Vertex’s renewal of its Seaport headquarters lease accounted for the lion’s share of the 2.2 million square feet of new life science leases executed so far this year. iStock photo

While improving, demand-side fundamentals in Greater Boston’s laboratory market remain challenged as life science users continue to exhibit cautiousness in their real estate decisions.

Having increased steadily from a mid-2023 trough, quarterly leasing velocity has likely bottomed for this cycle. Leasing totals topped 1 million square feet for the first time since the end of 2022 in the third quarter of 2024, and more than 2.2 million square feet in laboratory leases have been executed throughout the metro area year-to-date, representing a 30 percent increase over 2023 volumes.

Vertex’s long-term renewal of its Seaport headquarters accounted for the lion’s share of recent activity though and many tenants are opting to renew or extend in place while other users are seeking built-out, value opportunities within the region’s sublet offerings.

Flexible, shorter lease terms and minimal upfront capital are key considerations among occupiers facing real estate decisions today.

For context, renewals, extensions and subleases account for 63 percent of leasing totals year-to-date in 2024, which is well above the 27 percent averaged from 2018 to 2019 when velocity was 3.5 times higher. The average lease term on direct transactions and expansions throughout Greater Boston has declined modestly since 2018, averaging 89 months of term for leases executed in 2024.

Renewals and extensions, however, have become even shorter as tenants opt for more flexible commitments. For comparison, the average lease term for lease renewals and extensions signed in 2024 is roughly 50 months, which represents a 36 percent decline from 2018. Concession packages also remain generous due to current market conditions.

Tenants Focused on Preserving Cash

Record levels of venture capital funding and outsized public market performances have historically been strong indicators of new laboratory demand.

Driven by rapidly expanding, venture-backed startups, space needs evolved rapidly even prior to the height of the market. With local market fundamentals favoring landlords for the better part of a decade, many occupiers utilized defensive leasing strategies by taking down more space than needed to secure future expansion options and mitigate rapidly rising rental rates.

On average, life science tenants would expand their footprints six to 12 months after receiving major funding rounds or going public, and were doubling in size.

Current market fundamentals have tenants focused on preserving cash to maintain operational stability, which is resulting in firms keeping their real estate use lean to limit spending.

Though local biotech companies have raised more than $5 billion in venture capital through the third quarter of 2024, and a few select firms have launched IPOs, most continue to do more in less real estate.

Despite shifting sentiments among occupiers, the average lease size has remained relatively stable over the last five to seven years, ranging from 40,000 square feet to 50,000 square feet in most years, as big pharma has executed above-average leases over the last several years.

Near-term headwinds will likely prevail, with underperforming biotech companies continuing to impact laboratory demand through increasing vacancies and industry layoffs.

Oversupply in select submarkets is expected to favor life science tenants that are transacting, with more attractive lease terms. Local decision makers are looking toward 2025 for the public markets and capital flow to resume in earnest, but leasing fundamentals are not expected to improve materially until the following year.

The long-term outlook for demand and leasing in Greater Boston’s laboratory market is promising as the region’s preeminence as a global powerhouse for technology and life sciences holds true. Once the market works through the current supply-demand imbalance and the relationship between demand drivers and leasing normalizes, brighter days will be ahead.

Elizabeth Berthelette is head of Northeast research and national life science research at Newmark.