METRO BOSTON Q2 2018 | BIOTECH REPORT
TOTAL VACANCY RATE
Q2 NET ABSORPTION (SF)
ASKING RENT ($/SF)
UNDER CONSTRUCTION (SF)
3.2%
682,306
$40.57
1,260,795
303 Congress Street | Boston, MA 02210 | 617.457.3400 | www.NAIHunneman.com
1
201 8
Q2
BOSTON / SUBURBAN LAB TOTAL INVENTORY (SF)
TOTAL VACANT (SF)
TOTAL VACANCY RATE
Q2 NET ABSORPTION (SF)
YTD NET ABSORPTION (SF)
Boston
5,773,263
155,703
2.7%
195,624
282,003
Suburban
7,709,620
639,344
8.3%
66,296
248,664
TOTAL
13,482,883
795,047
5.9%
261,930
530,667
TRENDS
NETAbsorption ABSORPTION Net
•
700 600 500
SF (000s)
400 300 200 100 0
•
-100 -200 -300 2013
2014
2015 Boston
2016
2017
2018
Suburbs
Biotech firms continue to cluster outside of Cambridge. This has benefited demand for space in relief valve markets like Watertown, Waltham, 2013 Bedford, and Brighton. 2013feet in Boston and the Second quarter net absorption totaled 261,930 square 2014 suburbs combined, and vacancies declined to 5.9%. The future remains bright for 2014 life science hubs outside of Cambridge as demand 2014 for lab space far outstrips supply. While tenant preferences will remain focused on Kendall 2014 Square, the lack of space and frothy pricing will push growth out along Route2015 2 and the Route 128 Corridor.
2015 2015 Move-ins from Dana-Faber Cancer Institute at 3602015 Longwood Avenue (83,550 SF) and Proteostasis Therapeutics at 80 Guest Street 2016 (29,836 SF) and the completion of the fully-occupied 40 Guest Street drove much 2016 of this quarter’s absorption 2016occupancy at the LINX in in the Boston lab market. In the suburbs, Aileron took 2016
Watertown, and Visterra relocated to 275 Second Avenue in Waltham. Such robust activity points to growing lab clusters beyond the Cambridge borders.
Future Supply FUTURE SUPPLY
55,000 SF
•
Massachusetts’ Metrowest region continues to expand its prominence as a life science hub. Marlborough-based CeQur is planning to grow its footprint following the acquisition of a diabetes device from Johnson & Johnson, while Alira Health is planning to double its lab space at 1 Grant Street in Natick (reaching 13,000 SF). WuXi Biologics announced plans for its first U.S. facility, which will encompass 70,000-100,000 square feet at the Worcester Biomanufacturing Park. LakePharma, Inc., Replimune, and Astellas recently announced expansion plans in this region as well.
•
Drug manufacturing operations are moving to suburban locales with accessibility to R&D operations in Cambridge. High costs and a non-existent inventory have led firms such as Alnylam and Moderna Therapeutics to establish manufacturing facilities in the Route 128 Corridor. In fact, Moderna will opened its 200,000-square-foot Norwood-based manufacturing facility in the third quarter of 2018. King Street Properties is throwing its hat into the ring as well. The Cambridge-based life science real estate owner purchased the former headquarters of the MetroWest Daily News on New York Avenue in Framingham. They plan to create a life science hub at the site with Replimune Group anchoring the project. Expect this trend to continue as scientists and other R&D employees desire direct access to production operations.
•
M&A activity remains healthy in Boston and the suburbs. Otsuka Pharmaceuticals announced plans to acquire Waltham-based Visterra for $430 million in an all-cash deal. That said, Visterra’s operations will remain in Waltham. New Jersey-based Catalent is acquiring Boston-based Juniper Pharmaceuticals, and will maintain the 7,000-square-foot Boston office at 33 Arch Street. Bio-Techne Coporation plans to acquire the Waltham-based Exosome Diagnostics for $250 million in cash as well.
55,000 SF
214,910 SF 214,910 SF
Available
Leased
CONTIGUOUS BLOCKS Contiguous Blocks 1 3 2 5 18 0K SF
2
25K SF
50K SF
75K SF
100K SF
EAST CAMBRIDGE LAB TOTAL VACANT (SF)
TOTAL VACANCY RATE
Q2 NET ABSORPTION (SF)
YTD NET ABSORPTION (SF)
9,911,857
64,114
0.6%
400,527
385,439
TRENDS •
Vacancies in Cambridge’s premiere lab market are essentially zero. Although rates inched up to 0.6% in the second quarter of 2018, there is less than 65,000 square feet of vacant space in East Cambridge. As has been the trend over the last two years, any available space is quickly leased here — in many cases through off-market deals. There doesn’t seem to be any clouds in East Cambridge’s forecast. Expect tenants to struggle to find space to accommodate their growth as tight fundamentals and higher rents will continue to characterize this market in the near-term. Lease rates are still rising, with higher-end space now in the low-$90s on a per-square-foot basis.
