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Emerging Sectors Filling Industrial Spaces Previously Eyed As Biomanufacturing

A rise in new technology sectors appears to be the saving grace for biomanufacturing developers trying to fill projects in an increasingly slow life sciences market.

An increase in federal and state funding has helped spur the growth of two emerging sectors that have the potential to provide substantial real estate demand in Greater Boston: clean tech and tough tech. Several real estate executives who spoke at Bisnow's Boston Biotech Summit on Tuesday pointed to these sectors as ones in which the region has the potential to become a leader.

CBRE's Ryan Romano, Via Separations' Shreya Dave, EQT Exeter's Erin Harvey, Lincoln Property Co.'s Chris Wessen and Columbia Construction's Bill Olson.

Tough tech encompasses a wide range of technologies used to solve issues in human health, climate change and advanced systems and infrastructure, according to Massachusetts Institute of Technology-founded venture capital firm The Engine. Clean tech includes renewable energy, electric vehicles, battery storage and alternative fuels, according to Greenly.

These sectors are only predicted to grow in the upcoming year, with a multibillion-dollar project proposed to support the industry close to Boston as well as other pockets of development in the works that could host companies looking to grow.

"Thankfully, the buildings that we made decisions on, moved forward with and are building out today — although we imagined that being for life science and GMP — we have the ability to accommodate a number of different types of users," EQT Exeter Investment and Leasing Officer Erin Harvey said at the event, held at Jumbo Capital's 3 Van de Graaff Drive in Burlington.

"If you have high clearance height, high power and everything that we were looking at in terms of life science, it actually checks the box for clean tech, ag-tech and different types of technologies," Harvey added. 

Life sciences vacancy in the Boston area reached 11.7% last quarter, the highest level in more than a decade, according to Colliers' latest report, with much of that vacancy concentrated in new development. Tenants have also put millions of square feet on the sublease market, as biotech venture capital funding has dropped sharply, sitting at roughly a third of its 2021 peak, Colliers found. 

Jordan Berns, partner at Jumbo Capital, told Bisnow in an interview that the company has begun to see a wider range of tech tenants looking for industrial spaces that can accommodate the power they need for their work. These spaces are often similar to the type of manufacturing facilities built for biotech companies.

"[They're] just a great attribute to our building with life science tenants," Berns said. "They do fit well: tough tech, green tech and life science. They kind of work harmoniously because they all need clear heights, they need the power, they need the loading."

Griffith Properties' Marci Griffith Loeber, King Street Properties' Andrew Castraberti, Jumbo Capital's Nicholas Trocki, Neoscape's Rodrigo Lopez, ARCO National Construction's Parker Snyder and Camber Development's David Wilkinson.

Along with the 108K SF of leases signed by two life sciences tenants in its GenLabs property in Burlington, Jumbo secured 20K SF with Finnish climate tech company Vaisala. 

In March, clean tech company Via Separations leased half of Berkeley Investments' 64 Pleasant St. development, a project the company had worked on to initially attract lab tenants, the Boston Business Journal reported.

"We moved to Greentown Labs and spent a couple years there," Via Separations CEO Shreya Dave said at the Bisnow event. "We were only paying for what we needed, and that was huge, but then you start to price yourself out."

Greentown Labs is an incubator space specifically for climate tech companies. Just like for life sciences startups, newer tough tech and clean tech companies that don't have enough capital to operate their own spaces will flock to incubators like Greentown's until they are ready to grow in larger campuses.

One such campus is King Street Properties' 45-acre Pathway Devens, sitting almost 40 miles outside of Boston. The property is still marketed as a biomanufacturing campus but has signed just one biotech-related lease on the site, with more coming from other sectors. 

In the last year, King Street has landed two major leases with clean tech tenants: Electric Hydrogen, which signed a 187K SF lease at 33 Jackson Road, and EV battery company Ascend Elements, which signed a 101K SF lease at 39 Jackson Road.

King Street Properties senior associate Andrew Castraberti said the company has seen a slowdown in biomanufacturing activity, but these clean tech tenants have helped fill that void.

"When Pathway was conceived, it was conceived as a biomanufacturing platform rollout," Castraberti said. "As time went on, there was a slowdown in biomanufacturing demand. But as I previously said, that significant emergence of clean tech and tough tech, what we found is that those types of tenants see the same value in those building characteristics as a traditional biomanufacturing tenant would."

Related Beal's Erin Orpik, Syska Hennessy Group's Andrew Krenning, SZBEP's Gene Hartigan, Cushman & Wakefield's Connor Barnes and Visionbridge Life Sciences' Tim Stoll.

These emerging sectors have seen massive support both federally and at the state level.

Earlier this week, Gov. Maura Healey's draft economic development package pointed to climate technology and robotics as some of the major economic opportunities in the state, the Associated Press reported. She wrote that she wants Massachusetts to become "the world’s leading climatetech ecosystem."

"[There's] a lot of investment happening at the seed, A and early B stage, venture-backed companies in clean tech, that historically has not seen that investment," Via Separations' Dave said. "This is a big turnaround from early 2020 to now."

The Biden-Harris administration has made a national effort to reinvigorate domestic manufacturing through the CHIPS and Science Act of 2022. The first round of funding rolled out in February, providing $39B in loans or grants for the expansion of existing chip factories and the construction of new ones.

Griffith Properties principal Marci Griffith Loeber said that investments have helped advanced manufacturing companies grow and expand with these projects.

"It's certainly helping demand in the Massachusetts area for companies trying to take advantage of the CHIPS Act," Griffith Loeber said.

The emergence of the tough tech and clean tech sectors has led some developers to jump on the opportunity with new construction. In October, Rafi Properties proposed a $3.3B redevelopment of its Somernova business park, which includes Greentown Labs, to attract more startups specifically in these sectors.

Vicinity Energy's Rick Smith, Integrated Builders' Jay Dacey, HGA's Abigail Hammett, CBRE's Cerise Marcela and The Lightstone Group's Chris Maciejczak.

In September 2022, The Engine more than tripled its tough tech incubator space in Cambridge with the opening of its 155K SF headquarters at 750 Main St.

However, while certain life sciences companies have proven their technologies and received federal approval for the drugs they manufacture, the same can’t be said for many tough tech and clean tech companies. Griffith Loeber said these early stage companies are relying on their funding rather than revenues, creating risk for landlords.

"For these advanced manufacturing tenants, that technology is untested," Griffith Loeber said. "They're using the [Inflation Reduction Act] and the CHIPS Act to actually try to fund it with untested technology. That gets even trickier to figure out how much TI you put in versus rent, etc., and how much you're going to risk because you've already risked a lot of capital on the base building."

This has led some landlords to structure leases differently to accommodate tenants. 

"It's a really infantile asset type, and we just need to be very careful," EQT Exeter's Harvey said. "There are challenges to that, so understanding those challenges and learning what we learned from life sciences tenants in an incubator phase, hopefully being able to support these users."