Monday, February 25, 2008

Recession rebuttal: Cost of lab space continues to climb

By Bridget Botelho

While new lab space continues to be built, and older space continues to be vacated in Boston and Cambridge, the supply in popular outskirts such as Waltham, Bedford and Lexington is dwindling.

Companies such as Altus Pharmaceuticals Inc. are moving out of the high-priced Hub and its neighbor across the Charles and into the more spacious suburbs, according to Jones Lang LaSalle's recently released Greater Boston Lab Market overview for the fourth quarter of 2007.

Cambridge is one of the hottest spots in the world for the life sciences industry, so space is in demand with few, high-priced options. Average asking rents in Class A newly constructed and renovated lab buildings at the end of 2007 was $59.09 per square foot gross -- an increase of more than $15 a foot since early 2006, according to the report.

Being in Cambridge, however, has its benefits, such as being close to MIT and Harvard University, where research is done and new employee candidates are recruited, said Dan Cordeau, a senior vice president at Jones Lang Lasalle, who worked on the report.

"There is a real cachet to being in Cambridge. If money is no object, you want to be near the action," Cordeau said. "Biotech is also driven by landlords that are willing to fund the lab space -- there are four landlords in Cambridge that do this, but landlords in the suburbs do not, nor do they in other cities. Cambridge is unique in the market because of this sort of investment in biotech space."

The Greater Boston lab market vacancy rate dipped into the single digits in fourth-quarter 2007, declining to 9.5 percent from 11.7 percent in the year-earlier quarter. But that should increase in Boston as new developments come on line, including 301 Binney St. (417,140 square feet), which is expected to be completed at the end of this year.

In addition, a combined 1 million square feet of space for life sciences industries is being developed in Cambridge, Waltham and Boston's Longwood Medical Area, so rents are expected to stabilize, the report showed.

Peter Abair, director for economic development at the Massachusetts Biotechnology Council, which supports and promotes growth of the life sciences sector in the state, said having a Cambridge postmark is important for many life sciences companies.

"There are companies that do want their address to read Cambridge, and they will pay a premium for that, and it is built into their business model. Even small startups are willing to do so," Abair said.

But once a certain price is reached, companies tend to migrate out of the city instead of paying the high price, especially more mature companies that already have a name for themselves. "We see companies grow up in Cambridge, but have to keep costs low and move out to the suburbs," Abair said.

In 2007 approximately 508,355 square feet of lab space was filled in the suburbs -- the largest increase since the market peaked in 2000 -- and it is now difficult to find vacant space. Consequently, rents went from the mid-$20s in the Greater Boston suburbs last year to the current levels in the mid-$30s, the report said. However, that is about half the $59 rate listed for Cambridge.

A few longtime Cambridge-based companies moved to the less expensive suburbs recently, including ImmunoGen Inc., Shire Pharmaceuticals Group and Altus Pharmaceuticals Inc.

Altus, a biopharmaceutical company that develops protein therapeutics for gastrointestinal and metabolic disorders, signed a 168,736-square-foot lease for two adjacent buildings in Waltham -- 333 Wyman St. and 610 Lincoln St. -- in November. It plans to be in those facilities by summer.

The company is now scattered among four buildings in Cambridge because finding adjacent space in one building at an affordable price proved impossible, said John A. Jordan, a spokesman for Altus.

When Altus started looking for new space almost two years ago, the growing company had less than 70,000 square feet in three buildings in Cambridge. During 2007, the company added another 50,000 square feet for a total of 120,000 square feet over four buildings, Jordan said.

"We really needed to consolidate because it was challenging to keep communications with employees and stay coordinated being in four separate buildings," Jordan said. "The new space gives us a much better value than what we have in Cambridge. We couldn't afford the space in Cambridge to be under one roof -- there aren't options, and the cost is prohibitive."

Jordan said Altus has employees living in both the city and suburbs, so while not everyone will be happy with the pending move, the two buildings in Waltham are first-class facilities, and amenities such as full-service dining and health clubs, should change people's minds, he said. The move also gives the growing company room to expand, he said.

Jones Lang LaSalle's Cordeau said the demand for life sciences space is strong -- unlike in the residential market -- because the commercial market hasn't built as much new real estate as the residential market has, keeping supply in check with demand. Also, life sciences research requires investment dollars that come from venture capitalists or pharmaceutical companies, which aren't affected by the subprime mortgage crisis the way the residential market is, Cordeau said.

The importance of the life sciences sector on the economic growth of Massachusetts is not lost on the Massachusetts Biotechnology Council. That is one reason why the council convenes on a monthly basis with government and private agencies to go over leads and make sure everything is being done to attract biotech companies to the state, Abair said. The organization is also launching the "Bio-ready Communities Campaign" for cities in Massachusetts that are interested in adding lab space but that don't have the proper zoning or regulatory knowledge.

Bridget Botelho is a freelance writer in North Providence, R.I.