Greater Boston Lab Market


The Boston lab market came down to earth in 2022, following a red-hot first couple years of the pandemic. Macroeconomic concerns related to the stock market, inflation, and rising interest rates tightened up capital throughout the final three quarters of last year, and IPO activity and VC funding fell from its peaks reached in 2021. The effects of limited cashflow resources rippled throughout the market, as many startup and medium-maturity firms contended with drying funds, leading to thousands of layoffs and reduced space requirements. The sublet rate finished 2022 at 3.2%, up from 1.2% at the start of the year, while vacancies jumped from 1.5% to 3.7%. Pressures on demand hit as the supply wave reached its peak, and vacancy in newly delivered properties played a large part in rising vacancy rates. On the investment side, deal volume slowed throughout the year, and just a couple lab transactions closed in Q4 2022.

Despite last year’s headwinds, fundamentals in the Boston lab market remain in excellent position. While fundraising and demand may have cooled from the scorching levels reached in 2021, they still ranked near the strongest years on record. Vacancies also remain near a record low, while starting rents on new leases continue to increase. Vacancy expansion in Q4 2022 was mostly attributable to empty space in newly delivered properties, and net absorption still reached impressive totals of roughly 700,000 SF in Q4 2022 and 800,000 SF for all of 2022. The market’s increased sublet rate may even represent a healthy overcorrection, as several sublandlords are companies that defensively overexpanded footprints during the intensively competitive battle for space across 2020-21. Most of the sublet space listed is in the Class A segment, which will provide relief for tenants in the market for quality space. While less mature companies have burned through cash and laid off employees during the stock market downturn, Big Pharma has picked up some of the slack. Several of the largest leases of 2022 were from Takeda, AstraZeneca, Eli Lilly, and other industry giants. Big Pharma has also been active in the M&A scene, and the top firms reportedly have about $500 billion in cash, with the ability to buy roughly 650 smaller public companies.


The pipeline continues to grow, as developers seek to capitalize on limited availabilities and meet the needs of expanding tenants. Greater Boston had more than 4 million SF of active lab tenant requirements in the second half of 2022, more than double the amount of space vacant. Nearly 70 million SF is under construction, permitted, or proposed, of which roughly 17 million SF is under construction and another 16 million SF is permitted. The size of the pipeline has spurred concerns about overbuilding, which combined with macroeconomic factors, stalled and cancelled a handful of projects last year, but projects continued to be announced on a regular basis. Despite recent headwinds, investors remain bullish on lab, especially compared to the office sector. Several recently traded office properties are planned for redevelopment to lab, and more than 10 million SF of the pipeline is in conversion projects. The pipeline is focused on emerging life sciences hubs in Boston, like the Seaport and Fenway, and the 128 West submarket.