Vacancy VACANCY 10%
600 500
8%
400 300 SF (000s)
East Cambridge
TOTAL INVENTORY (SF)
6%
200 4%
100 0
2%
-100
Consistent tenant demand has supported new construction in East Cambridge. Alexandria Real Estate’s 431,500-square-foot 100 Binney Street came on line this quarter. It is currently fully-occupied. The firm’s 164,000-square-foot development at 399 Binney Street will also deliver fully-leased during the second half of 2018. Tenants are paying top dollar for this space with base rents in the low-to-mid $80/SF, and TI allowances are roughly $200/SF. An office user, Philips North America, plans to occupy 80% of the first phase of DivoWest’s Cambridge Crossing development. With the remainder of the building currently under agreement, site work has begun on a second speculative building, which is scheduled to deliver in early 2021.
-200
0% 2013
2014
2015
2016
Net Absorption
2017
2018
Vacancy
Construction Trends TRENDS CONSTRUCTION 800 700 600 SF (000s)
•
500 400 300
•
Expansions are dominating the East Cambridge Submarket. Ipsen Biosciences, after acquiring drug assets from Merrimack Pharmaceuticals, renewed its 69,500 square feet at 1 Kendall Square. The firm also maintains a location at 650 East Kendall, and recently announced plans to relocate its headquarters from New Jersey to Cambridge. Surface Oncology executed a 33,529-squarefoot lease expansion at 50 Hampshire Street, and Magenta Therapeutics, currently located at 50 Hampshire Street, is subleasing more than 69,000 square feet from Novartis at 100 Technology Square.
200 100 0 2013
2014
2015
2016 Leased
2017
2018
2019
Available
NOTABLE TRANSACTIONS Notable Transactions Ipsen Biosciences
•
•
Co-working for lab users is gaining momentum. Mass Innovation Labs has expanded rapidly throughout Cambridge and Boston, and now Alexandria Real Estate Equities is getting into the game. The company is expanding its Alexandria LaunchLabs and opening a 20,000-square-foot co-working space at 1 Kendall Square in East Cambridge. This move will provide much-needed lab space for biotech startups looking to set up shop in the ultra-tight Kendall Square market. Funding momentum is strong among East Cambridge life science companies. Magenta Therapeutics and Avrobio raised $100 million and $99 million in their initial public offerings, respectively. Several major VC investments took place during the second quarter as well. Akero Therapeutics raised $100 million in convertible debt, CAMP4 Therapeutics raised $65 million in venture funding, and Constellation Pharmaceuticals grabbed $55 million in a Series C round.
Magenta Therapeutics Sage Therapeutics Surface Oncology InVivo Therapeutics 5K SF
25K SF
45K SF
65K SF
85K SF
3
201 8
Q2
LIFE SCIEN
NIH FUNDING PER CAPITA FY 2017
$266 to $397 $99 to $266 $56 to $99 $26 to $56 $26 or Below
TOP 6 FUNDED
IN 2017 CITY
AWARDS
FUNDING
Massachusetts General Hospital
Boston
812
$394.5
Brigham and Women’s Hospital
Boston
571
$390.5
Harvard Medical School
Boston
415
$213.7
Boston Children’s Hospital
Boston
345
$157.6
Worcester
332
$154.4
Boston
219
$144.7
ORGANIZATION
Univ of Massachusetts Med Sch Worcester 4
Dana-Farber Cancer Institute
(IN MILS)
N C E FUNDING TOP 5 U.S. CITIES
NIH FUNDING
Top Five U.S. Cities in NIH Funding FY 2017
FY 2017
Boston
New York
Seattle
Philadelphia
Baltimore $0.0
$0.5
$1.0
$1.5
$2.0
$2.5
In Bils
NIH FUNDING BY TYPE OF INSTITUTION
NIH Funding by Type of Institution FY 2017
MASSACHUSETTS
NIH FUNDING MA TOTAL
$2,717
80% % of Total Funding
FY 2017
FY 2017
100%
60% 40% 20%
BOSTON
$1,989
0% Boston Independent Hospitals
Higher Ed
United States Research Institutes
Private Companies
Non-Profit
BOSTON RANKED FOR MOST NIH FUNDS 23 YEARS
#1
IN A ROW
5
201 8
Q2 Mid Cambridge
MID CAMBRIDGE LAB TOTAL INVENTORY (SF)
TOTAL VACANT (SF)
TOTAL VACANCY RATE
Q2 NET ABSORPTION (SF)
YTD NET ABSORPTION (SF)
5,260,009
25,000
0.5%
3,019
22,424
TRENDS
VACANCY Vacancy 25%
•
Positive net absorption pushed vacancies down to a paltry 0.5% in Mid Cambridge. They have declined by 380 basis points over the year. There is less than 30,000 square feet of vacant space here, and all of it is in the sublease market. Tenants looking to expand here will struggle to find space, especially given that new construction is concentrated elsewhere in Cambridge. While rent growth has slowed, asking rents remained elevated in the mid-$70/SF. Look for fundamentals to remain tight and upward pressure on lease rates in the nearterm forecast.
