Greater Boston Lab Market Show Signs of Struggle

In Cambridge, there was absorption of 820,000 sf while the suburbs experienced a negative absorption of 238,616 sf of space. The availability rate for the Greater Boston area was at 20.3%. Novartis' leasing of 750,000 sf in Cambridge provided the market with a boost, but the report indicates that that deal is more likely to be the exception rather than rule mainly because, as it points out, "there are no known lab requirements of this magnitude currently in the market."

The report further indicates that for the first time in recent history, direct space is competing with second generation and sublease space that is on the market due to local companies' downsizing programs. It has become tricky for property owners to get small and mid-tier lab tenants because of the "attractive options" tenants can get with subleases and second-generation companies. The report predicts that this trend will continue to have a significant impact on the local lab market by increasing the availability rate and putting downward pressure on average asking rents.

The report also anticipates that the lab market will remain slow well into 2003, thanks to the decreased amount of venture capital funding and sluggish economy. Most medium-sized companies in the area fulfilled their space requirements during the boom of the late 1990s to 2000 and the lack of funding necessary to grow means that they will probably stay put. Additionally, many of the new lab projects have not leased up that quickly. The report points to several existing and recently developed lab facilities that have had large blocks of available space on the market for up to two years.

Yet, despite these signs of slowing, the report emphasizes that the fundamentals of the industry remain strong. The industry continues to attract private funding and public funding and the importance of biotech industry in the fight against the threat of bioterrorism means that public funding will probably grow. But, for next year, tenants in the market will have more space and pricing options.