Kendall Square Still Shining Despite Vertex Move to Boston

CAMBRIDGE—Kendall Square wrapped up the summer by scoring two big life sciences leases – with Pfizer Corp. and Japanese drug manufacturer Esai’s “startup” H3 Biomedicine—but the big changes to the landscape will come when steel for a slew of scheduled build-to-suits starts going up, according to Cambridge leasing veteran Joseph Flaherty.

“The real story is that there’s a lot of stuff being built, 1.8 million square feet— which is huge,” says the Managing Partner of Suburban Brokerage for Colliers International. “And all that (property) is going to get built in the next two to three years.”

The two major leases announced in late August have given an additional boost to the Kendall Square submarket, which enjoyed a 9.9 percent direct vacancy rate and a 12.5 percent availability rate for office at the close of Q2 (with 14.2 and 19.7 percent marks for lab), according to Cushman & Wakefield leasing reports. Class A asking rents were averaging $41.31 per square foot for office and $64.69 per square foot NNN for laboratory space. And while the fundamentals are a far cry from the salad days of 2000 (when the office vacancy rate was under 1 percent), market watchers say it offers reason to rejoice in this
economic climate.

Funded by a $200 million cash infusion from Japan’s Esai (which maintains a 300-employee R&D facility in Andover), H3 Biomedicine quietly moved into nearly 50,000 sf at 300 Technology Sq. “Tech Square was a great fit, in terms of the infrastructure itself, the location, the quality of the operator (Alexandria Real Estate Equities), and the ability to recruit, ” conveys Cushman & Wakefield Director Juliette Reiter, who along with Executive Director Mark Winters represented both the landlord and the tenant in this transaction. “Some of the scientific founders of the company (H3) are at the Broad Institute, which made it even more attractive,” adds Reiter.

H3 currently occupies one floor of the Tech Square building that features 175,000 sf of office and laboratory space. “They just moved into the fifth floor, (after) demolishing what was there and re-building it to their specifications, and next year they will be growing into (the sixth floor),” Reiter explains.

A commitment for build-to-suit space at 610 Main St. in Kendall Square by Pfizer (where they plan to add 400 new jobs) will bring the pharmaceutical giant closer to the region’s top scientific talent, according to the company’s press release commenting on the 180,000-sf deal. Pfizer will move into short-term space at the end of this summer at 620 Memorial Dr. in Cambridge. Their Neuroscience unit will relocate to interim operations in the second quarter of 2012. Pfizer expects to move into the new space when it is completed in the fourth quarter of 2013.

The Pfizer facility will be one of many projects under construction in East Cambridge, and boosters such as Flaherty maintain the perceived threat for life sciences supremacy by the nascent Innovation District in Boston’s Seaport District could be put to rest as the Cambridge cranes begin swinging into action. “For lab tenants, there aren’t that many options over there,” Flaherty says of the Innovation District, which scored a highly publicized coup this summer when Vertex Pharmaceuticals opted to leave Kendall Square. “All the other tenants I talk to want to be right in Kendall Square,” reports Flaherty. “I don’t see that trend of the Cambridge companies moving over to the Seaport.”

Reiter says that the Innovation District may be suitable for office users and alternative energy companies, “but for pure biotech companies, a lot of them, after having looked at the Innovation District, feel that they would be better off in buildings that have been lab, or are specifically for lab and would be a better fit that they could do on a quicker timeline.”

Flaherty gave a quick preview of the coming Kendall Square attractions, which include: the Broad Institute’s 12-story, 250,000-sf research and administrative property adjacent to the group’s current facility; Novartis taking 500,000 sf at 181 Massachusetts Ave; and Skanska going forward on a speculative 105,000-sf building on Second Street. Also, Biogen Idec has signed leases at 17 Cambridge Center (190,000 sf) and 225 Binney St. (307,000 sf); and the Ragon Institute is committed to 100,000 sf at 400 Tech Sq.

Flaherty says there is another long-promised player finally coming online—the NorthPoint mixed-use project—for which Colliers is the exclusive leasing agent. Proposed several years ago, the venture has been held up for a variety of reasons, including a challenge by environmentalists, in-fighting among partners, and the crumbling economy. But now, says Flaherty, NorthPoint “is being actively marketed and we’re pursuing big tenants for build-to-suits,” adding, “All the bad stuff . . . all that is behind. They’ve got a whole new team in place.”

New owner Pan Am and development partner HYM Investment Group are moving forward with the project, a multi-faceted development that calls for 2,800 residential units, more than two million sf of office and laboratory space, and 185,000 sf of retail. HYM and Canyon-Johnson Urban Funds joined with Atlas Capital Group last year to develop the 44-acre property, the largest remaining parcel of open land in Cambridge.