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Laboratory market in review
Boston Life Science Outlook: Spring 2010 Laboratory market in review The Greater Boston laboratory market continued to outperform competing markets and asset types through the first half of 2010, due in large part to the region’s heavy concentration of large biotechnology and pharmaceutical firms, which maintained profitability through M&A activity and medical-device sales. The laboratory market along Route 128 has remained relatively stable as a new generation of companies backfill pending space options. Smaller firms are attracted to the critical mass as well as the favorable political climate, due in large part to state supported initiatives such as the Mass Biotech Council and The Massachusetts Life Science Initiative. Despite softening trends across the broader commercial real estate market, the Greater Boston laboratory market remains tight, particularly among premier assets in Boston and Cambridge. Smaller biotech firms, compelled to be increasingly flexible with their space needs, are considering incubator space due to uncertain longevity. It is important to note that with the exception of 650 East Kendall Street in Cambridge, a bulk of the vacant space currently on the market for lease is second generation laboratory space that will not likely be occupied by major pharmaceutical companies. Hence, the laboratory market is actually tighter than current market indicators suggest. The Cambridge market accounted for approximately two-thirds of the laboratory occupancy gains through the first quarter of 2010, posting 112,356 square feet of positive net absorption. Laboratory vacancy within the Cambridge market remained above one million square feet for the third consecutive quarter, despite two sizeable lease executions, which included Ironwood Pharmaceutical’s 54,000-squarefoot expansion at 301 Binney Street and Aileron’s 25,929-square-foot lease at 281 Albany Street. The vacant new laboratory development at 650 East Kendall Square accounted for a quarter of all of the vacancy in the market. After a 2.7 percent annual decline in 2009, the average asking rent for laboratory space in Cambridge slid another 6.9 percent over the past twelve months, to $47.28 per square foot NNN, within $2.00 of the five-year average. Despite the increased desirability of the suburbs, the Cambridge laboratory market remains relatively healthy when compared to competitive regional and national laboratory markets. Rather than draw life science tenants away from Cambridge, suburban towns serve to support growing manufacturing and back-office functions. Recent upticks in start-up activity and limited development in the pipeline will lead to further tightening in the Cambridge laboratory market. The Boston laboratory market remained stagnant in terms of leasing activity, recording only a few very small leases through the first quarter. The largely institutional tenant base, particularly education and healthcare related institutions, remain tentative to transact. Nonetheless, laboratory options in Boston remain severely limited. With both vacancy and availability remaining comfortably below 5.0 percent, at 3.9 percent and 4.2 percent respectively, the Boston laboratory market is by far the tightest submarket in the region. To this end, the Center for Life Sciences Boston at 3 Blackfan Circle is more than 90 percent occupied despite delivering during the recession. The critical mass of life science related institutions will continue to drive demand as well as activity in the Boston laboratory market, most notably at Boston University’s BioSquare and the Longwood Medical Area. Nottingham Hillsborough 95 Newmarket 93 ©2010 Jones Lang LaSalle. All rights reserved. Pulse • Boston Life Science Outlook • Spring 2010 2 Epping Raymond Antrim Portsmouth 93 293 293 Exeter 93 Hampton Peterborough Lease transactions Tenant Broad Institute Address 301 Binney Street City Cambridge Merrimac Greater Boston lab submarkets SF Type 78,592 Relocation 301 Binney Street Cambridge Winchendon 54,000 Expansion Ashburnham TIAX 35 Hartwell Avenue Lexington 46,700 Gardner Aileron 281 Albany Street Cambridge 25,929 Townsend 245 First Street – Bldg. 1 Cambridge Hubbardston 24,909 RelocationSublease Princeton Wolfe Labs 134 Coolidge Avenue Watertown 12,972 Holden Westford Lunenburg Shirley Ayer Bolton Oakham After a sluggish 2009, the suburban laboratory market regained Paxton some traction, but remained relatively flat through the first quarter of Worcester 2010, posting 7,687 square feet of negative net absorption. Spencer Leasing Leicester activity was limited