E2MV is pleased to share our latest insights into the Boston life sciences market, prepared for a prominent institutional investor.
Despite current challenges, Boston remains at the forefront of innovation, driven by a robust ecosystem of talent, cutting-edge technology, and world-class research institutions.
- Excess Supply vs. Historical Absorption: Boston is approaching the end of a three-year supply surge, which has added 22 million square feet of lab-related space to the market. This far exceeds the 10-year average absorption rate of approximately 700,000 square feet per year. The oversupply has pushed the current market-wide vacancy rate above 25%, with projections of it rising to 28% by Q4 2024. Additionally, only 20% of the over 7 million square feet to be delivered life sciences spaces are pre-leased.
- Kendall Square Leads Demand: Despite a softening in overall demand, Kendall Square continues to be the top choice for life sciences tenants, with 87.5% of tenant demand concentrated in Kendall Square/East Cambridge. Non-core urban and suburban markets are likely to see prolonged high vacancy rates, as they must wait for Kendall Square (currently 13% vacant or 1.9M SF) to absorb excess supply before experiencing any meaningful decline in vacancies.
- Scarcity of Capital Stifling Demand: Venture capital (VC) investment in life sciences companies is a key driver of lab space demand in the Boston area. While VC funding surged from 2017 to 2021, it has since dropped by 44%, creating a capital shortage that is forcing startups to reassess their space needs. Even when VC investment rebounds, demand for lab space is expected to remain subdued, as many life sciences companies are currently leasing more space than they require.
- Market Recovery Timeline: The Boston market is expected to experience elevated vacancy rates through at least 2028 as the supply-demand imbalance gradually corrects. Core submarkets like Kendall Square/East Cambridge, with a current vacancy rate of around 13%, are likely to recover sooner. In contrast, suburban and non-core urban areas will face a longer absorption period, with some submarkets grappling with vacancy rates as high as 81%. As developers increasingly recognize the oversaturation in the market, they are rushing to secure tenants for their vacant spaces in an effort to mitigate rising vacancy rates.
The Wall Street Journal
recently noted, "In the Boston region, owners of at least 10 life-sciences locations are now offering those buildings for office space instead of lab space.” Link to article
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