Boston's life sciences market is going through a transformational period as tenants re-evaluate what space they actually need.
The region's once-hot leasing market slowed dramatically in the second quarter, totaling less than one-third of the activity in the first quarter, according to Cushman & Wakefield data. The firm found that new life sciences demand in Greater Boston totaled 305K SF during Q2.
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Cushman & Wakefield Vice Chair Connor Barnes said he thinks the market is stabilizing after unusually high demand earlier in the pandemic.
“I don’t think anyone anticipates it going back to that,” Barnes said. “We do anticipate that the demand will begin to normalize sooner than later.”
Across the board, 14.7% of the lab inventory in Greater Boston is available for lease, with 5M SF vacant, according to C&W. Cambridge's vacancy of 8.5% is below the regional average but still higher than the tight market it had in previous years.
“The bulk of our market here is midstage pharma, which relies on public and private markets for funding,” Barnes said. “The public and private markets have been slow, so there’s less of an IPO window and less VC funding being deployed in companies to help them grow.”
In the first quarter, venture capital funding for Massachusetts-based companies reached its lowest point since 2019 with an average of $1.3B flowing into the state per month, according to Colliers, one-third of its 2021 peak.
With VC funding harder to secure, there has been less activity in the leasing market as tenants have been hesitant to take more space.
Six new lab developments totaling 1.2M SF were delivered in the region in the first half of 2023, according to C&W, and only 37.9% has been leased.
BioMed Realty’s 601 Congress St., also known as the Seaport Science Center, is a 492K SF lab project. As of February, the life sciences developer hadn't been able to pre-lease the building, which is expected to be ready for occupancy at the beginning of 2024, the Boston Business Journal reported.
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Only 35.3% of the nearly 15M SF of under-construction lab space across the Greater Boston market had been pre-leased as of the second quarter, according to C&W.
For Berkeley Investments’ 64 Pleasant St. development in Watertown, its first tenant isn't a life sciences company but a clean tech one that will be able to take on its lab capabilities. The company, Via Separations, signed a lease for 50K SF at the 105K SF property, the BBJ reported.
However, East Cambridge and Kendall Square have performed better than the regional average, with 70.1% of their under-construction projects pre-leased. Barnes said that the dynamics in the submarket are changing, although it remains strong.
“What’s happening now is companies that are looking for space and want to be in Cambridge are considering it along with other submarkets,” Barnes said. “They have the opportunity to be there.”
Anchor Line Partners and Northwood Investors were able to secure two tenants for their 60 First St. development in East Cambridge. The building is 100% leased by Prime Medicine, which took 148K SF, and Korro Bio, which plans to occupy 50K SF, Boston Real Estate Times reported.
Barnes said that time will tell if rents in Cambridge will begin to decrease, but more midsized companies are interested in space in the market now that there is more availability.
“We haven’t really seen enough executed transactions to point to the fact that rents are flat or down,” he said. “It just hasn’t happened yet, but what is happening is that there is availability in East Cambridge for the first time.”
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