Friday, August 22, 2008

Inside Life Sciences

Cambridge: High on vacancies, short on small life sciences lab space

By Catherine Williams, Special to Mass High Tech

After a six-month search for laboratory space in Cambridge, Sirtris Pharmaceuticals Inc. moved into 48,000 square feet of space at 200 Technology Square in December.

Garen Bohlin, chief operating officer at Sirtris, said the company inked the deal after finding two sites that met the company’s expanding needs. After the deal was signed, Bohlin said, the company spent six months building out the shell space to fit its laboratory specifications.

“I thought there would be more out there,” said Bohlin of the lab market.

For life sciences companies like Sirtris hunting for ready-equipped laboratory space at 50,000 square feet in Cambridge, industry experts say the market is tight. Proximity to MIT, Harvard University and existing technology clusters drive demand there. Experts expect demand to rise now that state officials are poised to dole out $1 billion in tax incentives, grants and loans to attract life sciences companies.

Tom Andrews, senior vice president and regional market director at Alexandria Real Estate Equities Inc. (NYSE: ARE), said move-in ready space is in relatively short supply. He expects an upswing in demand from life sciences and nanotechnology companies and projects that landlords will continue to upgrade obsolete space.

“We’re bullish on the market in the long run,” said Andrews.

Andrews said the expected move of Vertex Pharmaceuticals Inc. (Nasdaq: VRTX) to South Boston will spike supply. Alexandria owns 2 million square feet of laboratory space in Cambridge.

David Townsend, senior director at real estate firm Cushman & Wakefield Inc., called the demand side “very good.” Standing lab space is in short supply, he said.

“We’re lacking options for existing space. Young companies want existing space — they don’t have time to wait,” said Townsend.

Sirtris occupied 11,500 square feet in Alexandria’s Science Hotel before signing a lease for the Technology Square property over a similar property at 301 Binney Street, said Bohlin. Founded in 2004, Sirtris needed the space to accommodate its workforce of 60 employees.

Despite the industry’s notoriously long life cycles, Sirtris’ Bohlin said life sciences companies need to take risks and project out five years when hunting for space. Fast-growing companies need room to grow, he said. Months after Sirtris’ moved into the new space, GlaxoSmithKline plc acquired Sirtris in June for $720 million.

“The thing about the life sciences industry is that space and facility planning is challenging,” said Bohlin.

Andrews said the recent spate of acquisitions of companies like Millennium Pharmaceuticals Inc. have spurred a positive demand on the market because acquiring companies chose to expand rather than cut jobs.

Compared with the third quarter of 2007, Cambridge laboratory vacancy rates shot up from 9.7 percent to 17.1 percent, according to a July report by Cushman & Wakefield. The supply rise is due to the completion of 301 Binney Street, the departure of Genzyme Corp. from One Kendall Square and the sublease of Alkermes Inc. space at 88 Sydney Street. Despite these large plots, laboratory options for companies looking for 30,000 square feet or less are limited, according to the report.

Over the next year, the diminishing supply of suburban lab space may reverse recent absorption trends toward Cambridge, according to a July report by Jones Lange LaSalle LP Inc. The life sciences law will increase demand for space, which costs between $53 and $70 per square foot, according to the report. Dan Cordeau, executive vice president at Jones Lange LaSalle (NYSE: JLL), said he expects the market to absorb any demand upswing.

Suburban vacancy rates were lower than Cambridge for the first half of 2008, according to Cushman & Wakefield. Cambridge overall vacancy rates are 17.1 percent, compared to 10 percent in the inner suburbs and 10.5 percent outside of Route 128.

“The options in the suburbs are considerably lower,” said Cordeau, who added that firms like Shire Pharmaceuticals Group plc took up much of the larger suburban space in 2007.

Tuan Ha-Ngoc, CEO and president of Cambridge-based Aveo Pharmaceuticals Inc., said Aveo is always on the lookout for contiguous space in Cambridge. He said Aveo, which grew from a 50-employee shop in 2004 to 125 employees in 2008, plans to seek more laboratory space within two years.

In 2004, Aveo signed a unique deal to lease 54,000 square feet of space on an as-needed basis from Millennium. Aveo has since filled up the space and is looking for more. He hopes to sign a new lease for office space later this year to accommodate new employee growth. Ha-Ngoc said Aveo is on the lookout for space within walking distance of its existing laboratory space in the Millennium building.

“I wouldn’t want to be anywhere else,” said Ha-Ngoc.

Catherine Williams is a freelance writer in Boston.