The Crown Is Heavy: Why Cambridge And Greater Boston Will Remain The Life Science Leader
Cambridge is the hub of the Boston area’s life science sector, but soaring rents and space constraints are changing how it operates.
The city across the Charles River from Boston is the seat of the biggest life science cluster in the country and became a lab-dominant market for the first time in its history this year. Prices are high and space is at a premium, with lab direct vacancy rates in East Cambridge well under 1%, according to a Newmark Knight Frank Q3 2017 report. There is still unwavering tenant desire to be in the market, but it also presents an opportunity for other life science sub-clusters to emerge where one might not expect.
“There are two viewpoints on Kendall Square. One is the cost isn’t always a high factor in real estate decision-making. A lot of companies have just determined they have to be there,” NB Development Group Managing Director Jim Halliday said. “The alternative is the less amount a company needs to focus on real estate costs allows more money to go to research and development.”
Halliday’s company is responsible for Boston Landing, a 15-acre transit-oriented development in Boston near an area Harvard University is developing into a science and innovation cluster. The development is home to New Balance’s headquarters as well as a practice facility for the Boston Bruins and another for the Boston Celtics under construction. While the complex may have roots in health and wellness, a pair of recent deals has added life science to the mix.
“It’s been the master plan to center around innovation,” Halliday said. “Life science is something new that evolved in the last year and a half.”
Boston Landing signed two 30K SF leases at 80 Guest St. in September for Proteostasis Therapeutics and Swiss drug manufacturer Roche Diagnostics Operations. NB Development retrofitted three floors at 80 Guest to accommodate life science companies.
The development's 40 Guest St. will house the Celtics training facility and also feature two lab-capable floors. Proteostasis is relocating to Boston Landing directly from Kendall Square and the East Cambridge submarket, where rents are entering the $80s/SF and could even hit the $90s in planned developments that have yet to begin construction.
But this does not spell the end for Cambridge. While Halliday said the life science tenants interested in Boston Landing are enticed by the idea of being able to put more money into R&D than real estate, he views his development as an eventual submarket for alternative life science firms, as opposed to being a direct competitor to Kendall Square. Even Harvard has said in the past it does not view its Allston expansion as Kendall competition. Unlike spread out life science clusters in San Francisco and New York, developers say the neighborhood is unique and safely No. 1 because of the unparalleled concentration of tenants within just a few blocks.
“It’s largely the talent pool, and that extends beyond scientists,” King Street Properties principal and founder Thomas Ragno said. “It’s this cadre of life science executives, both CFOs and CEOs, and serial entrepreneurs. There’s such an infrastructure in terms of talent here it’s going to be hard to catch up.”
Ragno’s firm is the largest locally based owner of life science properties in Greater Boston, and he does not see the development momentum slowing down. While the industry nucleus remains firmly in East Cambridge, he said it makes sense for life science development to emanate out along places like the Route 2 corridor, where space is readily available. Researchers have noted cases where companies have a smaller presence in East Cambridge and larger offices in areas like Lexington and the Route 128 corridor.
King Street owns roughly 500K SF of properties in Cambridge but is also strong in the suburbs. The developer is building a 145K SF life science building with 50K SF floor plates at 828 Winter St. in Waltham. The developer’s Hayden Research Campus in Lexington is a nearly 400K SF office and lab development near the junction of Route 2 and Route 128, also seen as a relief valve to space-constrained Cambridge. The 210K SF 65 Hayden Ave. within the campus is being upgraded and renovated to make it even more of a draw for suburban lab tenants. In short, Ragno remains bullish.
“Cambridge is running out of space and there are not a lot of places you can deliver,” he said. “A lot of the biotech workforce lives along Route 2, and that’s the road into Cambridge. Lexington was ahead of its time in establishing favorable zoning, so it seems like that’s the natural place.”
To hear Halliday, Ragno and other life science leaders and developers on their market outlook, please attend Bisnow's Cambridge Life Sciences event Oct. 25 at the Marriott Cambridge in Kendall Square.