I always found it a bit of a contradiction when life science projects get a pass from the parking diet imposed by the city on most other projects. Obviously, it confirms that the industry and city expect most workers will be commuting from outside the city. What may have been a bit of a miscalculation, given Boston is the second most congested city after Chicago, is a growing recognition that employees have no interest in engaging all that traffic on a regular basis which will only worsen if more life science projects are approved.
From a quality-of-life perspective, moving into the city may not be an option and mitigating the excess capacity already online will be extremely expensive.
Demand for life sciences lab space has slowed in Boston area and nationally, report says (Robert Weisman, Boston Globe: September 19, 2023)
An overbuilt sector is grappling with excess inventory
for the first time in a decade
a shared laboratory space for biotech startups, in Kendall Square.JONATHAN WIGGS/GLOBE
Demand for lab space in Cambridge’s Kendall Square and other Boston area
life sciences hubs has dropped dramatically, leaving the region with vacant space for the first time in a decade.
A report released Tuesday by Chicago-based commercial real estate giant JLL depicted an overbuilt market that is forcing building owners, who only recently commanded top dollar for premium lab space, to reduce rents and scramble for tenants.
The rising vacancies are the result of a slowdown in the biopharma, medical technology, and biomanufacturing sectors after a building boom that started before the arrival of COVID and accelerated in the first two years of the pandemic.
Newly available space isn’t all bad news, JLL said. It offers fresh opportunities for startups seeking to plant themselves in Cambridge, the Seaport district, or other industry clusters in Massachusetts and nationally.
Underlying the slowdown are higher interest rates and a tighter financing market. Venture capital firms, the lifeblood for life sciences startups, have been writing 35 to 40 percent fewer checks in 2023, with a higher share of the money going to later-stage companies, the JLL report said. A once robust investor appetite for initial public offerings also has diminished.
“We were going through a COVID sugar high where people were investing in all sorts of companies that probably in normal times they wouldn’t have,” said Bob Coughlin, a JLL managing director who leads the firm’s Boston life sciences and health care practice. Now the industry is seeing “a correction,” he said, “and that’s not necessarily a bad thing.”
Coughlin, a former state representative and chief executive of the Massachusetts Biotechnology Council, said the retrenchment could set the stage for another growth spurt. He said there are signs the industry has begun recovering, citing more job openings, new biotech IPOs, and larger funding rounds.
But the JLL report suggests the building cycle for lab space may be out of synch with life sciences industry growth, which would depend heavily on a full-scale rebound in venture capital funding. Many biotechs, unable to raise enough money to fund their research, have closed or cut staffing this year, putting more lab space onto the market.
The oversupply of lab space is hitting life sciences markets across the country, but is most intense in the largest industry concentrations: the Boston and San Francisco Bay areas. Of investor-owned lab space under development nationally, the JLL report said, about 63 percent is in the Boston area or the Bay Area in California.
Overall inventory of lab space in the Boston area has climbed more than 30 percent over the past three years — from 30.4 million square feet in the fourth quarter of 2021 to 40.5 million square feet in the second quarter of 2023 — as more construction is completed even as fewer life sciences companies seek space, JLL reported. Nationally, the inventory rose nearly 20 percent to 147 million square feet from 123.6 million square feet in the same period in the eight largest life sciences markets.
“A broad reset in funding levels, valuations and commercial real estate needs has now permeated the sector...” the report said. “Tenants, especially smaller ones, can negotiate economically favorable transactions and shorter lease commitments with extremely limited initial capital outlays.”
Some pharma giants are moving forward with plans to build and occupy new space despite the volatile market conditions, including Eli Lilly in Boston’s Fort Point neighborhood and AstraZeneca in Kendall Square.
Coughlin said the vacancies will give companies more flexibility to locate in the Kendall Square biotech hub where the “bump factor” — executives bumping into one another at lunch — can yield collaboration deals; in Boston’s Seaport district, a short hop from the airport for visiting foreign executives; or, in smaller communities across the state.
Sites in the suburbs or in central Massachusetts are becoming more popular, Coughlin said, because many life sciences companies recognize that their employees “don’t want to sit in traffic” on the way to Boston or Cambridge.
Read the full report below.
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Whitney – what do you mean when you say “alignment of building structures (…) is the key to altering the real estate market”?
Are you actually saying that all buildings should be the same height or otherwise uniform? What “altering of the real estate market” do you have in mind?
Also, what do you think you will be able to buy low – housing? Commercial property?
The comment I pasted below that someone left on the Boston Globe discussion forum puts your claim in perspective:
Anyone even remotely familiar with construction costs knows that you are looking at 300.00 per sq ft for very basic materials and labor in 2023.
A "triple decker" (an eyesore if there ever was one) would run you probably $1.1M to build after you acquire the land (another 200K or thereabouts). So you are "all-in" at approx $1.3M for three 1000 sq ft dwellings, or about $433,000+ per unit. Mind you, that's for a very basic housing unit [just to create it, no profit factored in].
So with that in mind, are you going to market your new housing units to rent? Nobody can afford the 3500-4000 you would really need to cover your nut. Are you going to actually develop a property like this? Not unless you are clinically insane.
There is no such thing as "affordable housing" and there never will be. The $1000.00 per month dwelling unit is never, ever, coming back. Materials and labor are not affordable. Change all the zoning laws you want but it's all about costs.
23,000 units have been approved and not built. Tens of thousands were built over the last decade under the “arcane” rules [which didn’t get in the way].
It’s simply the interest rates and cost of construction. (In other words the total cost).
The cost of approvals is small by comparison.
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