Once considered risky and less appealing, suburban lab is here to stay

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This article originally appeared in The New England Investor.

The harder it is to get something, the more people want it. And that pretty much goes for all facets of life. So, the fact that nearly every life sciences company, both big and small, wants to be in East Cambridge—despite $70.66 rents and 4.5% vacancy—shouldn’t be all that surprising. But there’s only so much space to go around, and being in the leading life sciences cluster in the country (and perhaps the world) no longer has to mean having an East Cambridge address—and that goes for investors and tenants alike.

“Capital flows have increased to the life sciences sector as institutional investors have begun to embrace what was once an esoteric product type,” said JLL Managing Director Frank Petz. “Here in Greater Boston, that has meant that for many forward-thinking investors, they have started to recognize the value in clusters that have formed beyond Cambridge.”

“With all of Kendall Square’s existing supply currently committed, not everyone can be in Cambridge, nor do they need to be,” added JLL Executive Vice President and Life Sciences Brokerage Lead Don Domoretsky. “If lab tenants want to be in this market, they’re going to have to get comfortable with being in one of the growing clusters in the Seaport and suburbs.”

Those clusters are highlighted by the likes of Hayden Ave, Hartwell Ave, 2nd Ave, and Arsenal Street in the core suburban lab markets of Lexington, Waltham and Watertown. But as interest swells, other markets like Bedford, Billerica, Burlington, Natick, Framingham, Marlborough, and Woburn are quickly gaining in popularity. In fact, since 2011, suburban lab rents have increased 165% to a current average of $36.18.

Hayden Research Campus, Lexington

“For investors, these submarkets present an opportunity to get into an asset class in a way they just can’t in the city,” said JLL Managing Director Jessica Hughes. “So much of the supply in Cambridge is owned by strong institutional and long-term holders like Alexandria, BioMed or MIT. And while many of these investors don’t regularly buy in the suburbs, the asset class transcends the location. They can get into a category at prices that are half what they are in Cambridge with higher cap rates and strong fundamental growth, so it’s becoming much more appealing.”

“As a marketplace, we’re evolving,” added Domoretsky. “It’s no longer just Cambridge, it’s Greater Boston. Whereas in recent years this tenant base would tell you that not being on the Red Line or public transit might keep them away from the suburbs, you’re starting to see more companies look past that as the network of shuttles providing improved access has grown and suburban amenities in general have multiplied.”

And this shift to the suburbs isn’t just happening in and around Boston and Cambridge. Citing the Alexandria at Torrey Pines in San Diego as the premier example of a thriving suburban life sciences cluster, Lisa Strope, JLL’s Vice President of Life Sciences Research across the U.S., says that while urban centers are still the hottest commodity, the suburbs around those urban clusters are benefiting too.

“Across the U.S., rents are incredibly high and vacancy is below 10 percent in the top 10 clusters, and not everyone can compete at that level,” said Strope. “The next wave of companies who want to be as close as possible are finding innovate ways to leverage suburban locations. Some of these companies might be priced out of the core markets but they still want to benefit from what these thriving ecosystems have to offer. We’re not seeing companies go to other cities to find lab space, we’re seeing them draw a line as close as possible to the top clusters as they can.”

This article originally appeared in The New England Investor.

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