The COVID-era building boom in Greater Boston has resulted in the doubling of lab space over the past five years, now totaling 48.4 million square feet.
However, the rapid growth of the biomedical industry in the region has stagnated, leaving nearly 36 percent of that lab space vacant—a record high.
This surplus of empty lab buildings comes at a critical time when Greater Boston faces a severe housing shortage.
Much of the land occupied by these empty labs could potentially house apartment complexes instead.
During the peak days of the life sciences expansion, developers often outbid residential builders for prime land, and many local communities welcomed the commercial tax revenue these new developments promised.
Now, however, converting these idle lab spaces presents significant financial and logistical challenges.
Real estate professionals are grappling with the critical question of how to repurpose these vacant spaces.
The complexity of laboratory buildings makes them difficult to transform into traditional office spaces or residential units.
Lab structures require sophisticated mechanical and air-treatment systems that occupy much more space and incur higher construction costs.
According to Rishi Nandi, a leader in the science and technology practice at design firm Sasaki, lab space construction can cost about $1,200 per square foot, significantly more than standard office space.
As a result, lab buildings demand higher rents to ensure adequate returns for investors.
When developers secure financing for lab construction, they project the expected rental income to show potential returns to lenders.
Lab users typically pay rents that are much higher than those for conventional office spaces; for example, asking rent for new lab spaces in Greater Boston averages around $85 per square foot, while traditional office space hovers around $50.
Most owners considering alternate uses for their empty lab buildings have properties in a ‘core and shell’ status.
This means the structures are nearly complete but still await the specialized finishing required for tenant-specific equipment and fixtures.
Nevertheless, even ‘core and shell’ buildings can feature extensive and costly HVAC systems, along with cooling towers and other specialized installations.
The physical challenges involved in converting these lab spaces into offices or residential units are substantial.
Typically, around 40 percent of a lab building is designed for office use.
However, the entirety of the building must include robust mechanical systems, dependable backup power to prevent research loss during outages, and advanced ventilation.
As such, lab buildings often house approximately three times as much mechanical equipment compared to conventional office buildings, according to Larry Dubord, a senior chief engineer with JLL.
Take, for instance, the mechanical floor on the 17th floor of the 74M building, where a massive air duct runs across much of the expansive, double-height floor, pushing air into the workspaces below.
Unlike standard office and residential properties, HVAC systems in lab buildings do not recirculate air; instead, they continuously intake outside air that must be heated, cooled, and dehumidified before circulating into work areas.
This ductwork generally requires higher ceiling designs that can encroach on rentable space.
A 300-foot residential tower can be packed with at least 25 stories, boasting hundreds of apartments.
In contrast, the 294-foot 74M has just 15 floors available for tenants.
According to Nandi, the difference in required ceiling heights could mean dozens fewer apartments generating rental income each month.
From a financial modeling angle, the disparity translates to significantly less usable space.
Additionally, the actual layout of buildings often varies between laboratories, warehouses, and residential structures.
For instance, warehouses need supporting floors capable of holding heavier loads—suitable for equipment and forklifts—while residential codes mandate ample windows for natural light.
Elevators, staircases, and restrooms are also typically arranged differently in lab buildings compared to residential or industrial buildings.
This adds multiple layers of complexity to any efforts to repurpose the spaces,
and thus, many owners find their best option is simply to wait for the market to rebound.
Some, however, are actively exploring the possibility of marketing their spaces for alternative uses, like traditional offices or medical offices, closer to urban centers, or searching for ‘tough tech’ and advanced manufacturing prospects in suburban areas.
For instance, Boston Properties (BXP), a significant developer of lab spaces, is leasing lab buildings to life-science firms but aiming for non-laboratory uses.
In 2021, BXP initiated a $290.5 million lab building adjacent to ThermoFisher Scientific’s headquarters in Waltham, CityPoint.
Earlier this year, the company signed a lease with an unnamed life-science firm that only sought office space.
BXP’s president Doug Linde informed Wall Street analysts last month of ongoing negotiations for two additional similar deals.
He emphasized that the economics of an office transaction on raw space are more favorable than lab transactions today, especially given the substantial tenant improvement costs needed to be competitive in the lab market.
For developers who have yet to break ground on lab projects, the prospect of shifting uses can translate to significant financial losses.
Many developers purchased land with the expectation of generating high rents from lab tenants, making a pivot to housing potentially a lengthy process fraught with architect, attorney, and engineering expenses due to the lengthy permitting process.
However, some firms are committing to this approach.
For example, Bulfinch president Robert A. Schlager mentioned in June that their firm was contemplating a switch from an already-approved lab project to housing and a hotel at a former dealership site off Route 128.
This shift in development strategy could also impact local municipalities.
City and town governments throughout Greater Boston are banking on the lab boom to diversify their tax bases and increase commercial tax revenue necessary to ease the burden on homeowners.
Somerville, in particular, has added nearly 2 million square feet of lab space since 2020 as part of its strategic agenda for diversifying its tax base.
This is especially crucial after local voters approved a hike in residential taxes in 2016 to fund a $257 million high school.
While some lab spaces are thriving, others, such as the 74M, remain unoccupied.
Tom Galligani, executive director of Somerville’s office of strategic planning and community development, expressed optimism that Somerville’s lab space, being new constructions, will be eventually occupied.
He noted that these facilities incorporate stringent energy efficiency standards attractive to potential tenants.
“All of our stuff is brand new,” he stated, “I’d like to think we’re not going to have the same challenges in the life-science space. But of course, time will tell.”
Matt DeNoble, a senior director for Greystar, the developer behind the 74M building, believes that it is wiser to wait for suitable tenants rather than hastily reallocate space for uses that may not fit.
He noted that the location’s proximity to the increasingly popular Assembly Square, transportation options, and adjacent lab spaces make it poised to become a life-science cluster.
DeNoble mentioned that some companies have started requesting tours of the vacant space.
“We’re starting to see groups say: ‘It’s time for us to make decisions,’” he commented.
“We are not worried long-term about filling this building up.”
image source from：bostonglobe
