January 3, 2022 | By Tim Logan – Boston Globe
The week between Christmas and New Year’s is usually a pretty quiet time in Boston’s business world. But the business of developing lab space lately takes no days off.
Davis Cos. closed last week on the sale of three office buildings in the area — fetching nearly $1.1 billion in all — with the vast majority of the space destined for conversion to labs. The deals, and the size of the transaction, speak to the intense demand for space by a Boston-area biotech industry that is exploding in the wake of the COVID-19 pandemic — to the point that even buildings that house well-known tech companies are seen as better used for life science firms.
Earlier this year, Davis reached a deal with Alexandria Real Estate Equities, a heavyweight developer in neighboring Kendall Square, to sell it for $815 million, with a plan for Alexandria to convert it to life science use. That sale closed last week.
As part of the deal, Davis encouraged longtime tenant Pegasystems to leave its lease eight years early and relocate to Waltham as the company adopted new, more flexible, work policies amid the pandemic. That opened up Charles Park for potential conversion. When Alexandria first disclosed the deal in June, the company said it was already in lease negotiations with “several cutting-edge life science companies” to fill the building, which should be ready in 2023.
Another Davis office building that’s likely to become labs is One Cabot Road in Medford.
The developer sold that building, along with Cityside in Waltham, to investment firm Partners Group for $260 million. Davis will continue to operate the buildings, and Jonathan Davis said that One Cabot, at least, will likely be converted towards life science use as the leases of its current tenants gradually expire.
The building sits in Medford just a few minutes from the Wellington Orange Line station, not an area that has been a hotbed of the region’s life science industry.
But new lab projects are in the works in Sullivan Square in Charlestown and around Assembly Row in Somerville — the next two stops southbound on the Orange Line — as well as to the north in Malden Center. Davis said leasing had slowed during the pandemic at the 309,000-square-foot building, whose tenants include Inkbit, Clario, and Amazon. But when they converted an empty office suite to life science space, potential tenants jumped at the opportunity.
“It was like a food fight. As soon as we announced it, we had six tenants lined up,” said Davis, who ultimately leased the space to Torus Biosystems, a spinoff from Harvard University’s Wyss Institute. “As an office building this might have been worth $90 million, but in this deal [as potential lab space] it was valued at $175 million.”
That sort of markup is happening all over the region, as investors scout out office buildings that might be suitable for lab space, and buy them up. At least 10 million square feet worth of these sorts of conversions is in the works, drawing both pushback from wary neighbors and worries in some corners about a bubble.
How many of these planned conversions ultimately succeed remains to be seen. But right now, business is hot and the owners of office buildings where someone can envision a drug lab are cashing in.