BOSTON – The investment community’s tight-fisted approach after the United Kingdom’s surprise decision to leave the European Union has many wondering where safe spaces to park their capital might be. In fact, according to JLL’s Global Capital Flows, global real estate transaction volumes for 2016 are on pace for a 15 percent decrease from 2015.
But for JLL Managing Director Frank Petz and Executive Vice President Matthew Powers, the answer lies in their own backyard: Boston. The city ranked as the 10th most traded in the world in the first half of the year with $4.6 billion in total volume, and is home to lab space that be counted among the most in-demand assets in the U.S.
“Vacancy for Boston-area labs is miniscule right now, and demand is outpacing supply at a four-to-one clip,” said Petz. “In Cambridge, vacancy is below 1 percent, and buyers are clamoring to get their hands on any asset that hits the market. We have seen yield spreads between office and lab space shrink and the lab sector emerge from niche status to an institutional investment.”
Petz says it is likely that the area’s three micro-clusters – Longwood Medical Area, Cambridge and the Seaport District – will see labs trade at more than $1,000 per square foot this year.
So why is the Boston life science industry such a safe haven right now? Three key ingredients are fueling it:
1) World-class talent from nearby universities such as Harvard and MIT, and an abundance of other life science companies in the area
2) A local, mature venture capital community that understands the products these companies create and a willingness to fund them
3) Landlords that understand the unique needs of these tenants
“Add those factors to the fact that Boston is so geographically constrained and filled with companies that have long-term potential, and you get a market that is resilient to much of the political turmoil,” said Petz. “As Big Pharma companies actively seek out these assets, institutional capital is recognizing that life sciences buildings in areas like Cambridge can be blue chip assets in a diversified portfolio.”
Added Powers, “We are seeing rents that will top $100 per square foot, which is higher than many Class A office products.”
One example of the kind of capital being placed in labs is the massive NorthPoint deal in East Cambridge completed last year. JLL brokered the nearly $300 million sale of the 42-acre site, which includes space for 2.1 million square feet of office and lab space. DivcoWest, the buyer of the land, is building much of that lab space on speculation.
“The fact there is such a large swath of lab space being developed on spec shows the confidence capital providers have in this asset class,” said Petz.
JLL Capital Markets is a full-service global provider of capital solutions for real estate investors and occupiers. The firm’s in-depth local market and global investor knowledge delivers the best-in-class solutions for clients — whether a sale, financing, repositioning, advisory or recapitalization execution. In 2015 alone, JLL Capital Markets completed $140 billion in investment sale and debt and equity transactions globally. The firm’s Capital Markets team comprises more than 2,000 specialists, operating all over the globe.