to one large transaction and a number of smaller Auburn transactions. The largest lease occurred at 35 Hartwell Avenue in Lexington, where TIAX subleased 46,700 square feet from MGI Charlton Oxford Pharma, which was acquired by Eisai in 2007. Wolfe Labs executed a three-year, 12,972-square-foot lease at 134 Coolidge Avenue in Southbridge Webster Watertown. The small pharmaceutical development company Dudley offers comprehensive IND-enabling programs for biologic and small molecule therapeutics. Soteira executed a lease renewal in 10,000 square feet of office and lab space at 14 Tech Circle in Natick. Soteira develops stent technology products for degenerative spine diseases focusing on vertebral fractures caused by osteoporosis, cancer and injuries. A few smaller blocks of space came onto the market in Woburn and Killingly Marlborough, totaling less than 20,000 square feet. Berlin Boylston Boxborough 2 Shrewsbury Southborough Westborough Milford 95 Wellesley Natick Needham 395 Linwood Uxbridge Dover Sherborn Medway Mendon Bellingham Dedham Norwood Walpole Sharon 295 Supply (s.f.) 2,492,144 Suburbs Total 4,454,500 95 3,440,052 95 643,448 95 Raynham 14.6% 18.0% Seekonk 195 95 Halifax % Availability 95 3.9% Taunton Rehoboth Dighton 9.4% 10.0% Swansea 4.6% 195 Pembroke Hanson Bridgewater Norton Attleboro % Vacant 7,151,198 Boston Route 495/Mass Pike 95 Whitman M East West Bridgewater Bridgewater 495 Attleborough Scituat Norwell Holbrook Avon Rockland Hanover Stoughton Abington Mansfield Plainville Cohasset 24 Easton 95 Hingham Weymouth Randolph Canton 495 Wrentham Foxborough Route 128 Braintree 3 Brockton Blackstone Millville 295 Milton Franklin Greater Boston lab statistics North Cambridge 95 Hull Quincy 93 Millis Norfolk 93 Westwood Medfield Hopedale Whitinsville 395 Boston Brookline 90 Holliston Upton Sutton Newton Ashland 495 90 395 95 Framingham Hopkinton 90 Douglas Peabody Lynnfield Essex Hamilton Wenham Danvers Manchester-b Beverly 95 Bedford Acton 290 395 Reading 90 495 Northborough Grafton 93 3 Marlborough 290 Wilmington Billerica Carlisle Ipswich 95 Marblehead Salem Wakefield Burlington Woburn Lynn Stoneham Saugus Concord Swampscott 3 Melrose 93 2 Lexington Winchester Malden Medford Stow Maynard Lincoln Arlington Revere 2 Nahant Everett Somerville Chelsea Belmont Hudson Waltham Sudbury Winthrop Wayland Weston Watertown Cambridge Clinton West Boylston North Reading 495 495 Sterling 190 Middleton Chelmsford Rowley 95 Topsfield 495 Tewksbury Littleton Harvard Lancaster Boxford North Andover Andover 3 Leominster Relocation Rutland Dunstable Tyngsborough Groton 2 Monsanto Georgetown Lawrence Dracut Lowell RelocationFitchburg Sublease Westminster Relocation Pepperell Newbury Groveland Metheun Ashby Salisbury Newburyport 495 West Newbury Haverhill 495 93 Ironwood Pharmaceuticals 95 Amesbury 4.2% Berkley 13.7% 13.9% 11.5% YTD Absorption Middleborough 112,356 495 1,951 King Plympton Carver Lakeville (7,687) (1,991) East Freetown (5,696) Rochester Moosup 295 Valley Central Ocean Grove 95 395 Vernon VillageAlmyville Somerset Fall River West (not on map) 371,000 12.0% 37.5% – Moosup Sterling Warwick Rice Mar Toulsset Arctic 195 Oneco City GreeneSummit Coventry Center Acushnet Sterling Washington Bristol Hill Crompton 95 Greater Boston Mattapoisett Hopkins North New North 14,097,842 11.1% Tiverton Westport 14.3% 106,620 Bedford Hollow East 195 Lab Market Total Greenwich 95 Ekonk Smith Mills The Hog Hummocks Tiverton West Mount Island Greenwich Nooseneck View Bristol Fairhaven Wigwam Center Homestead Quidnessett Island Ferry Beach Park Davisville 95 JewettHopeville Silver Sandy Portsmouth Versailles City Quonset Point Escoheag Prudence Shell Bliss Corner Point Austin Beach Pachaug South Exeter Wickford Millville Voluntown Dartmouth Tiverton Westport Doaneville Wickford Junction Four Corners Melville Shire Pharmaceuticals announced the largest laboratory acquisition in the region recently, announcing plans to acquire four laboratory buildings in Lexington Technology Park for approximately $200 million. The biotech firm began relocating operations from Cambridge to the 100 acre park owned by Patriot Partners several years ago. In 2008 it launched a $460 million campaign to build a campus and add 750 jobs on the site. The town of Lexington approved an additional 380,000 square feet of development within the park in late 2009 and Shire is currently constructing a 150,000-square-foot facility expected to be completed in 2011. Laboratory demand in western suburban towns continued to gain traction, thanks to Genzyme’s recent expansion in Framingham, and new life science funding at UMass Medical