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With No End in Sight for Boston's Soaring Lab Rents, More Biotechs Opt for the Burbs

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Life sciences companies looking to relocate to or expand within Boston and Cambridge, Mass., can expect to see rents continue to rise and the supply of available space dwindle over the next several months — a trend that is causing an increasing number of biotech firms to relocate to the region’s suburbs, a consensus of real estate and economic development professionals agreed in interviews.
 
“Asking” rents sought by property owners in Boston-Cambridge have spiked over the past year from about $40 to as high as $70-plus per square foot, “triple net” — meaning tenants rather than landlords must pay operating costs and taxes. Add tenant improvements and the cost rises to $120 to $160 per square foot.
 
And the availability of space for sale or lease has shrunk during that time as early-stage companies and pharmaceutical giants snap up available lab and office sites. That is reflected in vacancy rates that are in the 10 percent range or below for space in Cambridge and Boston, according to three commercial real estate brokerages contacted by BioRegion News.
 
“There are not a lot of other large spaces available today. And if you want to be in Cambridge and you want a building built, it’s the cost of new construction that’s driving these prices up, as well as lack of premium sites,” said Daniel Cordeau, senior vice president of life sciences with Jones Lang LaSalle.
 
“It used to be if you were a big tenant with good credit, you could drive a better deal than these little guys. I think there’s such a premium on large spaces that those spaces seem to be driving up the market more than the smaller spaces.”
 
Only a handful of large sites – those above 50,000 square feet — exist in the Boston-Cambridge area today, owned mostly by the nation’s top two publicly owned lab space developers, both of which have stormed into the market over the past year.
 
During 2006, Pasadena, Calif.-based Alexandria Real Estate Equities paid $225 million, including financing costs, to acquire the 10-acre, seven-building, 1.2 million-square-foot Technology Square campus from Massachusetts Institute of Technology; $95 million to buy the 7-acre, 184,577-square-foot Life Science Square in Cambridge from the Beal Companies; and $72.7 million for the 128,000-square-foot 300 Third St. in Cambridge, also from Beal.
 
And in April, BioMed Realty Trust of San Diego teamed up with Prudential Real Estate Investors to spend $507 million for two Cambridge sites that it acquired from Lyme Timber — the recently completed 185,000-square-foot 320 Bent St., fully leased to Schering-Plough and Microbia; the 420,000-square-foot 301 Binney St., now under construction. BioMed also owns parcels with rights to build a total 266,000 square feet of life science laboratory and office space at 650 East Kendall St. near Kendall Square, also in Cambridge.
 
In a separate deal last year, BioMed spent $473 million to buy from Lyme the 702,940-square-foot Center for Life Science | Boston, and plans to spend at least $200 million more to complete the project, now 80 percent pre-leased, later this year. Spaces from 19,378 square feet to 126,819 square feet are available through leasing agent Cushman & Wakefield at an asking rent of $60 per square foot.
 
“They’re holding the line very high on rent, and why wouldn’t you? They’re not ready to deliver the building yet. I think they’re going to try to drive rents up because they paid a great deal of money for the project,” Cordeau said.
 
The high cost of acquiring properties, plus high construction costs, will keep rents sky-high, he and other professionals said.
 
Greg Larsen, senior vice president with NAI Hunneman Commercial and director of its quarterly Life Sciences Report, said the rent spike has prompted many tenants to shop for sites well beyond Cambridge and Boston.
 
“A typical search is to compare Cambridge prices and inventory to near suburbs like the first beltway, which is Route 128 — it could be North, South, or West. . . and then [Interstate] 495, and that tends to be more manufacturing and high-level research requirements,” Larsen said.
 
[For additional insights by Larsen on the life sciences market in Boston and Cambridge, see BioRegion News, May 21, 2007]
 
Property Owners See Opportunities in the Suburbs
 
The shrinking number of landlords in Boston and Cambridge, and the spike in rents, have pushed a growing number of companies into suburban sites — and with them, a small but growing number of developers.
 
