Greater Boston Biotech
Despite broad economic uncertainty, greater Boston’s biotechnology industry remains a real bright spot among the area’s commercial real estate market. The COVID-19 epidemic has spurred record levels of life science venture capital funding, IPO activity, and NIH grants that have kept the industry more than strong through challenging times. While overall employment is down 10% since February 2020, Scientific Research and Development Services employment is slightly up. Such durability in the labor market is reflected in the space market. Absorption finished at a positive 125,000 square feet compared to negative 1.4 million square feet of office absorption. Overall vacancies remained at the incredibly tight rate of 4.5% near record lows despite the global pandemic. While sublet availabilities rose to 738,000 square feet, more than half of the increase was due to two large blocks being added in Kendall Square that will likely be quickly leased. Rents continued the same positive momentum pre-pandemic closed higher than what they were the previous quarter.
Investment in lab properties has dramatically increased as investors bet on the positive tailwinds of the biotechnology industry post-COVID. Major life science assets, potential conversion opportunities, and development sites have hit the investment sales market with heavy investor interest. Dozens of developers have outline new projects across the region since the commencement of COVID-19. Many of these projects are betting on the life science ecosystem expanding beyond Cambridge and into Boston and out to Route 128. With millions of square feet proposed over the next five years, the current lab pipeline may seem frightening. However, it’s too soon to raise concerns. Greater Boston alone added 15 million square feet of lab the past decade which the market absorbed with ease. Further the current market is simply too tight and funding levels too high to believe that we’re at levels of oversupply just yet.
High funding levels should continue to fuel strong lab demand. Venture capital investment is the lifeblood for biotechnology and is strongly correlated with job growth and lab space demand. Approximately $1.6 billion in VC funding was invested in greater Boston biotechnology companies in the third quarter of 2020, the second-highest quarter on record after Q2 2020. The IPO market has too remained healthy providing another capital injection for local firms. More than seven Massachusetts-based biotechnology firms went public in the first half of 2020, totaling a third of all biotech IPO’s.