Center driving activity at the Worcester’s biotech park. Additionally, efforts by suburban municipalities to enhance infrastructure conducive to laboratory growth, thanks in large part to the Massachusetts Biotechnology Council, will further drive suburban laboratory growth. Despite the recent increase in vacancy, the Cambridge laboratory market remains very tight and demand for lab space continues to strengthen. Twenty-one laboratory requirements, totaling 886,500 square feet currently exist throughout the Greater Boston market. Five of these requirements are larger than 40,000 square feet, accounting for a combined 71 percent of the total demand. Cambridge accounts for approximately 81 percent of total lab demand, with three requirements larger than 100,000 square feet. ©2010 Jones Lang LaSalle. All rights reserved. Submarket Events Cambridge • According to Novartis’ chairman, the firm may hire a couple hundred people through 2010 despite a slower rate of expansion in Cambridge, as the firm concentrates its local research staff in several buildings close to the Massachusetts Institute of technology. • Forest City and Healthcare REIT formed a $668 million joint venture to acquire a seven-building life sciences campus with 1.2 million square feet located in University Park in Cambridge, MA. Health Care REIT will acquire a 49.0 percent interest and Forest City will continue to own the remaining 51.0 percent interest. • Alexandria Real Estate Equities recently received final zoning approval from the Cambridge Planning Board for Life Science Square, a 1.7 millionsquare-foot mixed-use office and laboratory park covering 11.3 acres on Binney Street, just north of Kendall Square. The project will consist of five new life science facilities, a mixed mode transportation center, and more than two acres of public open space. Alexandria expects to receive final approval and be ready to break ground by the fourth quarter of this year. • Genzyme successfully negotiated with investor Carl Icahn to retain control of the board, keeping local control of the Cambridge-based firm. Boston • The Boston laboratory market remains extremely tight, with both vacancy and availability falling below five percvent, by 1.6 and 3.5 percentage points respectively over the previous two quarters. • The critical mass of life science related institutions will continue to drive demand as well as activity in the Boston laboratory market, most notably at Boston University’s BioSquare and the Longwood Medical Area. • Laboratory tenants looking to relocate within Boston are limited to three options larger than 20,000 square feet. • MassChallenge, a technology-startup incubator, announced that the finalists in a $1 million business plan competition will occupy the 14th Pulse • Boston Life Science Outlook • Spring 2010 3 floor of One Marina Park Drive. The 100 startups will benefit from a free build-out from of the space and a free two-year lease. Suburbs • AstraZeneca began the expansion of its research facilities in Waltham this fall, growing the size of the plant by 132,000 square feet to 514,000 square feet. The firm currently has approximately 1,000 employees in Massachusetts, and plans to continue to add jobs gradually in Waltham, while cutting 113 jobs at its manufacturing plant in Westborough due to increased competition for the Pulmicort Respules asthma medication which is produced at this location, following the Food and Drug Administration approval of rival Apotex’s request to market a generic version of the popular asthma drug. • Systagenix Wound Management, formerly the professional wound care division of Ethicon, of Johnson & Johnson, recently opened an Americas headquarters in Quincy. The locally-based operations will focus on expanding support for clinicians treating chronic wounds throughout the region. • F rance-based, CYTOO Cell Architects recently opened a U.S. subsidiary headquarters in Framingham in order to expand cellbased assays, high content analysis, and cell screening services to researchers across the United States. • Biocius Life Sciences, a spin-out of Woburn-based BioTrove, is relocating its corporate headquarters to 11 Audubon Road in Wakefield, doubling the company’s capacity, and enabling it to increase its manufacturing and contract screening capabilities for its RapidFire high-throughput mass spectrometry system. The RapidFire product is a spectrometry-based drug discovery screening device intended to make drug discovery more efficient for researchers. • Pfizer plans to cut 300 jobs at the Wyeth Biotechnology plant in Andover over the next five years as part of its $68 billion acquisition of