The life sciences real estate market in the Boston area is experiencing a significant transformation as vacancy rates climb.
While a surplus of life sciences space remains unoccupied, companies are seizing the opportunity in this tenant-friendly environment to upgrade to higher-quality, purpose-built lab facilities.
At the recent Bisnow’s Boston Life Sciences Summit, industry stakeholders acknowledged the trend of firms vacating older lab spaces or those hastily converted from office buildings during the pandemic boom.
These companies are increasingly prioritizing new, specialized lab environments that better meet their needs and that they may not have been able to afford previously.
According to CBRE, the vacancy rate in Greater Boston’s lab market surged from nearly zero in 2022 to 25% last quarter.
However, key players in the industry argue that this overall vacancy figure is somewhat misleading as it does not account for the quality of the spaces available.
John Hynes IV, Vice President at Boston Global Investors, pointed out at the summit that not all vacant properties are appealing to the sophisticated tenants entering the market.
Many older lab buildings, particularly those that were converted from office spaces, do not meet the specific requirements that today’s established life sciences firms require.
Hynes IV stated, “I think our oversupply numbers are artificially inflated, because you have some of these brick-and-beam buildings, for instance, that are not going to fit the bill of sophisticated tenants who may be coming in now.”
Despite the overall market challenges, he noted a significant uptick in tenant activity over the past six months compared to the previous three years, especially among larger, more established companies preparing to take advantage of potentially favorable leasing conditions.
Hynes IV emphasized the propensity for these companies to gravitate towards purpose-built lab spaces, rather than those that have been converted, reinforcing the demand for quality infrastructure.
In the past, developers rushed to convert office buildings into labs to meet the seemingly insatiable demand during the boom.
However, the decline in demand has left much of that converted space empty, with reports indicating that conversion projects accounted for about 90% of the overall vacancies in Boston’s life sciences market as of mid-2024.
Abby Mondani, Vice President at Oxford Properties, revealed that they had considered investing in numerous conversion projects during the height of the lab boom but chose to pass on most due to concerns about product quality.
She remarked, “Demand was so hot that you could get away with subpar products for a long period of time, and that’s just not the case anymore.”
As the market adjusts, companies like King Street Properties are noticing increased tenant interest in their new developments.
Michael DiMinico, a partner at King Street Properties, mentioned that the Allston Labworks development has seen a notable uptick in activity, with many tenants eager to explore new opportunities.
“We’ve seen a big uptick in activity in a lot of our properties,” DiMinico shared.
He noted the focus of tenants on growth and their interest in signing new deals is driving the company to enhance the quality of their developments.
DiMinico stated, “We’re looking at it as an opportunity to make sure that our projects are the Class-A products that are going to attract people that are coming out of Class-B buildings.”
In a unique advantage, the development is attracting a variety of restaurant tenants for its ground floor, which DiMinico believes will serve as a strong selling point for potential lab tenants.
Typically, retailers would fill spaces after the lab units become occupied, but the current market’s dynamic allows for proactive leasing strategies.
Prime Medicine, a lab tenant, signed a 149K square-foot lease at Northwood Investors’ 60 First St. lab building in Cambridge, which was a conversion of a former Sears building.
John Maynes, the Director of Laboratory Operations at Prime Medicine, highlighted the significant differences he perceives between older converted spaces and newer, purpose-built facilities.
Maynes said, “The first labs I worked in were factories that have now become labs and they were condos that have become labs.
There is a huge difference in a purpose-built core shell for lab space like the new building we’re in.”
After previously being scattered across three smaller buildings in Cambridge, the team at Prime Medicine now enjoys a space that not only accommodates their needs but enhances their operational capabilities.
With ample space to work, Maynes expressed his approval of the new facility, stating, “There’s so much room.
It’s amazing. You can do whatever you need.”
Looking forward, DiMinico noted that as the real estate market continues to progress, alternative uses for underutilized spaces may emerge, potentially alleviating the oversupply issues in the lab segment.
Some companies are already pivoting lab projects to accommodate sectors like greentech and advanced manufacturing, which could further absorb excess inventory of outdated lab spaces.
He also mentioned the rising investment in clean technology and artificial intelligence within the state as a possible catalyst for this shift, indicating that these industries may find a more significant role in the future of Boston’s life sciences landscape.
“That helps take some supply off the table and makes it so that there’s less choices for tenants, and hopefully helps other deals go,” DiMinico concluded.
He reflected on how advancements in AI could bolster both the life sciences and technology sectors, suggesting a future where the lines between these fields become increasingly intertwined.
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