Leaders In The World’s Largest Life Sciences Cluster Look To Cement Status
If Boston and Cambridge are expected to continue their leading position as the world’s largest cluster for life sciences, future growth will almost certainly have to include submarkets beyond the region’s two established scientific hubs.
The life sciences industry continues to thrive in Massachusetts. Twenty-two of the 25 largest biopharmaceutical companies have a presence in Greater Boston. Life sciences companies in the region received 25% of all venture capital investments in the sector in 2018, according to JLL.
The nearly 6M SF of labs built in Greater Boston in the last decade brought the Cambridge and Boston total to 20M SF — the highest concentration in the country — and an additional 2.8M SF is under construction, according to Cushman & Wakefield data.
But analysts argue the world’s top life sciences hub also has its weaknesses: Developers can’t keep up with demand for lab space, with vacancy rates hovering at 0% in East Cambridge, according to JLL’s 2019 market report. Lab rents in Kendall Square have soared to as high as $135/SF.
Emerging clusters with a similar level of premier hospitals and universities and lower costs, like Philadelphia and New York City, have looked to tap into the industry, but Massachusetts leaders say a regional approach can keep the life sciences crown firmly on the Bay State.
“We know Cambridge will continue to be the center of [the] universe for R&D and biomedicine, but not every life science company needs to be here because we have this high price-per-SF,” City of Cambridge Director of Economic Development Lisa Hemmerle said. “It is still possible to tap into the region’s great life sciences ecosystem from Somerville or Braintree.”
Cambridge isn't completely maxed out for space, Hemmerle said. Millions of square feet of office and lab development are underway at projects in East and West Cambridge as well as DivcoWest’s Cambridge Crossing, which straddles Cambridge, Somerville and Boston. But she also recognizes not every life sciences company will be able to fit in the city of just over 7 square miles, and actively promotes a regional initiative to recruit and maintain life sciences companies along the MBTA Red Line.
Cambridge leaders launched the Life Sciences Corridor in 2014 with counterparts in Boston, Somerville, Quincy and Braintree, all cities located along the 23-mile subway line.
Vertex Pharmaceuticals announced a move from Cambridge to Boston’s Fan Pier in 2011 and Partners HealthCare decided in 2013 to leave Boston for Somerville, two deals that spurred civic discontent in the past. But the Life Sciences Corridor is a sign municipalities in the region are willing to work closer together at a time when other markets are looking to replicate Greater Boston’s life sciences ecosystem.
“There wasn’t this level of heightened competition that leads to nowhere,” she added. “Instead, there was this open dialogue saying we just want them to stay in Massachusetts.”
The company settled on a building at Cambridge Crossing. The team effort to keep the company in Greater Boston is a lesson for the future, especially as cities like Seattle and Montreal look to tap into an industry where R&D spending is expected to increase to $34B by 2024, according to JLL.
“We’re not necessarily just competing with other states anymore,” MassBio Vice President of Programs and Global Affairs Elizabeth Steele said. “Now, we have to worry about other countries.”
Maintaining The Life Sciences Perch
Massachusetts life sciences employment has grown 35% in the last decade, according to MassBio’s 2019 industry snapshot. Leaders continue to show they want to make sure the growth doesn’t slow down. Former Gov. Deval Patrick signed a $1B, 10-year funding initiative in 2008. Gov. Charlie Baker greenlighted an additional $500M, five-year plan in 2018.
There are still life sciences sectors only just beginning to take off, like agricultural biotech, with companies like Charlestown-based IndigoAg, and digital health. There are also the companies that have yet to arrive. While all 10 of the world’s largest life sciences companies have a presence in Greater Boston, leading international firms like Japan’s Daiichi Sankyo, China’s Sino Bio, Germany’s Stada and Italian firm Menarini don't have local offices — yet.
“There are still companies that aren’t here yet that are coming out of left field to buy in,” Hunneman Director of Research Tucker White said. “That’s going to continue to happen. We’re only just beginning to scratch the surface.”
Pharmaceutical companies are also expected to move manufacturing closer to their Massachusetts research and development hubs. Cambridge-based Moderna Therapeutics opened a $110M, 200K SF manufacturing plant in Norwood in 2018. Takeda gained a Lexington manufacturing plant through its early 2019 acquisition of Shire.
This coincides with the industry beginning to undertake precision medicine, a model that tailors medical and pharmaceutical treatment to the individual patient and requires manufacturing to be closer to R&D — as well as the patients themselves.
“The issue is: Where is the next go-to place?” Cushman & Wakefield Executive Vice Chair Robert Richards said. “I think there are a whole lot of communities trying to position themselves to be this.”
Given space limitations closer to the urban core and different job requirements in manufacturing than in R&D, this could be what pushes the life sciences industry beyond the current hot zones of Cambridge, Boston and Watertown — pricey areas seen as necessary submarkets to locate in order to attract coveted talent.
“These manufacturing jobs aren’t all being staffed by Ph.D.’s outside MIT,” Richards said. “These are high school grads, four-year grads and more. You can offset some of the urban loss of traditional manufacturing with what is coming down the pipeline.”
Accepting A Pricey Reality
JLL’s annual life sciences report continues to caution the lack of space and high rents, many north of $100 per SF, remain headwinds for the region. The local real estate community doesn’t share the same concern.
“Labs in Cambridge are equal to high-rise office space in Tokyo for a tech company. You can’t go to Tokyo and get a $30/SF deal, and I think that’s how many people see it here,” Richards said. “It’s pricey to be located in a premier submarket in the world.”
Of all industries, life sciences may be the least likely to be concerned with real estate value, according to life sciences accelerator SmartLabs CEO Amrit Chaudhuri. While a company could likely get significant cost savings by working in a lab in Raleigh/Durham, North Carolina, or Houston, a drug trial’s success can hinge on having the best talent working on the product’s development.
“The science happening is almost binary: You have a drug you’re pursuing, so either you have the best people working on it and it works, or you don’t have them and it doesn’t,” Chaudhuri said. “If it doesn’t, you just spent hundreds of millions of dollars on nothing.”
Greater Boston still has room to accommodate future life sciences growth with nearly double its current supply. There is the potential for an additional 19M SF of labs, including future office conversions, in the long-term development pipeline, according to Cushman & Wakefield.
But Chaudhuri doesn’t think the new supply is going to lead to a wave of fledgling startups taking up room in glassy new buildings in Kendall Square. The rules of real estate still apply, and landlords will always go after creditworthy tenants in need of big blocks of space.
“The landlords developing those types of spaces aren’t looking to fill their buildings up with 100 startups,” Chaudhuri said. “If they’re building a brand-new, sparkling building, it’s going to be for a demographic that gives them the highest and best return.”
The startups will likely have better luck in areas like West Cambridge, Somerville, Worcester — or in an accelerator space like SmartLabs, Chaudhuri said. The state subsidizes work in accelerators through its Massachusetts Life Sciences Center program, which has awarded $700M in incentives since its creation in 2007.
“This entire ‘where is everyone going to go?’ question is happening but, if you pay close attention, there is a ton more happening,” Chaudhuri said. “I don’t think there’s going to be a crunch for space.”