•
Similarly to East Cambridge, available space is quickly snapped up in Mid Cambridge. Takeda Pharmaceuticals was successful in leasing ARIAD’s former space at 26 Landsdowne Street, which is currently under renovation. Last quarter, Beam Therapeutics inked a deal for 38,203 square feet in the building. Fulcrum Therapeutics took down 28,731 square feet recently here as well. Other major leases signed this year include Abbvie’s 42,313-square-foot expansion at 200 Sidney Street, Mersana Therapeutics’ 34,324-square-foot deal at 840 Memorial Drive and Spero Therapeutics extension and expansion at 675 Massachusetts Avenue. The sheer lack of available space in Mid Cambridge will likely limit leasing activity and absorption in the near term.
•
Funding momentum is strong among Mid Cambridge life science companies. In the second quarter alone, Evelo Biosciences, Scholar Rock and Neon Therapeutics raised $260 million in their second-quarter initial public offerings. Unum Therapeutics, Mersana Therapeutics2017 and Spero Therapeutics also filed 2017 IPOs within the last 12-18 months. A handful of major VC investments took place 2017 recently as well. Most recently, Beam Therapeutics raised $65 million in a Series 2018 A round, while Casma Therapeutics raised2018 $55 million in a Series C round.
•
Traditionally, a relief valve for nearby East Cambridge, Sidney Street has evolved into a top-tier lab cluster in Mid-Cambridge. Anchored by BioMed Realty’s Sidney Research Campus, this corridor is home to 1.1 million square feet of lab space. Tenants like Agios Pharmaceuticals, Blueprint Medicines, and Abbvie maintain operations along the Sidney Street corridor. As of the second quarter, there were two availabilities here totaling just below 24,000 square feet of lab space. This represents a marked change from just three years ago when vacancies were in the 30-40% range following Vertex’s relocation to the Seaport. Voyager Therapeutics also recently renewed and expanded its leases at 64 and 75 Sidney Street; highlighting the area’s desirability among tenants.
•
Lease rates remain near peak levels in the Mid Cambridge lab market, but observations are limited due to the lack of available spaces. As a result, rents ended the second quarter in the mid-$70-per-square-foot range. Historically there has been a much larger delta between lease rates in this submarket and East Cambridge. As space has become scarce and Mid Cambridge’s status has grown, landlords have been able to push through outsized rent gains here. While peak growth is likely behind us, look for modest gains in the near future.
20%
15%
10%
5%
5-Year Historical Average = 8.2%
0% 2013
2014
2015
2016
2017
2018
Rents RENTS $90 $80 $70 $60 $50 $40 $30 $20 $10 $0 2014
2015
2016
2017
NOTABLE Notable TRANSACTIONS Transactions Voyager Therapeutics Voyager Therapeutics Agios Pharma Astellas 10K SF
6
15K SF
20K SF
25K SF
30K SF
WEST CAMBRIDGE LAB TOTAL VACANT (SF)
TOTAL VACANCY RATE
Q2 NET ABSORPTION (SF)
YTD NET ABSORPTION (SF)
787,860
55,789
7.1%
16,843
16,843
TRENDS •
With close to 17,000 square feet of positive absorption in the second quarter, vacancies declined to 7.1% in the West Cambridge lab market. Much of Cambridge’s available lab space is located here, with more than 56,000 square feet of space currently vacant. Fundamentals remain ultra-tight in both East and Mid Cambridge, and West Cambridge remains a key relief valve for these more established life science hubs. Look for continued movement into the market as space constraints and historically high rents push tenants out of Cambridge’s core lab markets.
