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REAL ESTATE IN THE BOSTON BIOPHARMA ECOSYSTEM

What Leaders Need to Know to Navigate the Market

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ABOUT THIS REPORTBoston has emerged as one of the most dynamic, rapidly growing BioPharma ecosystems in

the United States with more than 550 active companies and 74,000 people employed in the

life sciences industry.1

The Massachusetts Biotechnology Education (MassBioEd) Foundation’s 2018 Annual Job

Trends Forecast projects that Massachusetts will need to fill nearly 12,000 additional jobs by

May of 2023 to meet rising demand.2 And the industry is forecast to remain hotter than ever.

So, what does this mean for the Boston BioPharma ecosystem? How can companies establish

themselves and grow in this fast-paced network?

In this report, we’ll uncover how Boston’s real estate market has responded to rapid

BioPharma growth and how BioPharma leaders can plan for and execute effective real estate

strategies to enable growth in a highly competitive marketplace.

1 http://www.liftstream.com/boston-biotech-cluster.html2 https://www.massbioed.org/writable/files/JobTrends/massbioed_jobs_trend_report_2018_final_web.pdf

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THE VIEW FROM 30,000 FEET

Boasting leading institutions, including Harvard, MIT, University of Massachusetts, and Boston University, along with five of the eight top-NIH funded hospitals in the US, and more than 550 active companies in the life sciences industry3, it’s no wonder Boston has become one of the top BioPharma hubs in the United States.

In fact, the Massachusetts Biotechnology Education (MassBioEd) Foundation reveals that employment in the life sciences sector surpassed 70,000 people for the first time in history in 2017.4 They project that Massachusetts will need to fill nearly 12,000 additional jobs by May of 2023 to meet rising demand, and they see no sign of the life sciences industry slowing.5

3 http://www.liftstream.com/boston-biotech-cluster.html4 https://www.massbioed.org/writable/files/JobTrends/massbioed_jobs_trend_report_2018_final_web.pdf5 https://www.massbioed.org/writable/files/JobTrends/massbioed_jobs_trend_report_2018_final_web.pdf

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Massachusetts has also emerged as a global hub for biotech investments, with venture

capital (VC) dollars continuing to flood into the state’s BioPharma companies, reaching $2.9

billion in 2016—up from $2.3 billion in 2015 and more than three times the $900 million

invested in 2012.6 Many of the leading VC firms are either headquartered or have offices in

Boston or Cambridge. And an astounding 30% of all US-based biotech IPOs in 2016 were from

Massachusetts-based companies.7

Most of this growth is being fueled by companies and investors gathering together in a

geographic BioPharma cluster centered in Cambridge. In 2017, Genetic Engineering &

Biotechnology News (GEN) placed Boston/Cambridge at the top of its annual top 10 ranking

of BioPharma clusters based on job availability, patents issued, available lab space, and NIH

and VC funding.8 It’s one of two key geographic clusters dominating the biotech industry

today—the other being the San Francisco Bay area. Bruce Booth, D.Phil., a partner at Atlas

Venture, attributes this to those areas’ unique blend of biomedical science, venture capital,

entrepreneurial talent, risk-taking culture, and geographic density.9

6 https://www.massbio.org/news/recent-news/massbio-s-2017-industry-snapshot-shows-venture-capital-investment-in- massachusetts-biopharma-industry-reached-a-record-2-9-billion-lastyear-1375927 https://www.massbio.org/news/recent-news/massbio-s-2017-industry-snapshot-shows-venture-capital-investment-in- massachusetts-biopharma-industry-reached-a-record-2-9-billion-lastyear-1375928 https://www.genengnews.com/the-lists/top-10-us-biopharma-clusters/779009179 https://lifescivc.com/2017/03/inescapable-gravity-biotechs-key-clusters-great-consolidation-talent-capital-returns/

The BioPharma boom

in such a concentrated

geographic area has led to

an extremely competitive

marketplace. Today,

companies must plan well

and work hard to woo

top talent to their teams,

stand out from the pack

to attract VC funding,

and secure effective real

estate in a tight market

as they move through

their often-unpredictable

growth trajectories.

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BOSTON REAL ESTATE: WHERE BIOPHARMA WORKS

Boston’s Vibrant BioPharma Hubs

The BioPharma real estate ecosystem in Boston is well established, growing rapidly, and

highly competitive. BioPharma companies have congregated in several areas, creating highly

concentrated hubs where small startups, growth-mode companies, and some of the largest

BioPharma companies in the world compete with other large firms, like Google, Amazon, and

Microsoft, for real estate in a very tight market.

