Q4-2017-Biotech-Beat

Q4

BIOTECH BEAT M E T R O B O S T O N

2017

CAMBRIDGE LAB CONTINUES TO DOMINATE

INSIDE STATISTICS...

BOSTON / SUBURBAN LAB

CAMBRIDGE LAB

303 Congress Street Boston, MA 617.457.3400 303 Congress Street | Boston, MA 02210 | 617.457.3400 www.NAIHunnema .com www.naihunneman.com

1

Q4

2017

DIRECT VACANCY

SUBLEASE VACANCY

12-MONTH ABSORPTION

LEASING ACTIVITY

ASKING RENT

BIOTECH OVERVIEW

Another Year of Positive Growth

The Greater Boston lab market experienced another impressive year of growth; posting nearly 650,000 square feet in net absorption and an eighth straight quarter of sub-5% vacancies. Cambridge continues to dominate activity, accounting for the lion’s share of absorption over the past 12 months. While demand continues to outstrip supply, space constraints are limiting absorption gains and weighing on leasing activity. Expansions and relocations are still happening throughout Greater Boston though, with lab users in Cambridge focusing on full-floor commitments. Looking ahead to 2018 we see several themes maintaining prominence. Cambridge’s lab market will remain incredibly tight. Tenants looking to expand have few options and will continue to explore new construction or availabilities in Boston and the Suburbs. Leasing has been brisk in these new developments, which bodes well for net absorption. Cambridge’s overheated lab market and a seemingly insatiable demand from the ever- growing biotech industry are directly benefiting relief valve locations like the Seaport and Brighton. Developers continue to pivot from office to lab construction as users seek out larger footprints and/or cheaper alternatives to Kendall

Square. At Boston Landing’s growing tech hub in Brighton, NB Development recently landed Mass Innovation Labs, Roche Diagnostics, and Proteostasis Therapeutics. Mass Innovation Labs is also anchoring the first phase of Related Beal’s iSQ development at 6 Tide Street in the Seaport. In Watertown, Boylston Properties continues to expand its roster of lab tenants at the recently constructed LINX building. Macrolide Pharmaceuticals represents the most recent tenant to sign on here. In the foreseeable future, many developers will continue to market new space to both office and lab users, allowing more biotech clusters to evolve outside of Cambridge. In response to outsized demand, construction activity has hit a two-year high in Greater Boston. In West Cambridge, The Davis Companies is underway on the conversion of 35 Cambridgepark Drive into a 220,000-square-foot lab building, which will deliver in mid-2018. King Street Properties has proposed a 120,000-square-foot facility adjacent to 87 Cambridgepark Drive in West Cambridge as well. Alexandria Real Estate will deliver a 165,000-square-foot lab building at 399 Binney Street in Kendall Square — anchored by Rubius Therapeutics — later this year. Construction has begun on Cambridge

Crossing’s first phase; a 430,000-square- foot office and lab building, which become Philips NV new North American headquarters upon completion. Projects are also moving forward in Boston and the Suburbs. King Street Properties is underway on another speculative lab building at 828 Winter Street in Waltham and is planning a 200,000-square-foot addition to the Hayden Research Campus in Lexington. The groundbreaking of the first phase of Related Beal’s iSQ development is bringing 125,000 square feet of lab to the Seaport. A rash of Massachusetts-based biotech companies held initial public offerings in 2017. A dozen firms raised roughly $1 billion during the year, representing a 56% increase from last year when only nine firms held IPOs and a 15% increase from 2015. Cambridge-based Ackea Therapeutics ($125 million), Waltham-based Deciphera Pharmaceuticals ($128 million), and Boston-based Rhythm Pharmaceuticals ($120 million) represents some of the largest offerings of the past year. This recent activity, coupled with steady venture capital funding in Massachusetts life science industry, bodes well for growth going forward.

