October 2024 Boston Life Science Report

Challenges persist in the metro Boston life science market.

Reduced tenant demand, layoffs, and new supply deliveries have increased the vacancy rate to 21.5%. Year to date absorption across the metropolitan area as of the issuance this report was -467,631 SF.

Leasing activity has been hampered by interest rates, drops in VC funding, and a fundamental paradigm shift in how biotech companies spend their money. Significant news came from Vertex Pharmaceuticals in August: they announced the early renewal of their 1.1M SF of space at 50 Northern Ave and 11 Fan Pier Blvd in the Seaport. In the beginning of the year, Takeda signed a large renewal for 220,000 SF at 125 Binney Street in Cambridge. ADA Forsyth Institute signed a new fifteen-year lease at 100 Chestnut Street in Somerville for 76,000 SF. This was a significant bright spot for new development in Somerville, as the 208,000 SF life science asset delivered late in 2023, and with this signing the building boasts an occupancy rate north of 85%, vastly outperforming Somerville’s current vacancy rate, which is presently north of 70%. In suburban markets, the largest new direct deal came from BPG Bio, who leased 70,000 SF at 300 Third Avenue in Waltham. In mid-July, Keros Therapeutics subleased 20,000 SF from Accent Therapeutics at 1050 Waltham Street in Lexington.

Space givebacks and downsizing continue to impair market fundamentals. Ginkgo Bioworks (NASDAQ: DNA) announced in May they would reduce labor expenses by 25%. In June, they announced a further 10% headcount reduction across R&D and other divisions, with layoffs expected to continue to into 2025. Consequently, 19 Fid Kennedy Avenue (The Foundry at Drydock) in the Seaport, a building that Ginkgo had fully pre-leased back in 2021, was made available for sublease in late August. A permit valued at nearly $40,000,000 was  pulled in late December to begin tenant fit out for Ginkgo, further emphasizing just how rapidly the commercial real estate landscape can change. Today, Ginkgo shares trade around $8.00 - down approximately 91% from the start of the year where they opened the 2024 trading calendar on January 2nd at $66.40.

New inventory continues to deliver in both Cambridge and the suburban markets without significant leasing activity. In Somerville, 74M, Greystar Real Estate Partner’s 465,000 SF purpose-built lab/office project recently delivered entirely vacant. 495 Columbia Street at the Boynton Gateway in Somerville - a CV Properties/Cannon Hill Capital Partners project, also delivered their 342,000 SF life science asset without any leases signed. 495 Columbia is directly adjacent to 808 Windsor Steet – a 360,000 SF life science asset that delivered this summer, also with no leasing activity. A similar narrative is playing out in the Seaport, where Beacon Capital’s 418,000 SF lab/office project at 2 Harbor Street officially delivered with no tenants. The challenged leasing environment has not appeared to stymie Beacon’s appetite for life science product. In late February, they notified the BPDA that they intend to construct another lab building at 4 Harbor Street. Plans call for a ten story, 321,000 SF development in the Raymond L. Flynn Marine Park. Also in the Seaport – 12 Farnsworth and 33-41 Farnsworth completed conversion projects this year, with the 70,000 SF and 100,000 SF (respectively) projects both delivering empty.

Short term, somewhat disconcerting market fundamentals aside, there is plenty of good news. Bicara Therapeutics and Zenas BioPharma, two Commonwealth based biotech companies went public this September, raising $315M and $225M, respectively. They follow on the heels of two other local companies that initiated IPO’s this year: Fractyl Health (NASDAQ: GUTS) raised $100M  in February, and Rapport Therapeutics (NASDAQ: RAPP) who pulled in $172M in June. It appears there are even more IPOs in the pipeline. In September, Camp4 Therapeutics, based out of Kendall Sq, filed their S-1 registration statement in late September, and Upstream Bio Inc. in Waltham also filed a similar statement just a few days before. Eli Lilly and Co. opened the doors of their brand new, 346,000 SF facility at 15 Necco Street in Fort Point – which they had fully pre-leased from Alexandria Real Estate back in early 2022. They have also been quite active on the M&A front: they have spent $5.6B in recent months acquiring three separate companies, Mariana Oncology, DTx Pharma, & Versanis Bio. Further in this report we provide a detail on significant funding activity for local biotechs that showcase how active this industry remains in spite of the numerous challenges it is facing.

For more information please contact:

Mark Fallon, Director of Research & Strategy | mfallon@hunnemanre.com