By Greg Ryan
Five years ago, nearly half of the region’s lab space was in Cambridge, according to CBRE research. Today, about a third is.
But a life sciences facility is not a “Field of Dreams.” Just because developers built labs in new places does not mean the biotechs will come — at least in this real estate market.
There is now 35 million square feet of lab space in the region outside of Cambridge, compared with the 15 million square feet that existed in 2019, according to CBRE. Boston neighborhoods like Fenway and Allston have seen significant development, as have Somerville, Watertown and farther-out suburbs such as Lexington and Weston.
Demand has fallen dramatically since many of the new projects in those places broke ground, however, as fundraising for biotech startups has dropped off and companies are clinging to cash. Vacancy rates in Boston and the suburbs are roughly double what they are in East Cambridge, CBRE data show. While every submarket is feeling pain, some are feeling it more than others. Even the Seaport District, which has established itself as the region’s largest cluster of lab space outside Kendall Square, has brand-new projects by top developers sitting empty.
Watertown is one place seeing relative success. Developers like Alexandria Real Estate Equities Inc., The Wilder Cos. and Boylston Properties have redeveloped older properties into state-of-the-art lab buildings and the sorts of restaurants and retail shops that bosses want for their employees. In a muted market, Watertown has seen some of the most leasing activity as of late outside Cambridge.
Kymera Therapeutics recently leased about 100,000 square feet at Alexandria’s Arsenal on the Charles campus, nearly tripling the footprint of its previous location at Arsenal Yards. Kymera Chief Financial Officer Bruce Jacobs said Watertown’s amenities and its proximity to Cambridge drew the company there, as did the opportunity to be a pioneer in an emerging life sciences cluster.
“I have no doubt this is going to be one of the premier ZIP codes for the biotech industry,” Jacobs said.
The Route 128 West lab submarket that includes Watertown has an availability rate of 32.6%, according to CBRE. While that’s high, it’s significantly lower than some of the other areas that have recently seen lots of lab development.
“Watertown has established itself as a bona fide life sciences hub that checks basically all the boxes,” said Bob Richards, the JLL executive managing director who represents tenants in transactions. “I see that market continuing to benefit and to grow.”
Some other suburbs have met with limited success lately in drawing in new life sciences tenants. Moderna Inc. and Novo Nordisk recently signed leases of about 26,000 square feet in Waltham and Lexington, respectively, according to CBRE research.
In Somerville and other cities and towns just north of Cambridge, a whopping 70.6% of lab space is available for rent, CBRE found.
Somerville’s predicament is largely one of timing. The city’s first large lab building, Boynton Yards’ 101 South St., opened in 2021 fully leased. But since interest rates spiked and demand dropped beginning in mid-2022, several similarly sized lab complexes in Union Square and Assembly Square have hit the market — or are about to hit the market — without a single tenant in place.
For a company on the lookout for space, there’s a lot to like about a situation like Somerville’s. Biotechs have the opportunity to get into new ground-up development at a time when landlords are desperate to start filling their buildings, giving the companies leverage over pricing and the length of their lease. Asking rents are falling in Cambridge, Boston and the suburbs.
The attributes that made developers build in Somerville are still there, said Jeffrey Myers, research director at Colliers, including its proximity to Cambridge and public-transit access via the new Green Line Extension. The same is true of Boston neighborhoods where more labs are starting to pop up, including Fenway, Charlestown and Allston-Brighton.
But there are risks to being first as well. There’s no guarantee that others will follow you anytime soon, given the overall lack of demand. Such companies would miss out on the cluster effect that life sciences firms like, at least in the short-term.
“There’s this sense of vibrancy that comes from being part of a cluster,” Jacobs said. “You feel you’re part of an ecosystem where there’s innovation, there’s excitement, there’s growth happening.”
With so much choice about where to go, life sciences companies will need to weigh which considerations matter most for the workforce they have, as well as the one they want, according to experts.
“It always comes back to one factor: the ability to attract and retain the best people for your organization,” Richards said.