So what happens when the biotech boom goes bust?
If you were involved in any way, shape or form in real estate east of 495, and you are not starting to think through what to do when the latest Massachusetts Miracle begins to fade, then you have your head stuck in cement.
It is not fair to say all booms go bust, but they do have a distressing tendency to do so. At the very least, what goes skyrocketing up will have to come back to earth, whether it’s a gradual glide down or a crash landing, and the multibillion-dollar life sciences boom is no exception.
In fact, there are signs the biotech bonanza that has driven so much construction in Boston, Cambridge, and along 128 and even 495 and out in Worcester can’t go any higher and has even peaked.
If so, we could be in for a rough ride at some point. Like the collapse of the dot-com bubble in the early 2000s and the defense industry in the early 1990s, a retrenchment by the life sciences sector could lower the boom on the local real estate market.
Early Signs Of Trouble?
On the surface, it’s hard to see how things could get much better right now for the Bay State’s still very booming biotech industry.
Life science giants and upstarts alike are pumping billions into new headquarters and research complexes along Boston’s waterfront, in Cambridge’s red hot Kendall Square, and on 128.
Massachusetts now has more biotech research and development jobs than any state in the country, 28,000 compared to California’s 23,000, Transwestern reports in its quarterly lab market survey, bioSTATus.
But yes, there are signs of trouble in paradise.
An array of big biotech and life science companies that have built or leased millions of square feet of research and office space across the Bay State have been hit with a series of reverses.
While it could be luck of the draw, some biotech industry experts see signs of a new caution at the FDA amid a series of high-profile rejections of promising new drugs and treatments under development life science hotspots like Boston, Cambridge and the suburbs.
In fact, there has been a torrent of bad news.
In Cambridge, Ariad Pharmaceuticals canned 160 employees after it was forced to withdraw its leukemia pill off the market, while Aveo Pharmaceuticals saw its kidney cancer drug rejected by federal regulators in the development pipeline.
Vertex, which is moving to a new research palace on Boston’s waterfront, cut 370 workers after faltering sales of its hepatitis C drug, while Genzyme, which has millions of square feet in research, office and manufacturing space in Cambridge and Framingham, is licking its wounds after regulators rejected its once-promising multiple sclerosis treatment.
Drug giant Merck, which has a major research operation in Boston, is pushing ahead with plans to vaporize 8,500 jobs across the country.
Clouds On The Real Estate Horizon
Of course, most companies aren’t rushing to announce big cutbacks in real estate after a reverse.
It’s all part of the happy talk corporate spokespeople sling out there hoping it will stick after a particularly gruesome layoff, nonsense like cutting to grow or repositioning for new growth.
But sooner or later, when a company takes a hit, the real estate will hit the market after all those newly terminated employees are cleared out.
Ariad has put on hold plans to move into a new, 386,000 headquarters in Kendall Square.
That alone could push up the Cambridge lab vacancy rate to 13.6 percent, up from just below 10 percent now, commercial real estate firm NAI Hunneman reports.
And in that spirit, it is definitely worth watching what happens with Vertex, which has a history of stopping and starting when it comes to real estate, including a new Cambridge headquarters that it balked at moving into at the last minute a few years ago.
As it stands now, Vertex is preparing to put roughly 600,000 square feet of lab and office space on the market in Cambridge as it consolidates its operations at its new waterfront headquarters in Boston’s Innovation District.
Merck, as it scrambles to cut thousands of employees, and Genzyme, as it grapples with a major drug reverse of its own, are also worth keeping tabs on.
“While most firms remain in organic growth mode, consolidations by ARIAD Pharmaceuticals, Merck and Vertex could materially impact the market and introduce large amounts of state-of-the-art modern laboratory space to the sublease market,” the most recent bioSTATus report reads.
“The two quarters have also showcased the rapid decisiveness of the public markets. While value is quickly added, it is also quickly taken away,” the report cautions.
When Booms Go Bust
Even if we are seeing the first warning signs, it could take a while before the current biotech/life science real estate boom unravels in a big way.
Yet Massachusetts real estate market has a long history of riding on the back of one hot industry or another, only to get scalded when the good times go bad.
You need only look at a decade or so to the early 2000s, when the dot-com bust and the unravelling of the telecom boom hit the commercial real estate within 495 with a brutal, one-two punch.
Boston tower owners and suburban landlords alike had signed scores of leases with seemingly fast-growing dot coms, only to be stuck with millions of square feet of empty space when that gold rush turned into an old-fashioned stock market panic.
The landscape was also littered with the hulks of would-be telecom hotels, gleaming, state-of-the-art wire-and-router warehouses that suddenly were no longer needed when the air went out of the telecom bubble as well.
The one-time Casey and Hayes warehouse, which opened as Boston Internet City in the late 1990s, and which eventually sold, still empty, years later to Harvard, is the poster child for that silliness.
Certainly the biotech boom in Massachusetts is built on much firmer footings.
But once again, much if not all of our eggs are in a single basket.
The biotech and life science industries are driving the commercial real estate market in Massachusetts and our commercial real estate market.
And like it or not, our local lab and office market is destined to rise or fall with its fortunes.
Scott Van Voorhis can be reached at sbvanvoorhis@hotmail.com.