Cambridge—more specifically Kendall Square—is ground zero, with Biogen landing there

in the early 1980s and Genzyme taking up residency a few years later. Other startups eager

to make their mark in the BioPharma market have followed, as have larger firms looking to

capitalize on Boston’s talent.

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Area expert Jeremy Hood, Senior Principal at T3 Advisors, asserts Cambridge became

the original BioPharma hub because of its access to talent and proximity to a wealth of

universities, like MIT and Harvard.

Recent research by Deloitte has also highlighted a major shift in the industry towards

more collaborative partnerships among life sciences companies, academia, nonprofits,

and government entities. About 9,000 new BioPharma research and development (R&D)

partnerships were formed between 2005 and 2014—more than double the number formed

in the preceding decade.10 Being near one another helps these cross-party stakeholders

collaborate more fluidly.

Today, Cambridge remains Boston’s premier BioPharma hub, but other areas show promise

of becoming vibrant centers in their own right. Real estate investors are developing

properties in Boston neighborhoods, like the Seaport and Fenway, as well as suburban areas,

including Waltham and Lexington. And with increased funding driving rapid growth, the

Boston BioPharma real estate market is expected to continue to swell.

10 https://www2.deloitte.com/us/en/pages/life-sciences-and-health-care/articles/how-biopharma-collaborations-are-fueling- biomedical-innovation.html

Low Vacancy, High Cost, Stiff Competition

As the top BioPharma hub in the Boston area, Cambridge is experiencing high demand for

commercial real estate, driving low vacancy rates and escalating rents. The vacancy rate in

the overall Cambridge market hovers around 1%, with average costs per square foot running

$52 in West Cambridge, $74 in Mid-Cambridge, and $86 in East Cambridge—which is

currently the hottest BioPharma real estate submarket in greater Boston.

Newer hubs are providing other options, but supply across the entire area struggles to keep

up with the growing demand. One contributing factor is the limited number of landlords

focused on BioPharma real estate; only three to five market-wide are proactively searching

out life sciences tenants and building lab space.

According to Hood, “BioPharma real estate is extremely specialized. Lab space must be built

to certain specifications for concerns like venting of chemical vapors, properly disposing of

hazardous waste, and providing necessary equipment with sufficient electricity. This requires

a considerably more robust, expensive infrastructure than the typical office building.”

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“Because the market has gotten so tight, some companies have made more reactionary decisions: taking space that may not suit their needs, that hasn’t been properly vetted, or that can’t be built out to accommodate their science—all just because it’s available space.”

—Jeremy Hood Senior Principal T3 Advisors

Another complicating factor is the recent “pre-leasing” phenomenon. New projects are

under way, but due to high demand, big pharma and tech companies are pre-leasing the

space before it even hits the market, making it difficult for scaling life sciences companies to

find the right property when they need it.

“It’s challenging to find initial space, but the real difficulty comes when companies need to

grow beyond it,” advised Hood. “So, we find firms taking multiple spaces around Kendall

Square or leasing earlier in the life cycle than needed, often subleasing to other companies for

shorter terms to reserve real estate for themselves later. People are jumping on any available

open space. That can be a dangerous move.”

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Planning for Uncertain Outcomes

In addition to dealing with a competitive real estate market, BioPharma companies face

a unique challenge. The pace at which a company grows is dependent on the outcomes of

unpredictable activities, including scientific experiments, fundraising, clinical trials, and

government approvals. Positive results aren’t guaranteed.

So, while it’s relatively straightforward for a small startup to find effective lab space for

R&D, it’s much more difficult to plan for growth—preparing to hire more people and expand

office space to support Clinical, Finance, Sales, and Marketing Teams. Companies want to be

prepared, but they don’t know how much space they will need or when they will be ready to

expand. It depends on the outcomes of many activities along an uncertain path through the

life cycle.

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HOW BIOPHARMA LEADERS CAN NAVIGATE THIS CHALLENGING MARKET

BioPharma leaders have a lot to consider when evaluating real estate in the Boston area. The

goal is to secure effective space that enables employees to do their best work and supports

the company as it moves through its growth trajectory. Given the industry’s unpredictable

nature and the area’s competitive real estate market, sound, up-front analysis and planning

is crucial to preventing potentially costly mistakes.

1. Plan early for multiple growth scenarios.During early planning stages, leaders should consider multiple

forward-looking scenarios as they create their real estate strategy.

