauren Shurtleff said in Tuesday’s event.
"This has been very challenging for us, because lab buildings don't belong everywhere, right?" Shurtleff said. "And we’re trying to take a larger look holistically at, where is this appropriate within the city, but also for those planning initiatives that are underway and not completed, how do we pivot and try and be responsive to the fact that this is where the market is going? We want to be supportive of that."
Allianz U.S. Real Estate CEO Christoph Donner, whose firm last October made a significant loan on a downtown Boston office building, said not every piece of land works for life sciences, even if the demand for that property type is fueling billions worth of investment.
“We do see a lot of life science opportunities; when you dig a little deeper, it’s an ordinary office building with a sign on it,” Donner said Tuesday. “That’s clearly not what we’re looking for. Really finding the right location, the right operator and the connection to tenants is key. There’s a lot of capital chasing it.”
BioMed, the nation’s largest private holder of life sciences assets, and Alexandria Real Estate Equities, the public market behemoth, have made huge recent bets on the market. Alexandria has seen strong leasing activity at its 11-building Watertown campus and paid Samuels & Associates $1.5B to acquire a Fenway portfolio with plans to add hundreds of thousands of square feet of labs, while BioMed, beyond the 601 Congress buy, paid $165M to acquire land previously slated for residential construction and build 100K SF of life sciences space near Assembly Row.
BioMed's parent company, Blackstone, paid Brookfield nearly $3.5B in December for a portfolio of lab buildings, 90% of which are in Cambridge. The combined billions spent by the firms are indicators of confidence in the demand and supply relationship moving forward.
“The fundamentals remain strong throughout COVID,” BioMed Vice President Sal Zinno said in an interview. “It’s hard to question the industry that’s delivered a cure to the pandemic.”