Wyeth. There are currently 1,600 employees at the Andover facility, which produces the drug device Benefix. The Wyeth products will continue to be produced at the plant in addition to a component of a pneumonia vaccine that Pfizer will begin manufacturing in Andover as part of the restructuring program. ©2010 Jones Lang LaSalle. All rights reserved. Pulse • Boston Life Science Outlook • Spring 2010 4 Recent hiring Company New Jobs % increase Genzyme 502 12.6% Biogen Idec 142 6.1 % Shire 101 12.7% Vertex Pharmaceuticals 96 8.7% Cubist Pharmaceuticals 51 14.4% Tecomet Inc. 18 8.6% Source: Boston Business Journal Current life science trends Economy After declining through much of 2009, the Greater Boston life science sector has begun to see some positive signs. In terms of employment, the scientific research and development industry continues to be one of the strongest performing sectors in Greater Boston. It grew 2.5 percent year-over-year in May, adding 1,000 jobs. Growth in this sector should increase with an uptick in healthcare spending. While overall Massachusetts employment declined by 1.7 percent between 2001 and 2007, employment in the biopharmaceutical industry increased by 42.6 percent. – Massachusetts Biotechnology Council A funding shortage brought on largely by the global downturn recently claimed some notable local firms, including Biopure, Epix Pharmaceuticals, Altus Pharmaceuticals, and Oscient Pharmaceuticals. Some firms, particularly large pharmaceutical companies, came out stronger, as they took advantage of economic conditions to acquire other firms. Examples include Pfizer’s purchase of Wyeth, Merck’s acquisition of Schering Plough, and GlaxoSmithKline’s recent acquisition of two smaller pharmaceutical firms in December of 2009. Leading pharmaceutical companies are expected to lose significant revenues over the next few years as drug patents expire. This coupled with the continued increase in the cost of maintaining product pipeline has, and will continue to compel many firms to undertake ambitious cost-cutting measures that will have a profound impact on their real estate portfolio. Sale/leasebacks, vacant sale transactions and campus consolidations are a few of the tactics that can be implemented to save costs. Laboratory tenants are also looking to reduce operating costs in Massachusetts life science initiative update In 2007 Massachusetts established the Massachusetts Life Science Initiative (MLSI) to promote the life sciences within the state. It is tasked with investing in life sciences research and economic development, including financial investments in public and private institutions growing life sciences research, development and commercialization as well as building ties between sectors of the Massachusetts life sciences community. »» The Massachusetts Life Science Center awarded 28 life science companies a total of $25 million in tax incentives for committing to create a combined 918 new jobs in the state through 2010. The largest recipients of the funds included: Shire Human Genetic Therapies, $6.2M; Genzyme, $6.0M; Cubist Pharmaceuticals, $1.7M; Biogen Idec, $1.5M; and Merrimack Pharmaceuticals, $1.5M. »» Sanofi-aventis, a global pharmaceutical company, has agreed to contribute $500,000 over a two-year period to the Massachusetts Life Sciences Center “accelerator program” that makes loans available to early-stage life sciences companies engaged in promising science and research. The funds will go to help support Massachusetts’ commitment to grow and retain earlystage life sciences companies. »» The MLSI Accelerator Loan Program will invest up to $5.5 million in promising early-stage companies this year, building on the $3.4 million in loans that were made available last year. existing facilities. A bulk of these measures includes energy efficiency improvements, such as lower air exchange rates and temperature relaxation. The heating, cooling and moving of chemistry lab air usually places the highest demand on the building’s HVAC system and ultimately results in significant energy costs. Hence, many facilities have implemented strategies to reduce supply/exhaust air in chemistry labs. ©2010 Jones Lang LaSalle. All rights reserved. Rapid advances in genomic research have driven demand for personalized medicine. Specialty drug development has experienced an uptick in investment activity and interest, as more affordable genetic mapping has opened new diagnostic and treatment pathways. Although the R&D cost for a biologic drug today approaches $1.2 billion, the future annual return on investment could easily surpass that amount. As a result many large