2023 Year-End Boston Life Science Report
The life science market in Boston contended with a flurry of challenging headwinds in 2023.
Rising interest rates, malaise in the IPO market, supply increases, and investor trepidation over the macroeconomic environment created a significant spike in vacancy rates, lower asking rents, and decreased absorption. For biotech companies locally and across the globe, layoffs, downsizing, bankruptcy, and M&A defined the year. In the Commonwealth, more than 60 companies in the sector had layoffs. All told – this environment dramatically impacted the CRE space.
No submarket has been spared as vacancies have expanded in Cambridge, Boston, Somerville, and the suburbs. In Cambridge – the story is sublease space, which now comprises approximately 1.5 million SF of space currently available. In Somerville, the main concern is supply: there is nearly double the amount of construction underway than currently exists in inventory. This new supply is also without the benefit of significant pre-leasing activity, furthering concerns regarding fundamentals in the short term.
Several significant new leases were executed this quarter. In Cambridge, Alexion Pharmaceuticals took 60,000 SF at 100 Binney Street. In Waltham, notable life science powerhouse Alexandria signed the largest life science deal of the quarter, with Novo Nordisk executing a lease for approximately 166,000 SF on Sylvan Road. Waltham also saw Amagma Therapeutics extend their 4,000 SF lease over at 100 Beaver Street - formerly an Alexandria property. Alexandria sold the asset on Beaver Street to Phase 3 Real Estate Partners at the end of the year.
There is no doubt that 2023 was a difficult year for life science fundamentals, and upon initial review, 2024 appears to be presenting similar obstacles and difficulties. However, it is important to keep in mind that these are short-term issues. On a longer-term time horizon, we remain optimistic on the life science industry, as well as the real estate that supports their operations. Thankfully – we are not the only ones, evidenced by the U.S. Department of Health and Human Services announcing the launch of ARPANET-H, a nationwide health innovation network with three regional hubs. The Commonwealth of Massachusetts was chosen to host the “Investor Catalyst Hub” – with the goal to assist companies navigating challenging regulations and business challenges as they bring new ideas to market. A very fitting assignment, given how Cambridge’s entire industry is centered around forward thinking and future-focused problem solving.
Further cementing the faith in the strength of this sector - the incubator and startup engines keep moving forward at full speed. Accelerated Biotechnology Incubator (ABI) Labs just recently secured $13.6 million in funding from Rockland Trust to expand their campus by 35,000 SF in Natick. SmartLabs – a lab-as-a-service provider, announced in March they are expanding by 140,000 SF, and converting the third floor of the CambridgeSide Galleria. Incubator spaces and startup enablers are absolutely pivotal in driving new discoveries and solutions, and provide a feeder system to more traditional lab spaces as companies test and prove their concepts and advance into their life cycle, providing crucial demand to resolve the short term over supply issues.
Despite the concerns discussed earlier regarding fundamentals in Somerville – this does not seem to be a cause for concern for Greystar. The renowned international development group responsible for 74M, a purpose-built, 465,000 SF lab and office facility on Middlesex Ave, just announced plans to develop an additional 1.25 million SF of laboratory space just blocks away from 74M. Additionally, in late November Oxford Properties and Pappas Enterprises announced their intentions to develop a massive eight building mixed used campus, with four laboratory buildings covering over 1 million SF in South Boston.
Looking forward, tenants can expect a less competitive market space, especially given the abundance of sublease space available in a variety of markets. Short term challenges aside, one thing is clear: this industry, and the Commonwealth, have the full support and belief of the federal government, multinational developers, and local firms alike. The faith demonstrated in our current and future capabilities should offer landlords, developers, tenants, and citizens significant assurances about our path forward.
For more information please contact:
Mark Fallon, Director of Research & Strategy | mfallon@hunnemanre.com
