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A wet, Colonial-era gravestone in Boston’s Old Granary Burial Ground. Reports of the death of Greater Boston’s life science real estate market are likely premature. iStock photo
The death of Greater Boston’s lab market has been greatly exaggerated.
Yes, the reports from the front lines of the lab development and leasing market don’t look all that great right now.
In the latest case of a once promising lab project unraveling, Bulfinch Cos. has pulled the plug on plans to convert the Natick Mall’s former Neiman Marcus space into a large lab complex and will now build pickleball courts there.
The news wasn’t all that surprising, at least to readers of this column, who learned way back in July that the Natick Mall lab plan was for all intents and purposes dead in the water. Also long dead at this point: plans to convert Lord & Taylor stores at local malls into lab and research space.
Clearly, we are starting to see the unraveling of some fringe lab proposals outside the core Cambridge/Somerville/Route 128 market. Overall lab vacancy rates across the region are now increasing, according to brokerage research, while rents are falling as well.
And yes, the bubble in proposed new lab projects is deflating fast as demand cools amid a spate of layoffs by local biotech and life sciences companies.
Just a year ago, tens of millions of new square feet of space of potential lab space were in the pipeline in the Boston area.
It’s now not clear how much of that is going to get built, at least in the next four or five years.
But some of this is just the nature of the beast.
Biotech Prone to Spec Development
Life sciences and tech, the two sectors increasingly driving the Greater Boston economy – and that of many other major blue cities and states across the country – are particularly prone to boom/bust cycles.
And those highs and lows are only amplified when you mix in the world of real estate development, which is the definition of a boom/bust business.
Developers are nothing if not trend followers, jumping on whatever bandwagon seems like it can get their project off the ground, with everyone and their brother suddenly seeing the potential for lab space in the empty department store or industrial building.
But some of this surge in development activity during the pandemic – maybe a significant portion of it – was more speculative than real.
It’s not the first time we saw proposals for new development projects popping up right and left in the wake of investment dollars flowing into one hot sector or another.
The same thing happened back in the early 2000s, when the dot-com and telecom booms went bust after huge expansions that saw startups gobble up massive amounts of office space and embark on ambitious building projects.
When the bubble burst, it wasn’t pretty, with developers stuck trying to find tenants for half-empty telecom and office buildings that had been leased by internet firms that went belly-up overnight.
Scott Van Voorhis
Big Difference from Dot-Coms
Yet there are a couple big differences between the speculative business and real estate bubbles of two decades ago and the life sciences now.
For starters, unlike some of those old dot-com companies like CMGI, which had a market cap of tens of billion of dollars and even got a naming rights deal for the New England Patriots’ stadium before it went poof, biotech is a real industry with real employees.
Life sciences companies added 60,000 jobs from 2006 through 2021, with employment in the biopharma industry in Massachusetts now topping 114,000, according to trade group MassBio.
Nor is this the sector’s first rodeo. The life sciences industry took a big hit during the Great Recession in 2008 and 2009 and not only managed to rebound, but expand exponentially, more than doubling in size over the last 17 years.
Not only that, there is real demand for the drugs and treatments being developed in all those labs in Kendall Square and out on Route 128.
We are not talking about early internet startups with their pie-in-the-sky pitches that never really added up.
Americans are getting older, sicker and heavier, and unless there is a some sort of phenomenal revolution in healthy living, the demand and the need for new pills of all sorts will only continue to grow.
Similarities to Office Sector
Does that mean there won’t be some retrenchment? Hardly. There may be quite a bit over the next few years.
When you have a market flooded with lab space, companies are going to seize the opportunity to get the best stuff in Cambridge and its environs at rents that suddenly seem if not reasonable, then at least doable.
Certainly, the same thing has happened in the office market in downtown Boston, with top-shelf, class A towers boasting reasonable vacancy rates and still getting interest from tenants, even as older, class B office buildings go begging.
Yet while there are similarities between what’s happening in the lab market and the huge shakeout in the office sector, there is also a big difference as well.
The future of office development is very much in the air. As work wraps up on new towers across Boston, it may take another decade, or maybe even longer, before work begins again on our next skyscraper
By contrast, life science is a field that involves lots of on-site, hands-on work. And while it may take some time to burn through all the empty lab space out there, as employment grows, demand for new lab space will rebound a lot faster than it will for office space.
The outlook for the lab market may be down right now. But in the years and decades ahead, the life sciences sector is going to be the main driver for new development in Greater Boston, not the office sector.
Scott Van Voorhis is Banker & Tradesman’s columnist; opinions expressed are his own. He may be reached at sbvanvoorhis@hotmail.com
