Companies Contorting Themselves To Keep Foothold In Boston Biotech Market Bursting At Seams
For Phil Casey, a clear sign that Boston’s life sciences market is at capacity can be found on the side of State Route 128. The roadway, a corridor that’s seen life sciences development and demand flow southwest out of the packed Cambridge and downtown Boston markets, has seen years of projects break ground due to overflow.
“There’s a go-kart vendor out there who keeps asking about how he can convert his tracks to become a lab building,” said Casey, principal at CBT Architects, which, among other things, has designed many lab buildings along 128. “If the go-kart guy is talking about conversions, you know Boston has hit a peak.”
The dynamics of Boston biotech’s meteoric growth continue to shape the local and national life sciences and related real estate industries. But peak Boston doesn’t just mean new building opportunities and challenges in Massachusetts. It is ushering in new ways for biotech business to organize and disperse, and supercharging development in other regions, including new facilities for growing Boston-based firms.
While many have talked about an eventual Boston outflow, in many cases, what’s happened is that Boston has become so crowded and expensive, that talent and startups from other cities such as New York, who used to flock to Boston, are more likely to stay put and build their own clusters.
“Massachusetts is losing a lot of biomanufacturing opportunities to North Carolina,” JLL Life Sciences Managing Director Bob Coughlin said. “There’s readily available space, and North Carolina has done a great job over the last decade training a workforce to support this industry.”
It all starts with the demand for space in and around Boston, fueled by innovations, Wall Street interest and venture capital funding: 41% of national biotech/biopharma funding goes to Massachusetts, and the record-breaking $4.3B raised statewide in just Q1 of 2021 would make it the third-highest year of funding on record.
Developers continue to look for new conversion opportunities even as 8.5M SF of office space is currently being converted, including compromised and constrained sites. Casey pointed to a BioMed Realty project that needed to include a ground-floor performing arts center to obtain entitlements.
“The demand right now, 7M SF of lab space, is at an all-time high, two to three times what it is during normal times of growth,” Coughlin said. “We’ve gone from the golden age of science to the platinum age.”
And that is driven in large part by the talent.
“It’s the No. 1 resource right now,” Coughlin said. “The CEOs aren’t the only ones making the decisions, the HR people are as well.”
“Companies are surfacing faster than talent” in Boston, said Leslie Loveless, the CEO of Slone Partners, which helps place director and C-suite talent at biotech firms. After a busier-than-normal 2020, where hirings took off in the second half of the year, 2021 has been even more fast-paced, she said.
A number of concurrent trends are pushing Boston-area companies to think differently about the size and location of their real estate holdings. Loveless said that many firms are having to deal with the reality that funding isn’t getting them the space and talent they could afford even two or three years ago. Many firms she works with are feeling pressure to increase compensation and to keep talent from leaving or taking better offers, and for others, it can simply be “cost-prohibitive” to have a lab space in Boston now.
Boston's suburbs aren’t as welcoming as they used to be, either. Coughlin said vacancies there are also very low: Somerville is at 0% vacancy, Watertown is at 0.9%, Lexington is at 2.5% and Waltham is at 2.9%, he said. A Watertown landlord paid an existing tenant $2M to vacate so another company, paying far higher rents, could expand into the property — it wasn't the first time a Boston-area landlord has gladly let a tenant leave early this year, making up the difference in higher rents.
"Record venture capital funding means small startups just have no place to go,” Coughlin said. “You’re six to 12 months from finding any lab space in Boston."
One solution is going virtual. Many young startups resort to running tests and research in virtual computing environments to keep their real estate footprint small, instead spending to hold onto talent based locally. It’s one factor making anybody with computational biology experience very sought after by employers.
“It’s scary for companies from here to think about trying to build elsewhere,” Loveless said. “They worry about getting that talent.”
But that worry about talent tends to only extend to research and development. Increasingly, Boston-based firms, especially larger ones, are bringing biomanufacturing and research under one roof and moving to the burbs, as far out as Worcester or Andover, or opening satellite offices and facilities for biomanufacturing in other markets.
Greater Winston-Salem Inc. President and CEO Mark Owens said investors are more willing to invest in companies that aren’t down the street, and the virtual working environment has made the value proposition for his region much better.
The increased use of hybrid work structures during the pandemic “will reinforce the ability to build their company outside of Boston or the Bay Area,” Casey said. Larger, more mature firms especially can move operations to other cities.
“I think that having a footprint in Boston is important, there’s a cachet that comes with being in Watertown, the Seaport, Lexington. That’s still desired,” he said. “But it’s true, if you build R&D in Boston, you don’t necessarily need to build operations and manufacturing here as well.”
While Boston-area firms, despite the costs and space challenge, are fighting to keep a toe in the city as they grow, firms and startups from other cities are less likely to feel the need to push into the Boston market, due to increased space and most importantly talent in other markets. Investors used to push firms to move to Boston, Coughlin said, but that’s not the reality anymore.
“As opposed to Boston companies coming to New York, New York City companies finally can stay where they want to,” said East Egg Project Management Principal Yasmeen Ahmed Pattie, who offers consulting and strategic planning for firms seeking lab space in New York. “You’re even seeing people who started a few years ago here and moved to Boston come back. Boston just doesn’t have as many immigrants anymore, so to speak.”
She points to a company like Black Diamond Therapeutics, a precision oncology firm with a Cambridge headquarters and new lab space in Manhattan as an example of many of these trends overlapping. The firm’s C-suite is still based in Boston, but they’re investing their $85M pre-Covid funding round in growing in New York City because they found the talent pool suited their needs.
From the outside, Boston may be overpriced and overcrowded to many startups, but as long as the talent resides in the region, companies will increasingly contort themselves, and even spin off satellite offices in the state or elsewhere, to maintain a connection.
“The limit will be set by the growth of the industry,” Coughlin said. “As long as it continues to grow, they’ll continue to sprawl.”