Four years ago, it was nearly impossible to find lab space for rent in Cambridge. Now nearly a quarter of it stands vacant.
Only 0.3 percent of Cambridge lab space was vacant in the third quarter of 2021, when rents averaged $113 per square foot, according to the real estate firm CRBE. Now the vacancy rate is 22 percent and rents have fallen to $93 per square foot. All told, 4 million square feet of state-of-the-art equipment and bench labs meant for life-saving discoveries instead sit empty.
These figures reflect broader trends in research and development within the biotech industry, caused by shifting expectations, a pandemic-led boom that has contracted and uncertainty driven by the political and economic climates.
From zero percent to 22 percent in four years
Part of the shift is due to the success of Covid vaccine development in 2020-2021, which prompted huge investments in the biotech industry, said Ben Bradford, head of external affairs at the Massachusetts Biotechnology Council. Those investments sparked a development boom that brought large amounts of space online at the same time businesses backed by boom-time investments were failing, creating vacancies where there were none. Fewer new companies are able to access funding and those that do have capital are extra cautious with their spending. “Early-stage companies are what makes Massachusetts and Cambridge really special, and if they’re not getting funding, they’re not going to continue growing,” Bradford said.
A market reset after a period of growth is expected, Bradford said, but any potential recovery is being disturbed by overarching uncertainty, leading to less funding in the industry along with unprecedented vacancy rates. Cuts to the National Institutes of Health, Small Business Innovation Research programs potentially not being reauthorized, Food and Drug Administration regulatory uncertainty and unknown effects of tariffs on the pharmaceutical industry all add to this context.
These challenges have led to a decrease in seed funding, enhanced by an increased preference for late-stage venture capital funding, which means investors wait longer to invest in companies that are more established. This affects early-stage companies lacking the revenue that commercial companies bring in from sales.
Matt DeNoble, senior director of investment management for life science at real estate company Greystar, said the limited number of available lab spaces in 2020-2021 raised rents and made returns more attractive for real estate developers, which pivoted from office spaces to life science developments.
“That created an environment where it was right to develop and deliver … but as we’ve seen, a good portion of it was also developed speculatively,” he said.
The combination of newly delivered space and opened-up spaces from shuttered or reduced companies has caused an environment prone to the large lab vacancy rates in one of the biggest biotech hubs in the world.
What does this mean for real estate and development?
David Townsend, executive managing director at commercial real estate adviser Newmark, said that while some landlords are waiting out the slowdown until demand shoots back up, other impatient partners are adjusting property values and lowering rents to attract tenants and fill up the empty space, Townsend said.
“You will see some of these buildings trade and sell at a discount to their former value,” he said. “That allows [owners] to lease it out at lower rents, which I think, will be good for the ecosystem.”
Maggie O’Toole, chief executive at nonprofit life science incubator LabCentral, said that because money is not flowing as quickly to early-stage companies, they are more inclined to stay in spaces such as LabCentral, where they have access to equipment and space without being tied to a lease.
“They’re going to be much more inclined to stay in a space like ours as long as they can, until they’re certain that they’ve raised the level of money that enables them to move into one of the larger spaces,” she said.
O’Toole said this is an opportunity to think about how to use space differently, something LabCentral did by introducing its AI BioHub to house an AI Bio Accelerator Program dedicated to artificial intelligence-focused life science startups.
“We would never have had the ability to do that before,” she said, “because our spaces were full all of the time. Because we have some empty space … we saw this opportunity to go after a grant that enabled us to take one of our labs and dedicate it fully toward exploring the intersection of AI and biotech.”
Mark Fallon, director of research and strategy at Hunneman, said during the boom a lot of second-generation spaces – previously used and converted – entered the market and were occupied, thanks to high demand. Now, companies can choose between newly built, purpose-designed laboratories or older, repurposed spaces that aren’t ideal and thus are less likely to be filled. As a result, office-to-lab conversion projects have slowed significantly.
Rents have dropped as a direct result of this excess of supply, Fallon said. He does not believe this will be terminal for either industry.
“Biotech is a cyclical industry, real estate’s a cyclical industry … I don’t think anyone’s ringing the death bell for biotech or life science,” he said. “None of these diseases are going away. People are still just [as] concerned about cancer, Parkinson’s. The market isn’t gone, it’s just a timing issue.”
Cambridge to the rescue?
Melissa Peters, Cambridge’s assistant city manager for community development, said she recognized the life science sector was in a “chilling off period” but said the city remains a strong hub for life sciences and biotech. Although there is uncertainty, Peters said, the slowdown is part of the economic cycle, and she is confident the economy would readjust. “[We] just need to be a little bit more proactive and innovative in coming up with how to ride that uncertainty,” she said.
The state has helped ease the drop in federal funding and provided incentives for development, Peters said. She also said the city is happy to work with tenants looking to fill vacancies and mentioned the Economic Opportunity and Development Division, which looks to act as a liaison to help Cambridge businesses and industries.
Peters said the goal is to have a healthy biotech industry in Cambridge with a diverse economic ecosystem that avoids oversaturation. That means providing space for ventures of all sizes, from startups to large companies and tough tech to biopharma.
“Cambridge is the most innovative square mile on the planet,” she said. “While it’s certainly concerning for us … we really do see Cambridge as kind of home base for companies to be at.”
This story is part of a partnership between Cambridge Day and the Boston University Department of Journalism.
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It’s curious that the city is now providing “incentives for development”–a 22% vacancy rate means that we are overdeveloped already. So this would be the wrong time to spend more.
Even worse, it appears from CD’s reporting on looming tax increases that small local retailers and restaurants are going to be picking up the tab for sharp tax increases due to biotech vacancies.
In both commercial and residential real estate, the city’s constant push for more is making us a less affordable, less friendly, less sustainable environment for existing residents and entrepreneurs.
It’s ridiculous to lump lab and other commercial real estate in with residential real estate in Cambridge.
We don’t have an oversupply of residential real estate. You can tell that because housing costs and rents are still astronomical—yet continue increasing!
We hardly have any multifamily currently under construction, so suggesting that the pace of residential construction is unsustainable makes no sense, and of course new residual meets much higher passive house standards for environmental sustainability and Cambridge’s Green Score for climate resiliency.