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Density Concerns Have Lab Tenants Looking Beyond Kendall Square

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Kendall Square (left side of the river) is Greater Boston’s tightest life sciences market.

For years, the biggest names in life sciences, pharmaceuticals and robotics have crowded into Cambridge’s Kendall Square, vying for talent and paying handsomely for laboratory space in the heart of a world-renowned research hub barely a quarter of a square mile in area.

But in the age of a pandemic, the density that has always been part of Kendall’s appeal is now looking more like a liability. 

With businesses still shut down throughout Cambridge’s central business district, and the Centers for Disease Control and Prevention urging people not to use public transit, tenants have been broadening their search for lab space to other Boston neighborhoods and the surrounding suburbs.

“The main hurdle of moving to Kendall has always been price,” said Robert Elmer, a managing principal at Lee & Associates Boston, which represents lab tenants in biotechnology, robotics, manufacturing, electronics and software. “Now there’s another consideration, which is the density of that market and the difficulty of the new normal.”

Laboratory space has been far more insulated from the pandemic than many other real estate asset classes. After all, teams developing therapies and vaccines for the coronavirus still need a place to do their research. 

But some research teams whose work is not essential for combating the pandemic have been working from home. And even research-heavy companies still employ large office workforces who don’t necessarily need to be on-site. Similar to office tenants, companies that lease lab space have been having conversations about how much space they really need to lease, whether they need all their employees together at all times and where they can house their teams for next year and into the future.

Eric Solem, another managing principal at Lee & Associates, said that he has not seen any drop in overall demand for lab space and pricing for lab space has held steady. But in terms of new leasing, being farther out from the city core is now an advantage. 

“Leases have been delayed but are moving forward in the suburbs, whereas in Boston and Cambridge, it's been a mixed bag,” Solem said. “People are hesitant right now due to concerns about density and public transportation.

Less costly markets like South Boston and the Seaport have started becoming more attractive to potential users. The same may be true of less dense lab campuses in Somerville, Watertown, West Cambridge, and suburban campuses in towns like Burlington, Lexington, Waltham, Newton, Needham and as far out as Framingham.

Solem pointed to Phase 3 Real Estate Partners, a San-Diego based developer that has taken a progressive approach to build and deliver flexible life sciences laboratory space. The company, Solem said, is betting on demand for lab space just outside Boston, and is launching its concept at two recently acquired buildings, one in Waltham and the other in Billerica.

Companies that are considering moving out to the Boston suburbs are usually price- and commute-sensitive, but now find it more appealing to enable employees to drive to work rather than take crowded public transportation.

Lee & Associates Managing Principal Ty Janney said that it would be very hard for Kendall Square to lose its appeal in the long term, but the near-term challenges of employee access to public transportation and daily services could prompt some life sciences firms to evaluate suburban alternatives.

“You’re in the hottest biotech cluster in the world, but your employees can’t go out and buy a sandwich,” Janney said. “Employees join these companies with high expectations about what their day-to-day lives will look like, and it’s going to be harder to deliver on those for the foreseeable future.” 

With its proximity to so much of the city's medical infrastructure and MIT, Kendall should remain Boston's preeminent biotech cluster, even if other submarkets start seeing the bulk of lab leasing. 

“With one of the lowest vacancy rates in the country, East Cambridge is clearly attractive for many reasons, but the current situation reminds me of that Yogi Berra quote,” Elmer said. “'Nobody goes there anymore. It's too crowded.'”

While leasing has become a more painstaking process for most businesses, Solem said, there has been an exception: Software companies are still confidently committing to offices in Boston. Though many of their employees are working from home for the moment, having a headquarters that exudes a strong professional brand remains an important recruiting tool for these companies.

Other patterns have been hard to identify. Leasing has been sporadic, and even companies with similar business models are taking widely different approaches. 

“It’s too early to tell what the larger impacts will be,” Solem said. “There are so many factors at play, and the same risks have different implications for different users. There’s not a clear-cut path forward for anyone right now.”

This feature was produced in collaboration between the Bisnow Branded Content Studio and Lee & Associates. Bisnow news staff was not involved in the production of this content.