Last fall, Boston-based King Street Properties shelled out $30.3 million to acquire from Neelon Properties the seven-building, 200,000-square-foot Bear Hill Road portfolio in Waltham, Mass., consisting of class A and class B buildings dating back to the 1960s and ‘70s.
 
Thomas Ragno, president of King Street Properties, told BioRegion News his firm will begin building an 8,000-square-foot lab suite at Bear Hill Road over the next several weeks — part of a total 80,000 square feet of lab space planned in three buildings, at asking rents of $35 to $40 per square foot, triple net. The construction follows King Street attracting an as-yet-unsigned anchor office tenant for the 60,000-square-foot office building at 60 Hickory St., which has been gutted down to its steel structure for rehabilitation.
 
Unlike the office project, he said, the lab work will proceed on a speculative or “spec” basis without a tenant in place or close to signing — but with interest from “about 10” prospective tenants.
 
“What we’re finding with laboratory tenants is that the speed is important. If you don’t have the space ready, they’ll tend to go to other places even if the space is inferior or the price is more. They’ll go to spaces that are ready and built,” Ragno said.
 
Ragno, a senior VP with Beacon Capital Partners in Boston before launching King Street in 2002, said lower costs plus the concentration of biotech space ownership have prompted his firm to acquire additional properties outside Boston and Cambridge.
 
“Cambridge and Boston are always going to be prime places to be, and the rents will reflect that. We think the opportunity in the future is more suburban,” Ragno said.
 
One reason why companies are looking to the suburbs is demographics — the graying of biotech’s first generation of industry leaders.
 
“A lot of these people who graduated in the very first classes that focused on biotechnology back in the 1980s, they’re aging and a lot of them have more suburban lifestyles than urban lifestyles. The location is becoming something that appeals to some biotechnology workers,” said Brendan Carroll, director of research for Richards Barry Joyce & Partners.
 
Another is the tightening Boston-Cambridge market. RBJ’s latest BioSTATus report issued May 7 showed a drop to 11.3 percent in the vacancy rate for lab space in greater Boston during the six months ending March 31, from 11.9 percent in the six months ending Sept. 30, 2006.
 
Cambridge vacancy rates plunged almost 5 full percentage points during the period, from 14.5 percent to 9.6 percent. BioSTATus reported, driven by the leasing of 754,000 square feet in East Cambridge alone during the past year; only 194,000 square feet remains vacant.
 
NAI Hunneman reported a 10.6 percent vacancy rate for lab space in Cambridge, down 2.6 points from a year earlier. The firm’s Boston number was much lower at 3.2 percent, down 3 full points from first-quarter 2006; NAI Hunneman says it only counts space when completed.
 
There’s more agreement, however, on the downward trend in vacancy rates and the reasons why.
 
“It has been large multinational biopharmaceutical organizations that need to hire a large number of people very quickly. There are only a few markets that have that number of people that are trained in biotechnology research, and greater Boston is one of those markets,” Carroll said.
 
Among recent suburban deals:
  • Anika Therapeutics signed a lease for the entire 134,000 square-foot 32 Wiggins Ave., an R&D building in Bedford, Mass. 
  • AstraZeneca broke ground May 7 on a $100 million, 132,000-square-foot expansion of its R&D facility in Waltham. When completed the facility will be 384,000 square feet.
  • Bristol-Myers Squibb broke ground May 2 on a $750 million, 400,000-square-foot new biologics manufacturing facility in Devens, Mass. The plant could be expanded into a $1.1 billion, 750,000-square-foot plant.
  • Syntonix, a Biogen Idec subsidiary, took 25,000 square feet at 9 Fourth Ave. in Waltham.
  • British-owned Shire Pharmaceuticals Group agreed to lease 52,000 square feet at 125 Spring St., the former NitroMed space within Lexington [Mass.] Technology Park, and local news reports have the company in talks to site a manufacturing center there of up to 400,000 square feet.  

“Cambridge and Boston are always going to be prime places to be, and the rents will reflect that. We think the opportunity in the future is more suburban.”

In addition, talk in real estate circles and published reports also has Novartis seeking between 100,000 and a half-million square feet of space in Cambridge. The pharma is already the city’s largest pharma tenant, occupying some 700,000 square feet of space.