TOTAL VACANCY RATE

Q4 NET ABSORPTION (SF)

ASKING RENT NNN ($/SF)

UNDER CONSTRUCTION (SF)

DIRECT VACANCY

3.9%

3.5%

60,044

$50.45

2,261,500

IPO Filings: 12

VC Funding: 55

Mass Life Science Index: 47.8%

Biopharma Job Postings: -15.4%

NIH Funding: $580

Year-Over-Year Increase (September 2017)

Per Capita FY 2017

MA-Based Biotech Companies YTD $1 Billion Value

MA-Based Biotech Companies $2.3 Billion Funding

Increase from December 2016 Year-Over-Year

2

BOSTON / SUBURBAN LAB

TOTAL INVENTORY (SF)

TOTAL VACANT (SF)

TOTAL VACANCY RATE

Q4 NET ABSORPTION (SF)

YTD NET ABSORPTION (SF)

ASKING RENT NNN ($/SF)

Boston

5,705,748

331,706

5.8%

3,849

8,412

$59.59

Suburban

7,147,040

637,195

8.9%

23,656

132,346

$37.87

TOTAL

12,852,788

968,901

7.5%

27,505

140,758

$46.20

10%

250,000

Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017

200,000

8%

150,000

6% VACANCY AND NET ABSORPTION

TRENDS

100,000

250,000

10%

50,000

Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 • Biotech clusters continue to grow outside of Cambridge, with recent tenant demand targeting Boston Landing in Brighton, the Seaport, Watertown, and Bedford. • Mass Innovation Labs is betting big on Greater Boston; adding three new locations. Outside of Cambridge, the life science incubator recently inked a deal to anchor Related Beal’s Innovation Square development at 6 Tide Street in the Seaport and leased two floors in Boston Landing’s Auerbach Center on Guest Street. • With a tenant in hand, Related Beal has finally broken ground on the first phase of its 360,000-square-foot Innovation Square project in the Seaport. The 125,000-square-foot building is expected to deliver in early 2019. • The completion of MilliporeSigma’s new facility in Burlington, which includes lab and manufacturing space as well as its ninth M Lab Collaboration Center, brought several hundred life science jobs to the area. • Demand for new lab construction in the suburbs is heating up. LINX in Watertown landed two new tenants this quarter: AddGene and Macrolide Pharmaceuticals. Homology Medicines represents the first major user at Longfellow Real Estate Partners’ recently converted 1 Patriots Park in Bedford, and Visterra is taking down 27,000 square feet at Alexandria’s latest redevelopment project at 275 Second Avenue in Waltham.

