A new academic building under construction for MIT in Kendall Square. The region’s educated workforce and universities should help buffer Greater Boston from the headwinds facing real estate. iStock photo
Commercial real estate is facing a variety of headwinds as we enter the second half of 2023. In Boston and the surrounding communities, recession fears, rising interest rates, the work from home movement, and local policy initiatives are creating challenging circumstances for developers, businesses, and lenders alike. Nevertheless, Boston has historically proven to be one of the most resilient real estate markets, nationally and globally, as a function of our highly educated workforce, world-class educational facilities, premier medical institutions and a culture that highlights and promotes entrepreneurs with innovative and dynamic ideas.
In 1858, Oliver Wendell Holmes described Boston as the “Hub of the Universe.” Our dominance and prominence within the life science sector – which a keen observer will note, did not exist in the 1800s – continues to prove that moniker true. The above-mentioned constraints notwithstanding, Hunneman’s research department has been tracking several notable projects in planning, recently proposed or recently approved. The expansion of the life science sector outside of its core hub in Cambridge continues, with several notable developments and conversions occurring downtown, in the Seaport and in the surrounding suburbs.
There has been a flurry of new developments planned or proposed this summer. Just last month, Related Beal received city approval for a two-building, 7-story R&D facility in the Seaport – nearly 320,000 square feet of space dedicated to life science development. Phase 3 Real Estate Partners filed a letter of intent this January for a conversion project at 55 Summer St. in Downtown Crossing – which indicates the intent to transform the 10-story office building into 128,000 square feet of research space. The city granted approval for the project in June.
The metro Boston pipeline remains robust as well, with development continuing to advance in well-established life science nodes. In June, Greystar proposed a 5-story life science project at 379 Totten Pond Road in Waltham, seeking to build a 170,000-square-foot research building. In Natick ABI-LAB, an accelerator firm that provides lab space and resources to smaller companies and startups, seeks to enlarge their footprint in the city by building a third lab on a former motel site on Worcester Street. This plan is under review by the city.
Future Development Targets
To add some additional insight, I spoke with Patrick Kimble, vice president of leasing at the Davis Cos. We discussed several issues concerning the future of development in Greater Boston. While he remains extremely bullish in the long term for the life sciences sector, he did concede there is some reason for caution in the immediate short-term.
In addition, we spoke about the viability of underutilized class B and class C office space in the downtown Boston that has been on the top of many agendas lately. He indicated that he has not heard of any significant proposals from life science developers to transform these spaces for lab users and does not expect that to change in the near future.
Mark Fallon
Patrick also advised me that we should expect to see the development pipeline remain solid in established clusters outside the Greater Boston area, such as Watertown, Waltham, Lexington and Natick. However, he did indicate that as a function of the current economy and short-term demand challenges, developers will be less likely to take chances outside of the well-established regions. We should not expect to see any new life science clusters popping up in any towns or cities that are not already well-established hot spots. In this environment, it does not make sense for a developer to try to attract tenants to new locations without established infrastructure and existing companies.
Ultimately, life science and lab real estate rely on demand from tenants. Tenants depend on funding from a variety of sources, namely venture capital funding, initial public offerings and National Institutes of Health grants. When that financial backing dries up and investors become more selective about where they allocate capital, this poses challenges for the real estate that supports these operations. While short-term concerns remain, the overall demand for the type of products and solutions that biotechnology companies create will only continue to grow nationally and globally, especially here in Boston.
Mark Fallon is director of research and strategy at Hunneman.
