Biotech promises strong growth. After an infancy of only fifteen years, the industry occupies 7,000,000 square feet locally (nearly 20% of the r&d total), with prospects for growth to 15,000,000 to 30,000,000 by the year 2000. Space requirements are specialized: high ceilings and heavy electrical, wet lab, ventilation, and climate control capacity. The over supply of office space and strong demand for biotech make these appear a good conversion match. However, in fact, the special requirements of biotech for ceiling height and build out have made such conversions few. Over supplied industrial and r&d space is a better match. As Chip Maisland of CDC points out, other than fit up, there is little to prevent the conversion of most standard one story industry to biotech.
The first, pre manufacturing, r&d oriented growth stage of the industry has been characterized by locational concentration at Cambridge, the Charlestown Navy Yard, the Longwood medical area, and the Massachusetts Biotech Research Park at Worcester. Rents of $25 to $32 per foot, net, at MIT and $20 at Worcester have resulted from low vacancy (with large new blocks virtually unavailable in Cambridge) and high costs of build out, at a level of about $200 including land and shell building. Unlike office space, which requires costly new fit up at five or ten year intervals for new occupants, biotech labs are oten re leased on an "as is" basis. Recent transactions include one Cambridge facility sold at a price of $75 per foot in excess of the price of a similarly located new office. Yet, in spite of indicators like these, the industry has encountered difficulty in securing financing for construction of space to house its growth. Forest City's planned development at Central Square in Cambridgeport has been slowed by funding difficulty. Unfortunately for the industry locally and for those interested in incubating its growth, the timing of the increase in demand for space has coincided with the retrenchment of lenders burned by bad loans in real estate. For biotech, the picture is on the one hand of spectacular success in the seemingly more difficult realm of attracting venture capital for business creation and on the other of difficulty in the more mundane effort of finding long term real estate funding.
Biotech is the fulfillment of the promise of biology as business. Much of the industry's work is simply in applying more efficient methods of drug development than were previously available. In the early era of computers, it was asserted that the number of mainframes required to serve total demand was twelve. Tens of millions of home machines later, the early estimate looks low. The conservative projections of biotech industry observers are for annual growth of 7% to 10% through the end of the decade, versus growth of up to only 3.5% annually in other fields. Projections like these explain the inducement packages offered by industry hungry states. The projections may not, however, take account of the targeting of the drug industry as a source of out of control costs in health care. Whether the industry meets expectations, employing thousands and filling empty buildings, or, instead, finds its growth stunted by an effort at cost containment by the Clinton administration remains to be seen.
Eric T. Reenstierna, MAI
The Reenstierna Associates Report is published as a service to the clients of Eric Reenstierna Associates and other real estate professionals. The views expressed are those of the articles' authors and do not necessarily reflect those of other members of the organization. Copyright 1993. All rights reserved.
Eric Reenstierna Associates