4%

200,000

0

8%

2%

150,000

-50,000

6%

100,000

0%

-100,000

Q4 2014

Q1 2015

Q2 2015

Q3 2015

Q4 2015

Q1 2016

Q2 2016

Q3 2016

Q4 2016

Q1 2017

Q2 2017

Q3 2017

Q4 2017

50,000

4%

Boston Net Absorption

Suburban Net Absorption

Boston Vacancy

Suburban Vacancy

0

2%

-50,000

-100,000

0%

Q4 2014

Q1 2015

Q2 2015

Q3 2015

Q4 2015

Q1 2016

Q2 2016

Q3 2016

Q4 2016

Q1 2017

Q2 2017

Q3 2017

Q4 2017

Boston Net Absorption

Suburban NetAbsorption

Boston Vacancy

Suburban Vacancy

Rents RENTS

$0 $10 $20 $30 $40 $50 $60 $70 $80

Rents

$0 $10 $20 $30 $40 $50 $60 $70 $80

Q4 2014

Q1 2015

Q2 2015

Q3 2015

Q4 2015

Q1 2016

Q2 2016

Q3 2016

Q4 2016

Q1 2017

Q2 2017

Q3 2017

Q4 2017

Boston Suburban

Q4 2014 RECENT CONSTRUCTION Q1 2015 Q2 2015 Q3 2015 Q4 2015

NOTABLE TRANSACTIONS

Q1 2016

Q2 2016

Q3 2016

Q4 2016

Q1 2017

Q2 2017

Q3 2017

Q4 2017

0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000

TENANT

ADDRESS

SIZE

SUBMARKET

TYPE

Boston Suburban

Mass Innovation Labs

40 Guest Street, Brighton

Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018

83,707 Boston

Expansion

Recent Construction

Homology Medicines

1 Patriots Park, Bedford

Route 128 Nortwest

Expansion/ Relocation

67,000

400,000 450,000

Recent Construction

Concert Pharmaceuticals Mass Innovation Labs

65 Hayden Avenue, Lexington

Route 128 Northwest

Expansion/ Relocation

55,522

400, 00 45 , 00

6 Tide Street, Boston

54,000 Boston

Expansion

Q1 2015

Q2 2015

Q3 2015

Q4 2015

Q1 2016

Q2 2016

Q3 2016

Q4 2016

Q1 2017

Q2 2017

Q3 2017

Q4 2017

Q1 2018

Q2 2018

Q3 2018

Q4 2018

Leased Available

Route 128 West

Expansion/ Relocation

AddGene

LINX, Watertown

39,300

www.naihunneman.com

303 Congress Street Boston, MA 617.457.3400

3

Q4

CAMBRIDGE LAB

2017

TOTAL INVENTORY (SF)

TOTAL VACANT (SF)

TOTAL VACANCY RATE

Q4 NET ABSORPTION (SF)

YTD NET ABSORPTION (SF)

ASKING RENT NNN ($/SF)

East Cambridge

9,311,288

18,053

0.2%

(9,517)

558,494

$80.00

Mid Cambridge

5,262,211

47,424

0.9%

52,383

(16,167)

$76.77

West Cambridge

783,180

72,632

9.3%

(10,327)

(35,132)

$57.80

TOTAL

15,356,679

138,109

0.9%

32,539

507,195

$72.06

Vacancy and Net Absorption

Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017

12%

1,175,000

TRENDS

VACANCY AND NET ABSORPTION Vacancy and Net Absorption

10%

975,000

• Year-to-date absorption of more than 500,000 square feet helped push vacancies below 1% in the Cambridge lab market. Demand, driven in part by strong venture funding and a rash of IPOs, remains frothy here. The lack of space in Kendall Square is staggering, with vacancies in East Cambridge at just 0.2% in the fourth quarter. • Mass Innovation Labs executed three new leases in the fourth quarter; including a 52,000-square-foot deal at 21 Erie Street in BioMed Realty’s Sidney Research Campus. • Rubius Therapeutics expanded again as well. After executing a sublease at 99 Erie Street last quarter, the firm plans to anchor Alexandria’s project at 399 Binney Street when it delivers later this year. • Agios Pharmaceuticals is increasing its Cambridge footprint significantly; expanding near Central Square. The biotech company signed a new lease for 27,000 square feet at 64 Sidney Street and expanded/extended its lease at 88 Sidney Street. • Synlogic inked a deal for a new 41,000-square-foot headquarters at 301 Binney Street, which will triple its space and bring the firm closer to Kendall Square. • New biotech companies continue to launch in the ever-tight Cambridge market. Most recently, UK-based RxCelerate established its U.S. operations at One Broadway. Janpix nabbed $22MM in funding and has also opened an office at One Broadway. • Moderna is giving back a full floor at 320 Bent Street and Ensemble Therapeutics recently shuttered its doors at 99 Erie Street. While Novartis also put 100,000 square feet on the sublease market, a large chunk of this space is already committed; highlighting just how hot the Cambridge lab market is. 21 Erie 200 Cambridgepark 325 Vassar Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017

