BioSquare in Boston is one of several construction projects that have added space to the research and life sciences real estate market.
Laboratory explosions are seldom a good thing, but Massachusetts commercial property owners certainly would not mind a spark in the life sciences industry. Once seen as the solution for the region’s struggling office market, biotechnology and medical-related companies have only provided marginal relief of late, and some observers say even those gains have been on the decline.
“We’re seeing a slowing down of the momentum,” said Cresa Partners principal Christopher Crooks, a tenant representation broker who has covered the Cambridge market for the past decade. Crooks and Cresa Vice President Adam Subber report that sublease laboratory space continues to flood the area, noting that both Millennium Pharmaceuticals and Vertex Pharmaceuticals recently added hundreds of thousands of square feet of inventory to Cambridge in recent months.
“It’s fair to suggest that activity is down compared to this time last year,” said Subber, with several life sciences requirements having already been satisfied and a lack of new deals looming to replace them, particularly leases of any substantial size. Others are less pessimistic, including Spaulding & Slye Colliers Senior Vice President Daniel Cordeau, who said he has been “quite busy” in 2004.
“I don’t think it has been any worse than any other year, and in a lot of ways, it has been better,” said Cordeau. “The suburbs have been fine, and you’re still seeing people come to Cambridge.”
Richards Barry Joyce & Partners Director of Research Brendan Carroll said he is mostly satisfied by the pace of activity, even though he concurred that vacancies have “skyrocketed” in Cambridge during the past two years. The catalyst, according to Carroll, has been the arrival of new laboratory space as opposed to companies downsizing, with space absorption remaining positive throughout the downturn.
“The construction pipeline has really opened up the vacancy,” said Carroll, explaining that 3 million square feet of Cambridge’s 6.7 million square feet of laboratory space has been added in the past three years, including 1 million square feet built during the past 12 months. In acknowledging the Millennium and Vertex moves, Carroll nonetheless said most life sciences companies have held their own. Vertex, for example, simply was too aggressive in its space planning, he argued. The firm struck a build-to-suit arrangement with Lyme Properties, but decided that the 285,000-square-foot Cambridge facility was not needed just as the building was coming on line.
“Vertex as a company has done well during the past six months,” said Carroll. “They just expected to grow at 300 miles per hour, and instead they are growing at 170 miles per hour.”
Meanwhile, much of the Millennium sublease space has been absorbed, said Carroll, save for 640 Memorial Drive in Cambridge. The lack of new construction going forward is another positive sign, said Carroll, who is also encouraged that several Massachusetts-based life sciences companies have gone public in recent months, including Idenix Pharmaceuticals, NeuroMetrix, Alnylam Pharmaceuticals and Critical Therapeutics.
Although such firms were not as warmly received on Wall Street as had been hoped, Carroll said the money that was raised should help boost their prospects. “The bottom line is they have cash, and they can use that cash to expand,” he said. Another upbeat indicator, he said, is that Massachusetts continues to receive a major piece of research funding from the National Institute of Health. Even as cities such as Philadelphia, San Diego and Seattle push for a piece of the life-sciences pie, the Bay State has increased its share from 12 percent of NIH funds issued in 1995 to 22 percent at mid-year 2004, said Carroll. Only San Francisco receives a larger percentage, he said, with remaining areas such as North Carolina, Los Angeles and Baltimore getting single-digit percentages of the pie.
Subber said he believes that Massachusetts is well positioned going forward, particularly on the research end of life sciences. Although states such as North Carolina have been successful attracting manufacturing uses, Cambridge and suburban communities such as Waltham and Lexington remain popular addresses for life sciences startups, said Subber. He and others said they believe the state of Massachusetts is doing its best to attract and retain life sciences operations.
“The state has done a good job realizing they have to reach out to these companies,” said Subber, although he added that the cost of living in the region remains among the most daunting obstacles to overcome.
Cambridge remains the epicenter of life sciences research, most concur, and the recent downturn has made the city and its core Kendall Square submarket more competitive on rental rates and availabilities of space. Subber said he has not witnessed a dramatic return of firms which moved to the suburbs coming back into Cambridge, but said that new companies who wish to be near the Massachusetts Institute of Technology and Harvard University have found rental rates easier to swallow than in past years.
On the vacancy side, Charlestown and Boston’s Longwood Medical Area remain particularly tight on lab space, with a vacancy rate of just 2.4 percent, according to Carroll. That compares favorably to a current 19.8 percent vacancy rate overall for the region’s 11.8 million square feet of laboratory space, up substantially from the 7.3 percent vacancy posted after the first quarter of 2002. Illustrating that new construction has been a primary source of vacancies, Carroll noted that there has been 194,000 square feet of positive absorption in the market since the first quarter of 2002.
In the meantime, there have been some leases completed in Greater Boston in recent months, including a 16,000-square-foot sublease by Altis Pharmaceuticals at 195 Albany St. in Cambridge. Crooks, Subber and Vice President Dan Sullivan worked with Cresa principal Ed Fothergill to negotiate the sublease between Altis and the sublessor, Transkaryotic Therapiess.
The year was kicked off by a 45,000-square-foot lease at 245 First St., Cambridge, by ViaCell, a deal brokered by Richards Barry Joyce & Partners and Trammell Crow. On the medical devices front, firms such as Straumann AG and McKesson Corp. have inked six-figure leases in 2004, offering hope that that arena will remain strong going forward.
As for new construction, perhaps the most notable undertaking is the 160,000-square-foot 670 Albany St. project, a part of Boston’s expanding BioSquare research complex. Spaulding & Slye has been retained to market about 60,000 square feet, with Boston leasing specialist William P. Barrack working with laboratory specialists such as Cordeau, John Austin and Peter Bekarian to oversee that assignment.
“We’ve had very good interest in the building,” Barrack said last week, with a few major prospects actively being pursued. Subber said he believes firms which want to establish a presence with the chief developer, Boston University, will be the most likely prospects for BioSquare.
As for life sciences in general, Subber said he is confident that Massachusetts will continue to attract its share of firms, but said any resurgence will be measured. “The general feeling is that we are absorbing both office and lab space in the market, but there’s no rocketing back,” he said. “It is getting better, but it will be a slow recovery.”