pharmaceutical firms are increasingly looking to biotechnology companies for innovative solutions to targeted biologics, which have large profit potential compared to traditional small-molecule medicines. However, concerns remain regarding legislation that would shorten patent life, allowing generic biologics to directly compete with patented products and threaten the profitability of leading life science firms. Nonetheless, many large pharmaceutical companies have ramped up acquisitions, in-licensing, and partnerships with biotechnology firms. Examples of this include Pfizer and AstraZeneca, which have both cut their research operations, relying more on partnerships with biotechnology start-ups. Potential increased government investment in biomedical research has also boosted profit expectations. “Large pharmaceutical firms are becoming increasingly reliant on patent term extensions to safeguard essential blockbuster revenue ahead of a likely ‘make-or-break’ round of company acquisitions.” – Marks & Clerk Impact of healthcare overhaul on life science The direct impact of the recently passed healthcare reform legislation on life science firms will partly depend on the specific products being manufactured. However, according to a recent survey of approximately 100 medical device executives conducted by consulting firm PRTM, the new 2.3 percent federal excise tax on medical devices as a part of the national healthcare reform bill will compel medical device firms to adopt further cost-reduction measures to decrease operating expenses, including reducing jobs, energy efficiency improvements, passing the cost on to customers, and attempting to reduce the cost of goods sold. Despite these obstacles, medical device manufacturers remain optimistic about prospects for sales and employment growth through 2010, according to the recent PRTM survey. The new healthcare bill will also require biotech and pharmaceutical companies to increase Pulse • Boston Life Science Outlook • Spring 2010 5 Evolutions in life science real estate — “Lab of the Future” Many life science firms have been experimenting with the Lab of the Future, a concept in which company researchers from different disciplines would be encouraged to interact in their work environments and with colleagues worldwide. As the sociology of drug discovery continues to change so does the need to design laboratory space to reflect and support collaboration and access to information. Demand for more modular and flexible designs that are easily adaptable to the changing needs of the scientist. The goal is to enhance the way drugs are discovered through collaboration and innovation through a global network of scientist. Hence, lab space must cater to an emerging network of scientists working together across disciplines and geographies to support various different personal styles, communications styles, and different demographics and backgrounds. Bio/Pharma firms have continued to progress various iterations of “Lab of the Future”. This concept of building flexible (plug and play, easily modified) lab space significantly reduces the cost of modifying labs to accommodate changes in science. ©2010 Jones Lang LaSalle. All rights reserved. discounts for drugs bought via Medicaid (rebates) from 15.1 percent to 23.1 percent. This change is expected to save Medicaid approximately $250 million in 2010, according to the U.S. Department of Health and Human Services. Another provision will expand rebates to include from patients who are covered by Medicaid managed care organizations, not only fee-for-service Medicaid charges. According to the U.S. Department of Health and Human Services, this provision is expected to save Medicaid approximately $770 million through 2010. Pulse • Boston Life Science Outlook • Spring 2010 6 Massachusetts Life Science VC Funding 28% $1,400,000,000 $1,200,000,000 25% $1,000,000,000 $800,000,000 19% 16% 18% 15% 18% 14% 15% 14% 20% 15% 15% $600,000,000 10% $400,000,000 Venture capital funding Despite notable declines in venture capital funding nationally in the first quarter of 2010, the life science sector continued to receive the largest percentage of venture capital funding, totaling $1.3 billion in 160 deals, accounting for 28 percent of all venture capital funds invested. Nationally, biotechnology continues to lead all sectors, receiving the highest amount of funding, $825 million in 99 deals through the first quarter. Medical devices ranked fourth overall, accounting for $517 million in 61 deals. Life science venture capital funding for Bostonbased companies increased by 15.0 percent over the quarter, to $354 million, with $230 