Efficient Market for Lab Space? Not in Boston

Posted in Boston Cluster

Cambridge/Boston continues to separate itself from other clusters around the U.S. as an area of significant growth: more Pharma hires are happening here with layoffs elsewhere, significant talent inflows from around the world, more lab space than most markets, and just this morning John Carroll at FierceBiotech highlighted a WSJ report on the buildout of new Pfizer labs.

But one area Cambridge/Boston is also unfortunately leading is lab facility costs.

Through discussions with Adam Brinch and his colleagues at CB Richard Ellis and Juliette Reiter at Cushman & Wakefield, I managed to construct an approximate comparison of lab space in different US markets in 2Q 2011.   The size of the bubbles reflect their estimates on total lab market size (including government labs in Maryland/DC, Pharma, etc…).

The conclusions:

  • The lab market is reasonably efficient across most geographies: higher vacancies (more lab space available), lower prices per square foot.  Since its local supply that  sets the price, in some ways I was surprised to see how linear most markets were.
  • Cambridge/Boston is an outlier: moderately high vacancy rate, but maintaining the highest rental costs in the country.  I suspect this is due to expectations for continued demand growth.  Interestingly, Route 128 in the Boston cluster is right back in line with other supply/demand rates
  • Philly suffers from below average pricing – probably reflecting the glut of lab space being moved or likely to move into the market through Pharma’s contraction in the Mid-Atlantic.
At the end of the day for a small biotech with its own lab space, facilities costs are typically only a few percentage points of their expenses – so hardly a major driver.  One large preclinical study makes the differences between most markets moot.  But within the Boston metro market today, where everything is within a 30 minute drive, one would need to have a strong set of strategic reasons (like being next to very active founders at MIT/Harvard) to eat the differential costs of say 20K feet of space in Cambridge vs Waltham/Lexington.  That’s about $500K per year or a well-staffed project team of synthetic chemists at an offshore CRO doing work for your projects…
If any of you have better data or more recent data than this, please share.  In the meantime, have a Happy Thanksgiving.
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  • Adam Friedman

    Any early granularity in data on South Boston/waterfront push with Vertex vs. Kendall? Supply may be low/nonexistant, but clearly active attempt to pull business away from Cambridge and there is an opening here for below market pricing.

  • PWoitach

    Figures are consistent with my experience in Philly market.   NJ slightly higher and NY slightly higher than NJ.  Questions I have for all – is there anything beyond access to needed brainpower and convenience  that would justify paying above – equilibrium?  Is lab space a pure commodity or is there anything that would add utility that justifies one site over another , all other things being equal?