Allston Labworks, a development by King Street properties, is seen under construction in March 2024. Photo by Steve Adams | Banker & Tradesman Staff
Venture capital investment in the U.S. life science industry surged in the second quarter, potentially easing the historic glut of lab space seeking tenants.
The 30 percent increase from the same period in 2023 points to opportunities for lab developers to attract new leases and expansions after a lengthy pause in major tenant commitments.
Greater Boston companies raised $3.7 billion in the second quarter, equivalent to 37 percent of the $9.9 billion raised in all of 2023, brokerage Savills reported.
Greater Boston’s 50 million-square-foot lab market had a 21.5 percent vacancy rate at the end of the second quarter, according to research by brokerage Colliers. Even the industry epicenter in Cambridge’s Kendall Square hasn’t been spared the effects of the leasing downturn. The 14 million-square-foot submarket’s vacancy rate topped 19 percent at mid-year.
The emerging Allston-Brighton submarket currently has a 20.8 percent vacancy rate, according to Colliers, and is set to more than double its inventory with the imminent completion of Lendlease and Ivanhoe Cambridge’s 350,000-square-foot 60 Guest St. project and King Street Properties’ nearly 550,000-square-foot Allston Labworks.
Venture capital investment plummeted following a series of interest rate hikes by the Federal Reserve starting in March 2022. The central bank now is expected to cut rates three times this year by a combined 0.75 percent, according to a Reuters survey of economists.
As funding accelerates, VC investors are favoring companies that have promising results in clinical trials, according to Savills research.
In May, Waltham-based Zenas BioPharma raised $200 million in series C financing to support mid- and late-stage clinical trials for its lead product candidate.
Investors are placing most of their bets in the top three industry clusters of Greater Boston, San Francisco and San Diego. The Savills report tracks a potential erosion of eastern Massachusetts’s dominance compared with other top markets.
Greater Boston led the nation during the historic fundraising climate in the aftermath of the COVID-19 outbreak, with local companies raising $18.5 billion in 2021.
But San Francisco narrowed the gap in 2023, raising $9.7 billion to the Boston area’s $9.9 billion, according to Savills data. In the second quarter, San Francisco led all U.S. markets with $5.3 billion raised in 213 deals, compared with Greater Boston’s $3.7 billion and 79 deals.
The state Legislature wrapped up its formal session this month without action on Gov. Maura Healey’s $1 billion, 10-year life sciences economic development proposal.
