Cambridge Lab Market Regains Aura - Space Tightens

CAMBRIDGE — These days, this city’s biggest commercial real estate competition appears to be internal, at least when it comes to the struggle to find space in the ever-tightening East Cambridge district. The latest bioSTATus review from Richards Barry Joyce & Partners says demand for office space from technology titans is hiking pressure to build new product after an era where all two million sf of new construction in Cambridge has been for laboratory uses, and in that same period since 2004, one million sf of office space has been consumed for adaptation to laboratory. Higher rents and a more favorable lease structure are key reasons for the lopsided trend, but landlords and site owners are becoming hard-pressed to turn away the likes of An Amazon.com, Google or Microsoft that are more than willing to expend money for office space in the best venues.

“It is becoming a battleground in every way,” says RBJ Senior VP of Research Brendan Carroll. “The candle is burning at both ends and supply is getting rapidly depleted to the point it is going be become very space constrained in the near term.” In its own realm, meanwhile, the Cambridge laboratory arena has fought back against suburban— and urban—interlopers who were luring tenants away to low-cost alternatives or those enabling expansion or perceived as being superior in other ways, most famously the Vertex Pharmaceuticals pact to leave its roots in Cambridgeport for the Hub’s Seaport District, a move finally about to commence. That landmark 1.1-million-sf defection gave Cambridge a mere 27 percent of regional take-up activity from Q3 2007 to Q3 2011, compared to an 87 percent stake in take-up during the subsequent six quarters as the city’s popularity has come storming back. (Take-up is a new metric from RBJ used to calculate market conditions more accurately. An explanation can be found inside).

Whatever the measure, Cambridge does again appear to be the darling of globally recognized biotech and pharmaceutical companies, making the Vertex departure less of a sting, as evidenced in a series of substantial commitments over the past 18 months. “Right now, it’s Cambridge or bust” for laboratory users, says Carroll. Of the top 15 laboratory leases signed since last November, nine are in Cambridge accounting for 525,000 sf of the 685,000 sf in that sampling.

Cambridge’s laboratory construction boom has put vacancy at 14.6 percent for 8.4 million sf—almost half of the regional inventory—compared to 7.9 percent for 5.59 million sf in the suburbs and a razorthin 1.6 percent in Boston, which has 3.16 million sf in circulation. Take-up activity for Cambridge is 1.72 million sf over the past four quarters versus 172,000 sf in Boston and just 2,000 sf on the suburban front, a circuit that has zero laboratory under construction. The Cambridge pipeline is 1.02 million sf, followed closely by 963,000 sf in Boston.

Nervous sorts might be more reasonably worrisome of the sequestering impact, bioSTATus suggests, with the National Institutes of Health pegged for a funding haircut. For now, however, the upbeat trend continues, with Phase III and Phase IV clinical trials up 40 percent the past three years to record levels and nine area biotech concerns filing public offerings and raising a collective $1.5 billion. From his perspective, Carroll says the Longwood Medical Area in Boston would be the most likely prospect for being slowed via sequestration, but maintains the projected 7.6 percent reduction in NIH funding would have only minimal drag on the highflying industry. “That seems to be a very manageable percentage,” he says. The anemic pace in suburban Boston is also not a particular concern, says Carroll, citing the 7.9 percent vacancy rate as indication of a stable inventory that should ultimately benefit as East Cambridge runs out of room, with Boston’s Seaport District and west Cambridge potential relief valves. “There are no metrics that suggest the suburbs are in trouble right now,” he says.