Greater Boston Lab Market Continues Breaking Records for Vacancy Rates, Asking Rents
Greater Boston’s life science sector continued smashing records in the third quarter of 2021, and all signs indicate this trend will continue well into the foreseeable future. Those who closely follow the lab and life science market were hardly surprised by the latest quarterly report from CBRE, which again highlights record-breaking low vacancy rates, soaring asking rents, and unprecedented demand. The region’s life science market, which initially took root in Cambridge, has pushed well beyond those borders. Today, life science clusters that have taken hold in areas like Fenway and the Seaport continue to grow. Even far-flung suburban locales like Waltham and Watertown are emerging as significant players in the flourishing industry.
Major Growth for Lab/Life Science Markets Across Greater Boston in Q3 2021
In its quarterly report for the period from July through September 2021, CBRE provides an overview of the general health of the life science sector across the area. As has been the case for the last several quarters, the data reflects significant growth across all of the most critical metrics. For example, the city, its suburbs and Cambridge experienced positive net absorption of more than 1.6 million square feet during the third quarter of this year. As of the end of September 2021, the weighted average for asking rents in the sector hit $93.75 per square foot. Meanwhile, the overall vacancy rate dropped to an all-time low of 1.6%. Thanks to a slew of new construction and lab conversions slated for delivery over the next 18 months, availability crept up slightly. Leasing activity remained strong, with almost 1.9 million square feet of signed deals completed over the quarter across the region – much of it occurring in emerging clusters far beyond the borders of Cambridge and the Seaport.
Why is Greater Boston Ground Zero for Life Science Development?
Before delving into the specifics highlighted in the latest quarterly report, it may help to touch upon why the region is such a hotbed for life science development activity. Boston and Cambridge are home to a dense concentration of universities, colleges and other institutes of higher learning, including Harvard and MIT. By extension, the region has one of the most concentrated pools of life science and biotech talent in the country, making it easy for employers to find the personnel they need. The region also fetches nearly 10% of all NIH funding, ensuring a steady flow of capital for biopharmaceutical and other life science firms.
Life Science Employment in Greater Boston
While many metro regions across the U.S. suffered employment and economic losses because of the Covid pandemic, Boston’s robust life science sector has largely shielded it from such issues. Indeed, the urgent need to develop a vaccine for the virus created an additional surge in demand for such services, keeping a steady flow of new jobs moving along the pipeline. Across the U.S., life science positions account for roughly 1% of all employment sources; in Massachusetts, they account for around 3.1%. Since 2010, employment in the life science sector across the state has grown by 42%. In Cambridge, the epicenter for life sciences in the region, life science accounts for 22% of local employment. There, the sector has grown by 83% since 2010.
Demand for Life Science Space Surges Along
For many quarters now, demand for life science and lab space has continued to grow across Greater Boston, continuing to outpace supply by a significant margin. Over the next 12 to 18 months, a massive backlog is expected to occur in the industry. There’s currently active demand for more than 6 million square feet of such space, and more than 2 million square feet of that is already committed. More than 10 million square feet were being developed or converted at the end of quarter three, and all of it is slated for delivery by the end of 2023. Approximately 67% of companies active in the life science market are seeking space between 10,000 and 50,000 square feet. There’s been a significant increase in demand from larger firms seeking over 100,000 square feet.
Life Science Market – Boston and Cambridge
As noted previously, Greater Boston saw massive growth and surging demand for life science real estate across the third quarter of 2021. As a whole, the region experienced positive net absorption of more than 1.6 million square feet for such space. The weighted average for lab space asking rents across Greater Boston stood at nearly $94 per square foot, and the vacancy rate was at a record low of just 1.6%.
The numbers are even more telling if you omit the suburbs and look only at Boston and Cambridge – the two regions where life science clusters have been well-established for some time. For example, the overall vacancy rate for life science space across these two cities stood at just 0.2% at the end of the third quarter of 2021. Meanwhile, asking rents have hit record highs across both areas; in Boston alone, for instance, average asking rents for lab space exceeded $100 per square foot at the end of September. Not surprisingly, many firms have started searching beyond the region’s urban core for the space they need.
Cambridge – The Epicenter of Life Sciences in Greater Boston
Without question, Cambridge continues to be the top cluster for life science firms in the nation. In that city, lab average asking rents increased to $112.79 per square foot – an increase of 6% from the previous quarter. At the end of Q3, the vacancy rate for life science space in Cambridge dropped to just 0.3%, representing a significant drop since the same period in 2020, when the rate stood at around 2.2%. The Cambridge life science market saw 500,000 square feet of positive net absorption in quarter three, driven mainly by robust leasing activity in West Cambridge and a massive deal in East Cambridge, which accounted for more than 300,000 square feet of the absorption. East Cambridge continues to be the priciest locale for lab space, with asking rents averaging around $123.09 at the end of September 2021.
The Seaport Cements its Place as a Major Life Science Player
Meanwhile, the Seaport, where many firms started looking as space filled up in Cambridge, has cemented its place as a major player in the local life science sector. Asking rents increased by 23.4% over the last 12 months, reaching an average of $103 per square foot at the end of Q3 2021. The neighborhood experienced positive net absorption of more than 240,000 square feet in that quarter, and the vacancy rate stood at just 0.2%.
Emerging Life Science Markets See Meteoric Growth
As incubators in Boston and Cambridge reach peak operating capacity – some have even implemented waitlists – even more demand for premium life science space is being generated, and many firms are searching further afield for suitable space. A great example is found in Fenway, which added more than 350,000 square feet of life science tenants via new construction and lab conversions in the third quarter of 2021. The submarket had limited life science space before significant new developments, including 201 Brookline and One Kenmore Square. However, its proximity to public transportation and Cambridge are turning it into the next hot life science cluster.
Likewise, the Boston suburbs – known collectively as the 128 West submarket in the CBRE report – are emerging as new life science hotbeds. Emerging clusters in places like Waltham and Watertown have pushed asking rents for life science space up by 34.5% over the last two years; at the end of Q3 2021, the average asking rent for lab space in the suburban submarket stood at $82 per square foot. Even so, the region remains a more affordable alternative than clusters in Boston and Cambridge. Its vacancy rate also hit an all-time low of 2.3% at the end of quarter three, and the region experienced positive net absorption of more than 285,000 square feet during that period. In 2022, more than 1.6 million square feet of new life science space is slated to be delivered across areas like Lexington, Watertown and Waltham.
What’s Next?
Currently, all signs point to continuing meteoric growth for life science markets across Greater Boston. Venture capital funding continues to be robust after hitting an annual record in 2020 and a quarterly record in the first quarter of 2021.
The region now enters the next life science real estate cycle stage as demand for Good Manufacturing Practice (GMP) and biomanufacturing space increases. Firms with research and development facilities across the region are now exploring the concept of developing biomanufacturing and GMP space within easy driving distance of such developments. Such space is far less dependent upon clustering – building to suit key specifications is more critical – so it is being developed across a much broader geographical area. Examples of such space currently under development include Moderna’s new campus in Norwood and a huge GMP/biomanufacturing campus being developed in Devens by King Street Properties.