How many and what types of people will the company need if they

meet their growth goals? What if they grow more slowly or quickly

than planned? How does each situation impact the size and timing

of real estate requirements?

Understanding multiple scenarios enables sound real estate

planning. The earlier they’re defined, the more likely a company is

to have access to workable space when needed.

How can BioPharma leaders plan their real estate journey as they scale? Here are six pieces of advice to consider.

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2. Understand the science needs and goals.Space is more than just an expense or a cool place to attract talent.

It can be a tool to empower employees, enable the science, and

propel a company forward.

That can only happen, however, with a foundational understanding

of the science needs and goals. Is the company doing chemistry-

based R&D that requires specific ventilation? Is there a need for

refrigeration for biotech? Will there be animal testing that requires

special facilities?

Having answers to questions like these and understanding the

impact they have on real estate requirements is essential to finding

space that will not only work, but can dramatically accelerate

growth.

3. Know who the company is hiring and when.Attracting and retaining top talent is competitive in the current

market, but it’s critical for success, and people care about the

space in which they work. Companies need to understand who

they will need at each stage of growth. What are their roles? How

many of each? Where will candidates likely live? Will they be PhDs

fresh from MIT or Harvard who live close to Cambridge or more

experienced people who live farther out?

Understanding the people behind the science informs many

decisions and is particularly important when deciding which areas

have the potential to attract top talent and minimize the burden of

long commutes.

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4. Take a data-driven approach to location analysis.Executives often think they have to be in a specific neighborhood.

In this tight market, however, it makes sense to consider multiple

options, evaluating the costs and locations of key stakeholders—

not just employees, but also investors, key vendors, and strategic

partners. Where do employees and future hires live? How often will

they be in the lab or office? Who will they be working with most often?

A commute analysis tool can provide additional value with real data

to support decision making. Companies can also survey employees

to find out how they prefer to commute. Hood has seen companies

assume they need to locate near a Red Line stop, only to find out

through surveys that this wasn’t important to most employees,

who either didn’t live near the Red Line, carpooled with others, or

preferred to Uber to work.

Taking a data-driven approach provides the transparency needed to

make objective decisions that will improve productivity and quality

of life.

5. Optimize space for how people work.Getting the most out of any workspace is important, but especially

so in research labs. Labs are not only expensive, but their layout

can also impact the quality and speed of R&D. So, it’s important to

clearly define and optimize each functional area, configuring each

lab based on the specific work processes that will be performed, so

individuals have easy access to the supplies and equipment they

need and enough space to do their jobs efficiently.

Additionally, keep in mind that science rarely goes from “Point A”

to “Point B,” so lab design should be flexible and reconfigurable

to accommodate process changes. Continuously analyze ways to

make the space more efficient. According to Hood, “Your facility

needs to enable your science. Do it right, and your science will be

better supported.”

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6. Engage with a strong real estate partner.Real estate is a significant investment for BioPharma companies, primarily

due to the specific requirements for lab space. An experienced advisor

with a BioPharma focus and extensive knowledge of the Boston real estate

market can help companies invest wisely.

A high-quality advisor will gather a lot of information to guide the

search, but analysis and decision making should always be driven by a

deep understanding of the science, the people responsible for advancing

it, and how space can enable their work. An advisor should represent

the business as the future tenant and oversee the process from start to

finish—determining the company’s needs, evaluating locations and

sites, negotiating leases, and working with tenants to manage design and

construction planning and execution.

An advisor should also be invested in long-term outcomes—helping the

company plan as soundly as possible for each phase of growth—ensuring that

the space propels the science and drives the company to a successful exit.

LEARN MORESince 2001, we’ve helped the world’s most innovative life science companies use space as a

platform to advance their science. We can create a custom real estate strategy that meets your

company’s growth and cultural goals.

Have a true advocate

We only represent tenants, which means we have no conflicts of interest. This ensures you get access to the best spaces and get the best deal terms.

Problem solve at every stage

From understanding clinical milestones, to fundraising and M&A, our exclusive focus on life science companies and investors helps us anticipate challenges and provides you with proactive solutions.

Do more with your space

Mechanical, electrical, and plumbing systems are critical to support labs and experiments. We help you scale your facility with your science and headcount growth to ensure it can grow with you.

Minimize upfront costs

Because lab space can be so costly to build out, we perform due diligence on every potential facility to ensure there are no surprises, negotiating to minimize your risk and expenses.

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