million in biotechnology, leading all other metropolitan regions. Meanwhile, dollars invested was down significantly across all of the other leading metros indicative of the vitality of the Greater Boston market and local life science companies. The Boston market represented the largest recipient of life science venture capital funding through the first quarter of 2010. – PWC Moneytree While the life science sector exhibits resiliency, IPO activity remains scarce, despite a slight rebound in the global IPO market. Of the six venture-backed initial public offerings issued in Massachusetts in 2009 and 2010, totaling approximately $1.5 billion, two were in the life sciences sector, totaling $269 million, and accounted for 18.0 percent of Massachusetts venture capital dollars. Cambridge-based Ironwood Pharmaceuticals represented the largest venture-backed IPO of the quarter raising $187.5 million. However, in order to attract investors the price of initial shares was reduced by 30.0 percent, prompting two other firms to postpone their public offerings. Cambridge-based, Aveo Pharmaceuticals also went public in March, selling $81 million of shares, 23.0 percent less than expected. The weak IPO market will continue to compel many cash-strapped biotechnology firms, 30% 5% $200,000,000 $0 0% 2001 2002 Biotechnology 2003 2004 2005 Medical Devices 2006 2007 2008 2009 2010 YTD MA % of Total US Life Science VC Funding particularly those with biologic products entering phase two clinical trials, to consider M&A as an exit strategy. Looking forward The Greater Boston life science sector is well positioned in comparison to its peers, and will be one of the sectors leading the local economic recovery through the second half of 2010. Despite substantial softening of broader commercial real estate fundamentals, the laboratory market remained relatively stable through the recession compared to other property types, which will expedite the expected quick rebound. Laboratory demand will remain steady, particularly in Cambridge, the core of the Massachusetts life science industry, as life science firms grow increasingly confident. There are nearly 50,000 biotechnology employees throughout the state and as further drug innovation continues throughout the larger life science industry these numbers will steadily increase. Merger and acquisition activity and consolidations remain areas of concern for the laboratory market as companies look to reduce operating costs to stay competitive. M&A activity is expected to persist in the pharmaceutical industry over the next few years as major drug makers attempt to cope with a lack of internal capacity to account for pending patent expirations for major drugs. This trend is expected to restrain any substantial employment gains, as redundancies would likely be eliminated to save costs. Many life science firms that underwent significant cost saving measures and consolidations to withstand the recession are expected to be well-positioned for growth going forward. In terms of funding, venture capital firms will be focused primarily on fundraising this year, keeping overall VC levels below $20 billion in 2010. Despite continued uncertainty and funding concerns, the life science sector is expected to continue to lead the recovery through 2010. ©2010 Jones Lang LaSalle. All rights reserved. Pulse • Boston Life Science Outlook • Spring 2010 7 Jones Lang LaSalle life science practice group Seattle Toronto Philadelphia New Jersey Chicago San Francisco Boston Washington DC Denver Palo Alto Raleigh Charlotte LA Downtown LA Suburban Atlanta San Diego Dallas Orlando Jones Lang LaSalle in life science • Jones Lang LaSalle Construction is nearing completion of a $65 million, 125,000 square foot laboratory and office build-to-suit for EMD Serono in Billerica. The new facility will accommodate approximately 200 scientists focused on the therapeutic areas of fertility, oncology and neurodegenerative diseases. • Jones Lang LaSalle was recently selected to serve as corporate facility manager for Merck and Pfizer. • Jones Lang LaSalle recently represented Eisai Research in a 46,700 square foot sublease from Eisai, formerly MGI Pharma, and TIAX at 35 Hartwell Avenue in Lexington. For more information contact: Boston office Jones Lang LaSalle One Post Office Square Boston, MA 02109 +1 617 523 8000 Life science group Dan Cordeau +1 617 531 4225 Peter Bekarian +1 617 531 4195 John Osten +1 617 531 4107 Greg Zais +1 617 531 6486 Research group Paul Leonard +1 617 316 6523 Marzuq Muhammad +1 617 531 4268 www.us.joneslanglasalle.com/boston ©2010 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.