VACANCY AND NET ABSORPTION
Vacancy and Net Absorption 150
50%
100
40%
50 0 SF (000s)
West Cambridge
TOTAL INVENTORY (SF)
30%
-50
20%
-100 -150
10%
-200
•
•
•
•
Japan-based Eisai is relocating operations from Andover to the Alewife Research Center. The new drug discovery lab, totaling more than 48,000 square feet, will anchor The Davis Companies’ 227,000-square-foot 35 Cambridgepark Drive, which is slated to come on line in the third quarter of 2018. Reportedly, the remainder of this building is committed save two floors. As lab space has become scarce throughout Cambridge, tenants have been willing to move further out from Core Kendall Square and this market. As a result, landlords have been able to push through stronger rent gains over the past few years, with lease rates rising by 30% since the end of 2014. With that said, fewer rent observations have led to some volatility in the data. Rates for space in West Cambridge continue to offer a step discount compared to neighboring submarkets. Existing lab space boasts a mid-to-high-$50s/SF price tag, while asking rents are in the high $60s/SF at 200 Cambridgepark Drive, which is not included in the current stats. While peak growth is likely behind us, look for modest gains in the near future. Invesco Real Estate recently purchased a four-property portfolio in West Cambridge called the Quad, which encompasses more than 200,000 square feet of office, lab and flex space. The assets changed hands for $73 million or $364/SF, and will likely be repositioned to attract life science tenants to the growing cluster in this submarket. The majority of Cambridge’s construction remains concentrated in East Cambridge, but West Cambridge could see some more action in the future. The Bulfinch Companies are planning to build out the remaining parcel at the Cambridge Discovery Park. The campus can accommodate up to two additional office/lab buildings totaling 250,000 square feet.
0%
-250 -300
-10% 2013
2014
2015 Net Absorption
2016
2017
2018
Vacancy
Asking Rents ASKING RENTS $60 $50 $40 $30 $20 $10 $0 2014
2015
2016
2017
NOTABLE TRANSACTIONS Notable Transactions Eisai Life Biosciences Hydra BioSciences Celgene 10K SF
20K SF
30K SF
40K SF
50K SF
7
201 8
Q2
M
TOTAL INVENTORY (SF)
E
T
R
O
B
O
S
T
O
N
BIOTECH RECAP
UNDER CONSTRUCTION (SF)
DIRECT VACANT (SF)
SUBLEASE VACANT (SF)
Q2 NET ABSORPTION (SF)
TOTAL VACANCY RATE
YTD NET ABSORPTION (SF)
BOSTON TOTAL
5,773,263
125,000
120,669
35,034
2.7%
195,624
282,003
East Cambridge
9,911,857
764,000
33,702
30,412
0.6%
400,527
385,439
Mid Cambridge
5,260,009
-
-
25,000
0.5%
3,019
22,424
787,860
226,885
49,780
6,009
7.1%
16,843
16,843
15,959,726
990,885
83,482
61,421
0.9%
420,389
424,706
Route 128 North
1,220,676
-
22,973
16,149
3.2%
3,809
42,735
Route 128 Northwest
2,261,210
-
181,990
18,859
8.9%
(9,102)
(9,102)
Route 128 West
2,123,558
144,910
87,773
6,000
4.4%
111,601
96,326
Route 495 North
849,329
-
175,702
-
20.7%
(55,000)
(147,093)
South
276,159
-
3,757
-
1.4%
(3,757)
(3,757)
West
978,688
-
64,127
62,014
12.9%
18,742
269,555
7,709,620
144,910
536,322
103,022
8.3%
66,293
248,664
29,442,609
1,260,795
740,473
199,477
3.2%
682,306
955,373
West Cambridge CAMBRIDGE TOTAL
SUBURBAN TOTAL MARKET TOTAL
METHODOLOGY SOURCE: Co-Star, NAI Hunneman Commercial Company. PREPARED: June 2018.
LIZ BERTHELETTE | Director of Research 617.457.3306 |
[email protected]
DISCLAIMER: The above data is from sources deemed to be generally reliable, but no warranty is made as to the accuracy of the data nor its usefulness for any particular purpose. Average Rental Rates are asking rents on direct space. Vacant space includes both direct and sublease space.
