Commercial clusters emanating from leading higher education institutions and the funding they attract continue to have the best prospects for success. Boeing was the first tenant to commit to MIT’s new 314 Main St. office building in Kendall Square. Image courtesy of Weiss/Manfredi
Life science real estate in Boston is sizzling. With Kendall Square and the Longwood Medical Area effectively “full” and the office market recovering from COVID, it seems that every submarket is a candidate for life science tenants and users. Out of both opportunity and necessity, the market has embraced life science as a unique sector that operates independently from other property types.
Across the entire metro area, the race is on to develop or convert buildings in pursuit of values that are twice as high as any alternative use. There are many qualified developers and contractors capable of designing and building functional life science buildings that satisfy the technical specifications required by their users. As the supply curve steepens, a tantalizing game of musical chairs seems to be on the horizon. While demand should remain strong, successful development will transfer from the first one to provide space early in the cycle to the developers that can deliver the factors that are most compelling to tenants and users.
The drivers of life science success are intellectual capital, funding and translatable science that produces patents and commercial products. In turn, those factors drive job growth and demand for real estate. To succeed in life science real estate, the developer/owner must assist the tenant and user in winning the battle for talent and intellectual capital by supplying a functional, well-located and amenity-rich location for their company’s work. Growth in the life science sector will remain strong as successful developers continue to offer buildings that offer the following criteria.
Immediacy to Institutions, Potential for Growth
The Kendall Square and the LMA submarkets taught us that scientists remain closely connected to Boston’s leading research universities, institutions and hospitals.
These affiliations bind these innovators to the submarkets with the richest saturation of intellectual capital. An individual may have responsibilities in the classroom, research lab and commercial enterprise all in the same day, which explains the strength of the Harvard- and MIT-centric submarkets or nodes.
NIH and venture capital funding flows in heavy concentrations through these institutions, which adds to the strength or “stickiness” of any cluster. The concept of immediacy to such institutions is very different than general proximity, and it outweighs all other measures.
Modern facilities built to demanding specifications are an absolute requirement for success. To build such facilities, land must be available, and it must be properly zoned while fitting into the long-term plans of the respective community and development planners. However, the long-term potential of any location will likely rely on the submarket’s capacity and ability to develop a true cluster and thereby build its own critical mass. Generally, locations within a market area that can support extended development over time will be superior to isolated locations.
‘Vibe,’ Amenities and Other Concerns
The amenities within and around the building are integral in satisfying users and tenants. Clusters that can form around existing amenities or grow quickly enough to reach a critical mass that offers amenities will maintain a key advantage. Locations that are isolated from amenities will be at risk later in the cycle.
Other geographic questions must be considered, as well. Does a key employee rate the commute and choose a residence after the job is landed, or does the residence and commute drive the job location decision?
Mike Buckley
Avison Young used analytics that gather cell phone data from specific lab buildings that could be matched to home addresses of the building occupants. The majority of lab building occupants were urban dwellers, but their residences were scattered randomly around their company’s location. We also tracked industry codes related to highest-value life science employees, like those with PhDs, and mapped where such employees reside. This also yielded clustered results, but the specific concentrations were relatively balanced across metro Boston. Because of this, we believe that residence and commute are not a primary factor. The proximity of suitable housing stock that features a reasonable commute is a plus but is not a key driver.
Overall, we anticipate that the life sciences sector will continue to drive activity in the Greater Boston metro area, with demand concentrated in submarkets that are connected to universities and hospitals and offer room to grow to create a cluster of efficiently built, amenity-rich spaces.
Michael Buckley is a principal at Avison Young in Boston.