12%

1,175,000

8%

775,000

10%

975,000

6%

575,000

8%

775,000

4%

375,000

6%

575,000

2%

175,000

4%

375,000

0%

-25,000

2%

175,000

Q4 2014

Q1 2015

Q2 2015

Q3 2015

Q4 2015

Q1 2016 Q1 2016

Q2 2016

Q3 2016

Q4 2016

Q1 2017

Q2 2017

Q3 2017

Q4 2017

0%

-25,000

Net Absorption

Vacancy Q1 2017

Q4 2014

Q1 2015

Q2 2015

Q3 2015

Q4 2015

Q2 2016

Q3 2016

Q4 2016

Q2 2017

Q3 2017

Q4 2017

Net Absorption

Vacancy

Recent Construction RECENT CONSTRUCTION Recent Construction

1,200,000

1,200,000

1,000,000

1,000,000

800,000

800,000

600,000

600,000

400,000

400,000

200,000

200,000

0

0

Q1 2015

Q3 2015

Q1 2016

Q3 2016 Q3

Q1 2017

Q3 2017

Q1 2018

Q3 2018

Q1 2019

Q3 2019

Q1 2015

Q3 2015

Q1 2016

Q1 2017

Q3 2017

Q1 2018

Q3 2018

Q1 2019

Q3 2019

Leased Available sed Available

CONTIGUOUS BLOCKS

3

2

Contiguous Blocks

Contiguous Blocks 1

No. of Blocks

0

15,000 SF-25,000 SF

25,000 SF-50,000 SF

50,000 SF+

4

CAMBRIDGE LAB

ASKING RENTS

ASKING RENT ($/SF)

ASKING RENT ($/SF)

CLASS A

CLASS B

East Cambridge

East Cambridge

Mid $80's NNN

Mid $80's NNN

Mid Cambridge

Mid Cambridge

High $70's NNN

High $70's NNN

Mid $60's NNN

West Cambridge

West Cambridge

Mid $60's NNN

East Cambridge - Rents East Cambridge - Rents EAST CAMBRIDGE - RENTS $90

TRENDS

$90

$0 $10 $20 $30 $40 $50 $60 $70 $80

• Brammer Bio completed renovations on its 66,000-square-foot drug manufacturing facility (formerly Biogen space) in Kendall Square, which is now producing leading edge gene therapies. The firm also took over Biogen’s former distribution center in Somerville. • Limited availabilities and few rent observations have created some volatility in Cambridge’s recent rent data, which is not indicative of market health. Asking rents are still sky-high in East Cambridge, reaching $80/SF in the fourth quarter, and lease rates on the new construction, which are not included in current calculations, are above average as well. • Traditionally a relief valve for nearby East Cambridge, Sidney Street has evolved into a top-tier lab cluster in Mid-Cambridge. Anchored by BioMed Realty’s Sidney Research Campus, this corridor is home to 1.1 million square feet of lab space and tenants like Agios Pharmaceuticals, Blueprint Medicines and AbbVie, Inc. As of the fourth quarter, there are no availabilities here. This represents a marked change from just three years ago when vacancies were in the 30-40% range following Vertex’s relocation to the Seaport. • New lab developments are starting to lease up in Cambridge. Close to 60% of the nearly 1.8 million square feet of lab space currently under construction Cambridge is already preleased. With very few options available, tenants looking to expand in Cambridge will likely turn to new construction for their space needs. Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q4 4 1 2 15 2 0 3 15 4 5 1 2 3 4 6 1 2 2 3 Q4 2017

