Sophisticated analysis of future space needs is critical to a life science company’s growth.
A new report from commercial real estate brokerage JLL says life science tenant demand in Greater Boston has fallen by nearly 40 percent this year, from 7.1 million to 4.4 million square feet.
The region remains the top life science cluster in the country, however, and the industry’s current stumbles “challenges won’t be a roadblock for the incredible growth predicted over the long term,” Amber Schiada, JLL’s Americas head of work dynamics and industry research said in a cover letter attached to the report.
“Science doesn’t stop, and investment in new innovations and advanced modalities will continue to drive the industry forward over the long term horizon,” she said. “While we’d never call any industry recession proof, the life sciences industry is better positioned than most because of its countercyclical drivers that will sustain forward momentum.”
As Banker & Tradesman has reported, venture capital funding for Massachusetts life science companies has declined sharply from 2022’s record levels, crimping their ability to expand. Through the end of June, Massachusetts firms received $5.1 billion in venture funding, compared to $8 billion in all of 2020 and $13.6 billion in 2021, according to MassBIO. And Newmark’s head of Boston research has estimated that a significant share of life science developments currently on the drawing board may be put on hold or not be developed at all.
Markets’ “frigid” attitude towards public biotech companies will continue to weigh on the IPOs and funding rounds that helped fuel a seemingly-insatiable appetite for more lab space in recent years, JLL researchers wrote in their new report. Current leasing velocity has also been buoyed by large-firm activity.
“[B]oth privately held companies and companies that went public early
will have to recalibrate and hunker down,” the report said. “Expect the Big Pharma and established biotechs to be active in the partnership and acquisitions space for the foreseeable future as start up valuations remain subdued, fresh injections of capital are increasingly unavailable in the capital markets and a small number of biotechs inch closer to running out of cash to fund day to day operations.”
Locally, sublease availabilities also more than doubled in the second quarter to 916,000 square feet as companies put expansions on hold, Banker & Tradesman reported earlier this month. But, JLL researchers wrote in their new report, much of this is “attributable to companies defensively taking too much space in the rush for limited space last year.”
This extra space has given early-stage companies their pick of move-in ready real estate at a time when they’re looking to husband cash.
For the next several years, expect the biotech R&D sector to see revenue growth at a steady rate of around 5 percent, JLL’s report states, but not the big increases seen in the last several years.
