Despite development slowdown, the state’s life science industry keeps on building
Labs, manufacturing plants, and offices remain in high demand, and not just in Boston and Cambridge.
December 3, 2020 : The Boston Globe, by Tim Logan
The years-long building boom that has reshaped much of Greater Boston has taken a bit of a pause during the pandemic, except for one sector: life sciences.
The business of financing, building, and filling lab space, drug manufacturing facilities ― and even apartment buildings to house people who work in the industry ― has barely skipped a beat in recent months. Unlike office projects and high-end housing, which have largely gone into hibernation, the life science real estate market is moving full speed ahead, with developers signing leases, celebrating groundbreakings, and lining up billion of dollars in new funding for more building.
From the industry’s traditional hub in Cambridge’s Kendall Square to emerging hot spots in Fort Point and the Fenway to vast campuses in more distant locations such as the former Fort Devens, life science companies are launching a wide array of projects, fueled by investors attracted to a fast-growing industry.
“There’s just tremendous interest in investing in these sort of projects,” said John Bonnano, chief investment officer at IQHQ, a real estate firm that’s launching two major life science developments here, and earlier this month closed on a $1.7 billion fund to finance more in Boston, San Francisco, and San Diego. “There’s an awful lot of capital out there right now.”
It’s chasing a market that has only become stronger relative to other real estate sectors. Traditional office tenants now occupy about 3 million fewer square feet of space across Greater Boston than they did at the start of the year, according to data from real estate firm Newmark Knight Frank. That’s increased vacancy rates to their highest point since 2012. Meanwhile, lab-oriented tenants have added 1.1 million square feet, scooping up space wherever they can find it, and with many companies on the hunt for more.
There are several reasons for the seemingly insatiable demand, say Bonanno and others who watch life science development.
Yes, one is COVID-19, which has sparked a global chase to discover and manufacture vaccines and treatments, while also raising doubts about the long-term future for the downtown skyscrapers and luxury condo towers that have traditionally drawn deep-pocketed real estate investors.
“COVID itself has raised awareness of health care among investors,” said Bonanno, whose firm is getting ready to start work on the enormous Fenway Center over the Massachusetts Turnpike, which had been planned for more traditional office space and housing until IQHQ invested and converted it to a life science project. “We see now how important all this is.”
But well before the pandemic, Greater Boston’s life science industry benefited from a boom in biologics, complex drugs that are more complicated to design and manufacture than traditional medicines. That’s sparking more demand for lab space, and for state-of-the-art drug factories reasonably close to those labs.
That’s what Steve Lynch wants to build at Devens, where his firm, King Street Properties, is starting work on a $500 million biomanufacturing complex, with five buildings across 45 acres. Unlike most drug manufacturing plants, which are custom-built by drug makers themselves, King Street is designing facilities that could be leased and occupied by almost anyone, giving smaller and midsized drug makers quicker access to factories they might not finance themselves.
“Ninety-five percent of users could walk in the door and save 20 to 24 months on the process of getting up and running,” he said. “Up-and-comers who are developing one or two drugs can’t do this on their own.”
The Baker administration has pushed to build more biotech manufacturing plants, betting it’s a way to spread the state’s life science boom beyond its longtime center in Cambridge and the northwest suburbs. Such plants also create good jobs that don’t quite require a PhD.
Economic development secretary Mike Kennealy can tick off drug-making facilities from Norwood to Andover to Worcester, where the state is helping turn the old Worcester State Hospital into a biomanufacturing park. And there are more coming, he said.
“I don’t think our pipeline has ever been stronger,” Kennealy said. “There’s a lot of conversations we’re having right now.”
They’re happening in more places, too.
Just north of Kendall Square, near the Lechmere Green Line stop, development firm DivcoWest is turning a 43-acre railyard into Cambridge Crossing, a 4.5 million-square-foot campus of office, housing, and retail space, all built based on demand from life science companies. Construction crews are framing and filling in three large lab and office buildings, mostly preleased to the likes of Sanofi Genzyme and Bristol Meyers Squibb. Next door is the new North American headquarters of Philips Healthcare, waiting for about 2,000 employees — mostly still working from home — to move in.
“It’s kind of an embarrassment of riches right now,” said Mark Roopenian, who’s leading the project for DivcoWest and planning to break ground on yet another 380,000-square-foot lab building nearby in the spring.
Further afield, projects are underway in Alewife and Watertown, the Seaport, and along Route 128, where Lincoln Property Co. and Callahan Construction broke ground this summer on a 139,000-square-foot lab building in Waltham that will open in early 2022.
And a wider range of developers are getting in on the act.
Office giant Boston Properties, which owns downtown towers that include the Prudential Center and 200 Clarendon (formerly known as the John Hancock tower) said recently it plans to speed development of a life science-oriented campus it owns in Waltham. A few projects that before the pandemic were planned for traditional office space ― such as 401 Congress Street in the Seaport, and Related Beal’s redevelopment of the buildings beneath the Citgo sign in Kenmore Square ― have lately refocused on life science instead. More life science developers are raising funds to buy and develop sites, including Breakthrough Properties, which is launching a lab building near the Broadway Red Line station in South Boston and recently announced $1 billion in capital for new projects.
Even housing developers, battered by sagging rents for high-end apartments, are finding it easier to get financing for buildings that sit close to life science jobs. That’s a big reason work is beginning on Scape North America’s 451-unit apartment building on Boylston Street near Longwood Medical Area, while some other apartment projects remain dormant.
With drug makers still in the market for millions of square feet in and around Boston, real estate analysts expect there’ll be demand to fill many of those buildings. Life science-focused developers like Lynch, however, maintain that their specialized projects are better-suited for most than converted office towers. Either way, he said, the region’s biotech boom shows no sign of slowing, regardless of what the pandemic means for other development sectors.
“Life science is the single bright spot in [investment] markets right now,” he said. “Today everyone who owns these big office portfolios is knocking on the door, trying to get into the lab business.”