$20 $30 $40 $50 $60 $70 $80

$0 10

Q4 2014

Q1 2015

Q2 2015

Q3 2015

Q4 2015

Q1 2016

Q2 2016

Q3 2016

Q4 2016

Q1 2017

Q2 2017

Q3 2017

Q4 2017 Q4 2017

Q4 2014

Q1 2015

Q2 2015

Q3 2015

Q4 2015

Q1 2016

Q2 2016

Q3 2016

Q4 2016

Q1 2017

Q2 2017

Q3 2017

Mid Cambridge - Rents Mid Cambridge - Rents ID AMBRIDGE - RENTS

$10 $20 $30 $40 $50 $60 $70 $80 $90

$0 $10 $20 $30 $40 $50 $60 $70 $80 $90

Q4 2014

Q1 2015

Q2 2015

Q3 2015

Q4 2015

Q1 2016

Q2 2016

Q3 2016

Q4 2016

Q1 2017

Q2 2017

Q3 2017 Q3 2017

Q4 2017 Q4 2017

$0

Q4 2014

Q1 2015

Q2 2015

Q3 2015

Q4 2015

Q1 2016

Q2 2016

Q3 2016

Q4 2016

Q1 2017

Q2 2017

West Cambridge - Rents EST CAMBRIDGE - RENTS

NOTABLE TRANSACTIONS

TENANT

ADDRESS

SIZE

SUBMARKET

TYPE

$70

Agios Pharmaceuticals

Expansion/ Extension

88 Sidney Street

146,030 Mid Cambridge

$60

Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017

$50

Mass Innovation Labs

21 Erie Street

51,900 Mid Cambridge Expansion

$40

$30

Merck

320 Bent Street

46,418 East Cambridge Renewal

$20

$10

Rubius Therapeutics

Expansion/ Relocation

399 Binney Street

45,000 East Cambridge

$0

Q4 2014

Q1 2015

Q2 2015

Q3 2015

Q4 2015

Q1 2016

Q2 2016

Q3 2016

Q4 2016

Q1 2017

Q2 2017

Q3 2017

Q4 2017

Agios Pharmaceuticals

64 Sidney Street

27,083 Mid Cambridge Expansion

www.naihunneman.com

303 Congress Street Boston, MA 617.457.3400

5

Q4

M E T R O

B O S T O N

MARKET RE CAP

2017

BIOTECH / LAB STATISTICS

TOTAL INVENTORY (SF)

UNDER CONSTRUCTION (SF)

DIRECT VACANT (SF)

SUBLEASE VACANT (SF)

TOTAL VACANCY RATE

Q4 NET ABSORPTION (SF)

YTD NET ABSORPTION (SF)

ASKING RENT NNN ($/SF)

BOSTON TOTAL

5,705,748

214,400

328,750

2,956

5.8%

3,849

8,412

$59.59

East Cambridge

9,311,288

1,577,716

18,053

-

0.2%

(9,517)

558,494

$80.00

Mid Cambridge

5,262,211

-

47,424

-

0.9%

52,383

(16,167)

$76.77

West Cambridge

783,180

219,474

69,632

3,000

9.3%

(10,327)

(35,132)

$57.80

CAMBRIDGE TOTAL

15,356,679

1,797,190

135,109

3,000

0.9%

32,539

507,195

$72.06

Route 128 North

1,134,676

-

66,414

15,443

7.2%

(14,485)

(16,482)

$32.35

Route 128 Northwest

2,261,210

-

172,888

18,859

8.5%

(16,859)

79,798

$35.23

Route 128 West

2,004,383

249,910

178,559

11,540

9.5%

-

59,767

$53.40

Route 495 North

757,329

-

28,609

-

3.8%

55,000

26,391

$24.00

South

276,159

-

-

-

0.0%

-

-

$24.00

West

713,283

-

82,869

62,014

20.3%

-

(17,128)

$19.16

SUBURBAN TOTAL

7,147,040

249,910

529,339

107,856

8.9%

23,656

132,346

$37.87

MARKET TOTAL

28,209,467

2,261,500

993,198

113,812

3.9%

60,044

647,953

$50.45

MARKET COVERAGE

6

Committed to Boston, Connected to the World.

