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Life Science Drives Boston’s CRE Market

Tuesday, January 31, 2017

Real Estate Indicators from HFF Director Ben Sayles and Real Estate Analyst Connor Allen in HFF's Boston office.

This is Part One in HFF's series on biotech in Boston. Click here to read the Part Two.

biotech development in BostonGreater Boston has emerged as one of the top biotech clusters in the United States, often outpacing markets such as San Francisco, San Diego, New York, Washington, D.C., Philadelphia and Research Triangle Park in terms of public and private investment as well as total employment and job growth. Perhaps nothing speaks to the strength of the market more than its tenancy: Eight of the top 10 life science firms (as ranked by market capitalization) have a major Boston presence. As one of the backbones of the Boston market – along with healthcare, education and professional services – biotech tenants have an outsized impact on market fundamentals and are poised for even more growth in the years to come.

Why Boston?

At a very high level, the Boston market is powered by its history of innovation, its existing tenant base that continues to draw jobs to the region, but most important, by its highly-educated workforce. In Massachusetts, there are 84 four-year colleges, which employ more than 70,000 people and attract more than 360,000 students from all over the world. Boston and Cambridge are home to world-renowned institutions, including Boston College, Boston University, Harvard and MIT, all of which attract significant amounts of funding, engage in game-changing research and generate stores of intellectual capital.

MIT, in particular, stands out as one of the most innovative, entrepreneurial and prolific institutions. A 2015 report summarizes the institute’s global impact as follows:

  • As of 2014, there were 30,000 companies founded by MIT alumni
  • These companies employed 4.6 million people and produced annual revenues of $1.9 trillion (which would equate to the world’s 10th largest economy)
  • Roughly 40 percent of MIT alumni founders are serial entrepreneurs, having started multiple companies

East Cambridge: One of the Nation’s Most Exciting Submarkets

MITWithin the Boston market, Cambridge has emerged as one of the strongest nodes in terms of occupancy, leasing velocity, absorption and achieved rents with East Cambridge, in particular, leading the way. Anchored by MIT, the 13 million-square-foot East Cambridge submarket is marked by an overall vacancy rate of just two percent average office asking rents of between $65 and $70 per square foot and $75 and $80 per square foot triple net leased for lab space. Currently, there is an insatiable demand for biotech or life science space, with 2.5 million square feet of space delivered and absorbed in the last four years. Today, there is roughly one million square feet of lab space that is currently under construction, the majority of which has been pre-leased to tenants including Bristol-Myers Squibb, Sanofi Genzyme and bluebird bio.

Though the majority tenant requirements are lab users, East Cambridge is also being driven by office tenants. Akamai Technologies, the cloud computing giant, has agreed to lease 145 Broadway in its entirety (480,046 square feet) for 15 years. Amazon appears to be the next large tenant focused on expanding its footprint within the market.

Large-Scale Developments

As a result of the incredibly tight market conditions and very few large blocks of available space, some of today’s most active real estate investors are undertaking large-scale ground-up developments in East Cambridge.

Northpoint:  DivcoWest has big plans for this 42-acre site that is located between Interstate 93 and the Museum of Science. The site is approved for more than five million square feet of development, including residential, retail, office and laboratory uses. In response to the current office leasing environment, the first phase is likely to an office or lab building of nearly 400,000 square feet. More than 2,800 residential units and another 2.1 million square feet of space will follow.

Volpe Center:  Situated just steps from Kendall Square and nearly adjacent to MIT, MIT Investment Management Company (MITIMCo), which manages the assets that comprise MIT’s endowment, has agreed to acquire this 14-acre site for $750 million. Currently the site includes six buildings, open areas and two parking lots. The redevelopment of Volpe Center has the ability to enhance the “live-work-play” atmosphere that embodies Kendall Square, which is a world-class innovation hub in its own right.

Kendall Center:  Already a major player in East Cambridge, Boston Properties has received approval to that will allow for an additional 600,000 square feet of new commercial development, 420,000 square feet of housing and between 52,000 and 105,000 square feet of innovation space that will provide shared work space for start-up and scale-up companies.

Life Science Outlook

Not surprisingly, the outlook for East Cambridge is particularly bright. Robust tenant demand (both in terms of organic growth and in-migrations) and significant barriers to entry are likely to keep the vacancy rate in the low single digits and apply upward pressure on rents. Tenants, including Novartis, Shire and Pfizer, are continuing to grow their footprint in the area while companies like Johnson & Johnson, Baxter and Merck are relocating significant operations to East Cambridge. While still “ground zero” in East Cambridge, tenants will likely need to expand their search beyond Kendall Square as available space (particularly for large, contiguous blocks) remains scarce.

About Ben Sayles

HFF Director Ben SaylesBen Sayles is a director in the Boston office of HFF with more than 15 years of experience in commercial real estate. He is primarily responsible for investment sales transactions focusing on office, multi-housing and retail properties.

A graduate of Trinity College in Hartford, Connecticut, Mr. Sayles is the director of the Commercial Brokers Association and an executive committee member of NAIOP Massachusetts. Additionally, he is active in several other notable commercial real estate professional groups, including Urban Land Institute and International Council of Shopping Centers.

About Connor Allen

HFF Connor AllenConnor Allen is a real estate analyst in the Boston office of HFF who is nearing the completion of his second year of experience in commercial real estate and finance. He is primarily responsible for performing financial and market analysis, preparing offering documents and coordinating the due diligence process for both the debt and investment sales groups.

Mr. Allen joined the firm in January of 2017. Prior to joining HFF, he worked at Transwestern as a Research Analyst. Mr. Allen is a graduate of Babson College with a bachelor’s degree in business administration and a dual concentration in real estate and finance.





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