Q4-2017-Biotech-Beat

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