Despite Rumors Of Oversupply, Now Is The Time To Start Investing In Life Sciences Again

Since the spring of 2022, the commercial real estate market has slipped into a state of higher costs and uncertain returns. The life sciences market has been no exception, with the industry seeing construction outpacing demand.

With vacancy rates rising sharply even in gold-star locations like Boston, some industry pundits are predicting that this may be the end of the life sciences boom.

But is that assessment accurate? After nearly two years on the sidelines, should life science developers and investors still be sitting on their hands? 

To Jennifer Schultz, leader of Sullivan & Worcester’s permitting and land use group, and Dan Hackett, a principal at Unispace, the answer is a definite “no.” 

“Now is the time to start work on new projects to time the future markets just right,” Hackett said. 

Bisnow spoke with Schultz and Hackett to learn more about why they feel that now is the time, despite what some numbers may be indicating, to surge ahead with life sciences development and investment. 

Bisnow: What trends are you seeing, both positive and negative, in the life sciences market right now? 

Hackett: In the last 90 days, Massachusetts life sciences companies have attracted over $42B in investments through venture capital, initial public offerings and mergers and acquisition activities, as reported by capital tracking platform PitchBook. Through January 2024 there were 22 financing deals with a median value of $55.4M. 

VC investors allocated 32% of life sciences funds to biopharma companies in Massachusetts in 2023, marking a 6% increase from 2022. The average funding round for these companies was $34.2M, significantly higher than the national average of $15.6M.

Schultz: In the permitting world, the market never died, but it did certainly slow down. Permitting has not necessarily been a bad phase to be in while the markets are adjusting. But no one has wanted to add construction debt, in particular, to a project in the last year-and-a-half, and very few projects have been able to secure anchor or built-to-suit tenants early on. 

I’ve also seen real hesitation rising from the investment side of the market, especially with out-of-state investors who don’t see and feel the activity on the ground in the different submarkets in and around Boston, and especially from conservative investors like pension funds. 

Bisnow: Unispace’s research shows that there is 17M SF of lab space set to deliver in the Greater Boston area in the next few years. What does this, paired with the area’s 11% vacancy rate, mean for developers and tenants? 

Hackett: The developers who already have shovels in the ground are going to be competing for a smaller-than-usual group of tenants being lured by the best-in-class space in the best locations from now until probably 2027 or 2028. It is currently a tenants’ market but we expect to see the demand for more space quickly catch up. 

Bisnow: Why do you believe demand for space will grow? 

Hackett: For one, we looked at the current leases in Greater Boston for life sciences space over 50K SF that are coming up on the end of their term. Between 2028 and 2030, there will be over 4M SF in lease terminations, and therefore, 4M SF of large life sciences companies and users on the market looking for the newest and the best space available. 

When added to the natural growth of current startups and newly minted biotechs, these expirations will drive that future demand that flocks to the new best-in-class space. Boston is home to almost 1,000 life sciences companies. And with the talent and capital pipelines continuing to flow, we can expect to see some real innovation out of this field, which, of course, means new space demand.

Schultz: You always need to think about the human capital component of the life sciences market in Massachusetts. Not only does the Greater Boston Area house some of, if not the, best higher education institutions in the world, but it also houses an extraordinary workforce of current and future life science technicians who make up the majority of the life sciences jobs. The Massachusetts Biotechnology Council recently projected that another 42,000 life sciences jobs will be needed in Greater Boston by 2032. To that end, I have been working closely with them since early 2022 on a local workforce training initiative, the first of which MassBio launched just a few months ago at Beacon Capital’s life sciences hub, Southline, in Dorchester. 

This initiative, called “Bioversity,” is aimed at providing stackable certificate programs to quickly train the majority of the life sciences workforce, including lab, pharmacy and biomanufacturing technicians, in just a matter of weeks, all without the need for any advanced degree. This initiative is just the tip of the iceberg in terms of meeting the demand for and needs of the commonwealth’s life sciences companies. Companies can grow and succeed so long as they have the right talent. 

Bisnow: Why is now the right time to start new projects? Why not wait until those leases come due in four to six years?

Schultz:  Because life sciences developments don’t get built overnight, and they certainly don’t get permitted overnight. In Boston, in particular, permitting of large, complex projects is slow. 

On average, it takes between 41 and 51 months just to get through pre-building permit approvals. Six months, on average, to have your team go through pre-file design and preparation; 20-30 months to get through the Boston Planning & Development Agency large project review and zoning approvals; another nine months for the 'back-end' administrative permits, like Boston Water and Sewer, Conservation Commission, Public Improvement Commission; and finally another six months to get through code review. 

From the issuance of a building permit, it is another 28-32 months to construct the core and shell. Doing the math, that’s a 6-8 year delivery timeline. So, if I had a client that came to me tomorrow and said, 'I want to develop a 300K SF life sciences building in Boston, and I want it to complete core and shell in 2028,' I’d tell them, 'We’re already too late — by a long shot.' Earliest delivery for the core and shell of a project that starts tomorrow is likely between Q1 2030 to 2031. Once you start to add tenant fit-outs on top of that, the earliest tenant occupancy of a new life sciences project is somewhere between Q4 of 2030 to 2031. 

Hackett: The timeline Jenn just described means that the earliest a developer who starts today will be talking to potential tenants, realistically, is late 2028. That’s very good timing based on what we are expecting to see from the market.  

This article was produced in collaboration between Studio B and Sullivan & Worcester. Bisnow news staff was not involved in the production of this content.

Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to [email protected].