Photo courtesy of Gutierrez Cos.

Upgrading office and industrial buildings to lab-ready space is paying off for a growing field of developers hoping to snare the next hot biotech startup transitioning from early-stage research to commercialization. 

Boston Properties demonstrated one such case study when it spent approximately $2.8 million on lab infrastructure at 33 Hayden Ave. in Lexington and landed an 81,000-square-foot full building lease by Cambridge-based Dicerna Phamaceuticals, which is paying 86 percent higher base rent than the previous tenants. The seven-year lease totals $30.1 million, according to a Dicerna SEC filing. 

With no signs of let up in the life science industry’s appetite for Massachusetts locations, Boston Properties executives say they’re making lab-ready projects a cornerstone of their suburban strategy. Another lab conversion is planned at 200 West St. in Waltham, a 256,245-square-foot office building, at an estimated cost of $33 million. And the next phase of the CityPoint development in Waltham, a 300,000-square-foot building, will be built to lab standards. 

“They’re going to go elephant-hunting and chasing big projects for lab users,” predicted Andrew Whipple, a senior vice president at JLL Boston. “They are the preeminent owner in Waltham and own a lot of successful class A office properties. To see them making a bet on lab sends a pretty powerful message.” 

Developers that built out lab infrastructure on spec are best positioned, because many expanding life science companies have timeframes as short as six months for new space, brokers say.  

Cresset Group converted an office and manufacturing building at 65 Grove St. into 120,000 square feet of lab space before selling it to BioMed Realty for $62.5 million in November.

Contrasting Migration for Office, Lab Tenants 

Lab conversions and speculative new life science buildings are driving much of the development activity along Route 128. Whereas office users have gravitated toward urban locations despite their higher rents, life science companies have few options for growth in the industry’s Cambridge nucleus. 

Cambridge direct vacancies have remained below 1 percent for three consecutive quarters, with life science absorption approaching 290,000 square feet in the first quarter, according to a Newmark Knight Frank research report. Industry giants such as Sanofi and Bayer gobbled up space in projects under construction by DivcoWest and MIT. 

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Watertown continues to benefit from the Cambridge overflow. Boston-based Cresset Group converted an office and manufacturing building at 65 Grove St. into 120,000 square feet of lab space before selling it to BioMed Realty for $62.5 million in November. The building is marketing 65,000 square feet after previous leases to a mix of tech and life science tenants. 

“Watertown is one of the first places that people look after Kendall,” said Alex Plaisted, a vice president at CBRE which represents ownership in leasing. “For tenants, the hardest part is finding space, not negotiating the terms.” 

Asking rents for Watertown lab-ready buildings average in the mid- to high-$60s on a triple-net basis, Plaisted said. 

Conversions Trade Off Location, Cost 

Most recent lab conversions in Greater Boston fall into two distinct categories, said Brendan Carroll, director of intelligence for Boston-based Perry Brokerage. Industrial buildings already have robust load-bearing capabilities, utility systems and higher floor-to-floor ratios, making them well-suited for life science conversion. Office buildings cost more to acquire but can pay off if the property is located in a submarket with strong life science demand, Carroll said. 

That was the case in Cambridge where Longfellow Real Estate Partners converted the 1030 Massachusetts Ave. office building into a fully-leased lab building that recently sold for $128 million or over $1,600 per square foot, more than six times what it sold for 2010. 

“It was a little bit more of a complicated conversion because you had to compensate for height ratios that were not intended for lab. They made it work because the location was spectacular,” Carroll said. 

Steve Adams

For Burlington-based Gutierrez Cos., life science space is the second option for its 4 Burlington Woods property, now being marketed as Burlington BioCenter. 

A 110,000-square-foot speculative office building shell was completed in 2015. After failing to secure an office tenant, Gutierrez Co. formed a joint venture with GEM Realty Capital of Chicago to upgrade the base building infrastructure to support lab uses. The project is expected to be complete by year’s end, said JLL’s Whipple, who represents the owners in leasing. 

The decision to pursue lab space reflects some recent growth in the Burlington life science market, which has long lagged industry clusters in Lexington and Waltham. Gutierrez Cos. partnered with MilliporeSigma on its 280,000-square-foot life science center at 400 Summit Drive completed in 2017, consolidating its suburban locations. 

“The success of that project was a lightning rod,” Whipple said. “There’s a deep bench of companies to the north and south, so there’s no real reason why this wouldn’t happen in Burlington, especially given the access and amenities. It’s more about changing the mindset of companies looking for space. It’s about building to the demand. There hasn’t been anybody who’s stepped up and built out lab space, so it’s been overlooked.”