 
 “Our expectation is that as the supply continues to tighten in Cambridge and the prices continue to escalate there, that more firms will explore suburban options,” said John R. Wiseman, vice president of leasing with Cummings Properties in Woburn.
 
Cummings owns and manages a 70-building portfolio of 8 million square feet of primarily commercial space in 10 Boston suburbs, with a total of 1,800 tenant firms.
 
Biotechs and pharma giants pursued suburban sites between 2001 and 2006 as rents have rebounded following the ‘01 recession, said Peter Abair, director of economic development for the Massachusetts Biotechnology Council.
 
According to figures compiled by Mass Bio with the state Division of Career Assistance, four Boston-Cambridge suburbs more than doubled their number of biotech employees between 2001 and 2006. Top gainer Burlington saw employment rise from 81 to 349, or 330 percent, followed by Hopkinton (202 percent, from 82 to 246 jobs), Woburn (186 percent, from 411 to 1,174 jobs), and Watertown (101 percent, 185 to 371 jobs).
 
Between 2001 and 2006, the number of biotech employers in Burlington rose from five to six; in Hopkinton, from three to nine; in Woburn, from 21 to 27; and in Watertown, from six to nine.
 
“All in all, there is a need for even more biotech office and lab space in Cambridge, but we see more and more activity in the suburbs, where there has generally been greater space availability at less cost. That market is also starting to tighten,” Abair said. “We do see more conversion of office space and light manufacturing space to laboratory and clean room settings in these areas by developers.”
 
The suburban surge in activity, Abair said, hasn’t increased the supply of sites in Cambridge because more than enough new venture capital-rich startups, university spin-offs, and joint ventures have emerged to fill the space vacated by suburban-bound companies.
 
Biotech council statistics showed net employment increases between 2001 and 2006 of 13.7 percent, or 615 additional biotech jobs, in Cambridge, and 9.5 percent, or 264 jobs, in Boston. The Boston increase was more striking since it came despite a dip in the number of biotech establishments over that time period from 61 to 52; the Cambridge number rose from 61 to 66 establishments.
 
“There are people just willing to pay, I guess, for the cache of having the Cambridge address,” Abair said.

 

 

New Website Promotes State’s Bio Spaces

A statewide public-private economic development group has launched a new free website it hopes will help generate more activity by biotechnology and pharmaceutical companies in Massachusetts, by detailing the state’s available lab, manufacturing, and office sites.

 

The Massachusetts Alliance for Economic Development earlier this month teamed up with the state Department of Business Development and Massachusetts Biotechnology Council to launch the BioSites page of its website.  

 

As of May 29, the site tallied just four biotech sites in Boston, 10 in Cambridge and 56 in the rest of Massachusetts. Data on biotech sites is updated weekly by an alliance staffer, though real estate brokers can update their exclusive listings.

 
“For those companies that may be starting out in Cambridge or the greater Boston area, if they’re in the R&D phase and they’re growing and needing a pilot manufacturing facility, we want to keep them in Massachusetts. There are areas outside Greater Boston that can accommodate them,” said Susan Houston, executive director of the Massachusetts Alliance for Economic Development. “It’s also a way of showing that Massachusetts is business-friendly.”
 
Houston said it was too early to gauge use of the site in the weeks since it was launched at the Biotechnology Industry Organization’s BIO 2007 global convention in Boston, held May 6-9.
 
Massachusettssitefinder.com isn’t the only free real estate search Web site with Boston and Cambridge info. Yale Robbins, a longtime real estate publisher, maintains data on available office sites in both cities — but not the rest of the state — through its website MrOfficeSpace.com.
 
MrOfficeSpace listed 659 available spaces — almost all of them office spaces — in 163 buildings as of May 29. Among lab sites listed was 161 First St., a 45,820-square-foot building within the SatCon Technology Center in East Cambridge, owned by Alexandria Real Estate Equities. At SatCon, two spaces — one 8,600 square feet, the other 4,000 square feet — were marketed for lease through Richards Barry Joyce & Partners, at an asking rent of $50 per square foot, triple net.

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