Boston – Market fundamentals remained strong in Greater Boston’s life sciences lab space sector despite some persistent headwinds that saw vacancy rise slightly to 3.5%, predominantly driven by sublease space coming online in suburban markets during Q4 2022, according to CBRE’s industry-leading Figures report. “The economic environment has had a significant impact on demand, which trailed 2021 levels while supply has continued to increase,” said Eric Smith of CBRE. “Across the Boston metro area, many private and mid-cap public companies have either put growth needs on hold or have taken a cautious approach to leasing expansion space as funding has become harder to secure and preserving cash remains a top priority. Market volatility is likely to continue through the first half of 2023, with sublease space continuing to be added to the market, and new supply coming online. A return of capital, both private and public, will be needed for stabilization in the market to occur.”Private venture capital funding propelled most of the growth in 2021, but as VC funding became harder to come by in 2022, many private companies were forced to reevaluate their plans. While these private, venture-backed companies rethought their space needs, large pharma companies helped the market record just short of 6.9 million sq. ft. and Q4 accounted for over 650,000 sq. ft. of leasing across Greater Boston. The relatively strong leasing quarter in the face of economic uncertainties resulted in 47,500 sq. ft. of negative absorption. Asking rents decreased slightly from $97.92 per sq. ft. NNN last quarter to $97.46 per sq. ft. NNN to end the year. Availability increased 50 basis points (bps), from 22.3% to 22.8% while vacancy increased 140 bps, from 2.1% to 3.5%. East Cambridge saw vacancy increase 90 bps to 1.9% while Seaport vacancy increased 60 bps to 1.5%. Asking rents in both East Cambridge and Seaport remained flat. Sublease space has continued to increase across Greater Boston, reaching 1.5 million sq. ft. which is up from 1.3 million sq. ft. at the midpoint of the year and 530,000 sq. ft. from one year ago. The fourth quarter saw 430,000 sq. ft. of new sublease added to the market, but also saw 330,000 sq. ft. of sublease space either subleased or withdrawn by the sublandlord. Of the new sublease space added, 66% was by companies who are downsizing, with the remainder added by companies who have excess space to accommodate planned future growth or relocation. The most noteworthy Cambridge market deal of Q4 was GSK renewing and expanding at Morgan Stanley and King Street Properties’ 200 Cambridge Park Drive in West Cambridge. In the Boston market, the most noteworthy deal was the subleasing of Finch Therapeutic’s former headquarter space at 100 Hood Park Drive in Charlestown. The fourth quarter also saw over one million sq. ft. of new R&D space delivered to the market, with 73.8% of this space preleased. The metro ended the year with 15.3 million sq. ft. of R&D space under construction, with 4.7 million sq. ft. under construction in Boston, 4.1 million sq. ft. in Cambridge and 6.6 million sq. ft. under construction across suburban Boston. The most significant ground-breaking during the fourth quarter was BioMed Realty breaking ground on the new build-to-suit site at 585 Kendall, which will be home to global pharmaceutical company Takeda Pharmaceuticals. As 2022 came to a close, the real estate capital markets demonstrated moderate resiliency despite sustained headwinds stemming from an increasingly restrictive economy. Uncertainty caused by Fed policy compounded by increased financing costs have directly impacted both transaction volume and liquidity in the marketplace. While there were a handful of headline transactions in Q4, the “new normal” is saturated with re-traded deals and market skepticism unseen for the past two years. However, despite the mounting deal-making challenges, the fundamentals for life science real estate remain strong.
