The Cambridge lab market now tops 10.3 million square feet as developers pursue lab developments and conversions in pursuit of lucrative rents paid by life science firms. The Davis Cos. is converting a former office building at 35 Cambridgepark Drive in Alewife into The ARC, a speculative 223,000-square-foot lab building scheduled for completion in mid-2018.
Irish drugmaker Shire Plc’s continuing expansion in Kendall Square is the latest confirmation of Cambridge’s desirability among the life science crowd looking to set up shop in a supercluster of industry peers.
As Cambridge bursts at the seams, the implications are just as big for Boston’s commercial real estate market. Creative and tech companies squeezed by East Cambridge’s shrinking options and rents approaching $80 per square foot have crossed the river and revitalized the comparatively affordable class B office market in neighborhoods like Fort Point and Downtown Crossing. Amazon is is reportedly finalizing a 150,000-square foot lease at 253 Summer St., while cloud computing company VMWare will relocate from Kendall Square to Lafayette City Center this fall.
The next opportunity, many industry brokers and researchers predict: long-shunned space in Boston high rises, where owners are building out dozens of speculative office suites to provide landing pads for growing tech companies.
“It kick-starts your leasing and minimizes down time,” said Debra Gould, an executive managing director at Newmark Knight Frank. “Are they actually moving faster? We’ve seen that they are.”
The 32.9-million-square-foot Financial District submarket led Boston with 237,260 square feet of positive absorption during the first half of 2017, according to Newmark Knight Frank’s latest Boston office market report.
Rent spreads between class A and B office space are the narrowest since 2001, said Aaron Jodka, director of research for Colliers International Boston.
“Tenants who are touring class B properties will also put an ‘A’ building on their list, and they’re liking what they see,” Jodka said. “Creative firms are willing to look at that now. Some of them are willing to create that (informal) environment within a high-rise.”
One recent example: Cambridge architects Tsoi Kobus Design, which moved into an entire floor at Oxford Property Group’s 60 State St. tower in May. After three decades in Harvard Square, the firm looked at class A and B buildings from North Station to Back Bay and the Seaport, founder and senior principal Rick Kobus said.
“It became evident quickly that the Financial District was the best value,” Kobus said. “We looked at class B spaces and towers, and there was not much of a price differential.”
Shire’s Dual Strategy
With 10.3 million square feet of lab space, Cambridge’s lab market has surpassed its 10-million-square-foot office market for the first time. Office-to-lab conversions and completion of Alexandria Real Estate Equities’ 541,000-square-foot 50-60 Binney St. complex put lab space in the driver’s seat. The trend is expected to continue, with lab space comprising 75 percent of future projects in Cambridge, according to Colliers International research.
“The traditional tech companies that used to be in Kendall Square are starting to wonder if this is where they need to be for long-term plans,” Jodka said.
After expanding rapidly in Lexington in the past two years, rare disease specialist Shire plans to shift a substantial portion of its workforce to East Cambridge, where it committed to two Kendall Square properties last year.
As part of a reorganization plan announced in June, Shire will shift its U.S. headquarters to Kendall Square while retaining its Lexington campus, which includes manufacturing as well as office and lab space. The company’s current Bay State real estate footprint exceeds 1.76 million square feet.
Shire has already been one of the most aggressive life science companies in the suburbs after shifting hundreds of jobs from Pennsylvania to Massachusetts in 2015. Last spring it leased 177,000 square feet at 45-55 Hayden Ave. in Lexington, next to its eight-building, 900,000-square-foot campus which now serves as its U.S. headquarters. It followed that up with a 200,000-square-foot lease at Hobbs Brook Management’s 95 Hayden Ave.
Shire’s 2016 acquisition of Baxalta Inc. gave it a 280,000-square-foot Kendall Square research hub, and it plans to occupy the former Genzyme headquarters at 500 Kendall in October 2018. Spokeswoman Katie Joyce said the properties provide a “rare opportunity to create a vibrant, integrated, cross-disciplinary campus – approximately 550,000 square feet of space – in the heart of one of the world’s foremost biomedical innovation centers.”
That may not be the end of Shire’s short-term Cambridge growth, however: real estate sources say the company is in negotiations on a 170,000-square-foot sublease at Alexandria Real Estate Equities’ 125 Binney St. Joyce declined to comment on potential future transactions.