M E T R O

B O S T O N

CONTACTS

Corporate

PETER EVANS 617.457.3402 pevans@naihunneman.com JASON ROTH 617.457.3405 jroth@naihunneman.com TREY AGNEW Executive Vice President 617.457.3363 tagnew@naihunneman.com CATHY MINNERLY Executive Vice President 617.457.3334 cminnerly@naihunneman.com LEEANNE RIZZO Senior Vice President 617.457.3371 lrizzo@naihunneman.com PATRICK GRADY Associate 617.457.3278 pgrady@naihunneman.com DAVID N. ROSS Executive Vice President 617.457.3392 dross@naihunneman.com ANDREW KAEYER Executive Vice President 617.457.3207 akaeyer@naihunneman.com ELLIOTT WHITE Assistant Vice President 617.457.3355 ewhite@naihunneman.com DAVID E. FINNEGAN Vice President, Marketing Services 617.457.3238 dfinnegan@naihunneman.com STUART PRATT, SIOR, CCIM Chairman 617.457.3333 spratt@naihunneman.com

COLIN GORDON 617.457.3265 cgordon@naihunneman.com MAX PAWK 617.457.3345 mpawk@naihunneman.com JAMES BOUDROT, CCIM, SIOR Executive Vice President 617.457.3328 jboudrot@naihunneman.com CHRISTOPHER A. CURLEY Executive Vice President 617.457.3211 ccurley@naihunneman.com LIZ BERTHELETTE Director of Research 617.457.3306 lberthelette@naihunneman.com OVAR OSVOLD Vice President 617.457.3222 oosvold@naihunneman.com CORMAC SULLIVAN Associate 617.457.3319 csullivan@naihunneman.com CARL CHRISTIE Executive Vice President 617.457.3394 cchristie@naihunneman.com DAN MCGEE Assistant Vice President 617.457.3266 dmcgee@naihunneman.com IAN S. MCKINLEY Senior Associate 617.457.3404 imckinley@naihunneman.com STEPHEN M. PROZINSKI COO & Co-Managing Principal 617.457.3370 sprozinski@naihunneman.com

PETER W. EVANS Executive Vice President & 617.457.3402 pevans@naihunneman.com HEATHER CHAPMAN Graphics Manager 617.457.3256 lberthelette@naihunneman.com

Co-Managing Principal

LEAH MARKHAM Graphic Designer 617.457.3253 lmarkham@naihunneman.com

Urban Advisory Group

MATTHEW DAVIS 617.457.3305 mdavis@naihunneman.com

Suburban Leasing & Sales

F. MICHAEL DIGIANO Executive Vice President 617.457.3410 mdigiano@naihunneman.com DAVID GILKIE, CCIM, SIOR Senior Vice President 617.457.3202 dgilkie@naihunneman.com MICHAEL ALLEN Assistant Vice President 617.457.3276 mallen@naihunneman.com

STEVE JAMES Executive Vice President 617.457.3263 sjames@naihunneman.com NED HALLORAN Senior Vice President 617.457.3372 nhalloran@naihunneman.com SEAN HANNIGAN Associate 617.457.3252 shannigan@naihunneman.com

Capital Markets

ROBERT TITO Executive Vice President 617.457.3231 rtito@naihunneman.com

MARK HALL Executive Vice President 617.457.3412 mhall@naihunneman.com HENRY LIEBER Assistant Vice President 617.457.3383 hlieber@naihunneman.com

GINA BARROSO Assistant Vice President 617.457.3261 gbarroso@naihunneman.com

www.naihunneman.com

303 Congress Street Boston, MA 617.457.3400

7

Q4

BIOTECH BEAT M E T R O B O S T O N

2017

BOSTON / SUBURBAN LAB

CAMBRIDGE LAB

METHODOLOGY SOURCE: Co-Star, NAI Hunneman Commercial Company. PREPARED: January, 2018. DISCLAIMER: The above data is from sources deemed to be generally reliable, but no warranty is made as to the accuracy of the data nor its usefulness for any particular purpose.

Average Rental Rates are asking rents on direct space. Vacant space includes both direct and sublease space.

303 Congress Street | Boston, MA 02210 | 617.457.3400 www.NAIHunneman.com

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