Kendall Squeeze: How Developers Can Handle The Wave Of Boston's New Life Science Companies
Kendall Square is known for its space constraints almost as much as it is for being the seat of the largest life science cluster in the U.S. More space is desperately needed if it wants to retain the billions of dollars in startup funds currently swirling around the Greater Boston region.
“In 2015, if you look at the top six VCs in the Boston area, there was $2.9B in venture money raised,” King Street Properties founder Thomas Ragno said at Bisnow’s Cambridge Life Sciences event Wednesday. “I’m going to say two-thirds to three-quarters of that ends up in the Boston area.”
The $2.9B converts to 50 or 60 companies over the next three to four years, Ragno said, and space needs only increase with more fundraising. Wave Life Sciences, a growing King Street Properties tenant, went from an initial 3K SF to 130K SF in lab and office space.
“And that’s in the space of two years,” Ragno said.
At a time when Kendall Square has a less than 1% direct vacancy rate for lab space, growing companies theoretically need to accept limitations and recognize the odds of space in the life science hub are extremely slim. Greater Boston has famously lost tech companies like Facebook to Silicon Valley after they mature. With Kendall Square tapped out in the near term until more supply comes online, a space solution needs to happen to prevent a similar corporate sieve with the life science sector.
“We are in a very, very tight market and Kendall is too expensive,” Mass Innovation Labs CEO and co-founder Amrit Chaudhuri said.
Some have begun to look to a future outside Kendall where Greater Boston’s life science core becomes like the Bay Area’s model with two smaller clusters. In the case of the San Francisco Bay Area, the life science industry outside of Silicon Valley is split between San Francisco's Mission Bay and South San Francisco.
Many have seen Greater Boston, Cambridge particularly, ascend to its spot as the leading life science cluster in the country and largest recipient of National Institutes of Health funding because it is so dense and centered on one neighborhood. But soaring costs have life science companies exploring and moving into areas like Boston Landing and waiting to see what materializes with Harvard’s nearby development in Allston. Others see development along the MBTA Red Line in places like Alewife and nearby communities along Route 2, as they still provide direct access into Kendall as well as Harvard and MIT.
“We love the Red Line,” The Davis Cos. Development Group President Brian Fallon said. “We love the brain train.”
Fallon’s company began work earlier this year on The Alewife Research Center, a 223K SF transit-oriented spec lab building at 35 Cambridgepark Drive by Alewife Station. Building on spec is not for the faint-hearted, Fallon said, as it is a significant investment, but he sees low vacancy rates in the Cambridge market coupled with a strong employment base and quick time to market (the building will complete in summer 2018) validating his optimism.
Despite his company’s significant investment in the Seaport neighborhood with projects like the $550M Omni Hotel going up by the Boston Convention & Exhibition Center, Fallon is not as certain on its viability as a life science hub in Greater Boston.
“As a preface, we’re very long on the Seaport — about $700M long — but I’m not yet convinced it’s going to prove to be a great [life science] location,” he said. “We’ll see.”
Others are like Fallon and see Cambridge and Kendall Square as too important to neglect for future growth. Upcoming projects like DivcoWest’s 2.1M SF Cambridge Crossing and MIT’s Volpe Center redevelopment are seen as long-term space solutions for the East Cambridge submarket. Real estate costs are not as significant a factor this cycle as they were previously. Life science company business decisions are instead centered around talent.
Greater Boston should equally be focused on growing its STEM graduate “seeds” into companies that can take advantage of the region’s infrastructure of venture capital funding and biotech and technology nodes, DivcoWest Real Estate Investments Managing Director Mark Roopenian said.
A 2013 Northeastern University study said Greater Boston retained 50% of its college graduates on average, with commuter colleges like UMass Boston and Suffolk University having higher rates (76% each) and more prestigious universities like Harvard and MIT seeing lower retention (28% and 27%, respectively). Factors like housing costs are more difficult fixes than others, but that has not stopped leaders from pushing for incentive packages like job programs from the state and tuition subsidies from future employers.
“Part of our job is to make the ground a lot more fertile so that those students who are absolutely the best of the best stay and grow in Boston,” Roopenian said.