The first phase of the long-awaited $2 billion transformation of Somerville’s Union Square brought a 25-story skyscraper and a seven-story laboratory building to what has been a steel scrap for years. 450 tower blocks are leased up, and trolleys run along the MBTA’s new Green Line Extension.
But the 196,500-square-foot lab building, originally envisioned as a way to bring high-paying jobs to Union Square, stands empty. Across the Green Line tracks, the office site is even bigger and The lab project is awaiting a lease to begin construction.
Finding these tenants is the biggest challenge right now for US2, the developer of the 17-acre Union Square mixed-use development, president Greg Karczewski told the Somerville Redevelopment Authority at a meeting Wednesday. In an effort to lease anything in that lab building, US2 has put down two of the smaller suites to attract emerging companies that don’t need an entire building space, and has expanded its reach to industries other than life sciences, including artificial intelligence, robotics, weather technology, and other mixed-use applications. No takers, though.
Indeed, with nearly 16 million square feet of lab space available across Greater Boston right now, competition for tenants is intense. In inner-city areas, such as Somerville and Malden, the life sciences area is 62 percent, according to research from real estate brokerage Colliers. And as a new life-sciences organization, at least compared to established markets like East Cambridge and Boston’s Seaport, Union Square has plenty of room for innovation.
“There’s a lot, a lot, of competition,” Karczewski said. “We’re working hard to try to differentiate ourselves, but that’s the reality of it now.”
Industry experts estimate that it could take five years or more for the market for lab space in Greater Boston to return to something like normal — somewhere around 15 percent, compared to the single-digit locations recorded before the pandemic.
New products have stopped coming to market, as the construction industry during the COVID-19 pandemic subsides. But with rentals slowing, the space remains stubbornly high, at 34.1 percent, Colliers data show.
As Greater Boston works its way through the empty inventory, new construction is directed toward other markets. Of the $60 billion worth of science infrastructure projects announced or under construction across the country last year, none came to Massachusetts, according to recent research from brokerage CBRE.
If Boston hasn’t reached the bottom of the market yet, it’s close, said Jeff Myers, managing director at Colliers in Boston. If positive trends continue — trends like rising stock prices and increased capital flows into local companies — Myers said the local life sciences market could see a recovery beginning this year.
“As we’ve seen in the last few months, whether it’s Lila Science or TransMedics, there are some deals being done, which weren’t really the case in the past,” Myers said.
However, in several previous locations, more space is recorded as empty than it should be. It’s not a given that Boston can break that mold this year, Myers said, although there is a chance.
Meanwhile, renters’ competition with other landlords is increasing dramatically over how much they will pay to fit the space. With long-term leases in new construction, landlords are paying about $400 per square foot, Myers said, more than double the rate for tenant renewals four years ago.
Well-financed landlords who pay more than $300 per square foot in tenant improvements tend to do so for properties built in Cambridge, said Tucker White, chief research analyst at brokerage Avison Little in Boston.
“The most common thing you hear is not how low they’re willing to go in rent, it’s how high they’re willing to go dollar-for-dollar,” White said. “This allows landlords to save on rents that are usually written when they buy or build.”
Leasing has declined since before the pandemic. But based on the region’s tenant experience from 2015-2019, an estimate of how long it will take for the lab market to return to normal is about four to five years, White said.
For investors who have poured money into large, complex, life science buildings that have now sat empty for years, there is often little choice but to wait for a tenant to arrive. So at what point do developers and homeowners cut their losses and sell assets that are dragging down the balance sheet?
“Some of them may be having that conversation right now,” Myers said. “For some buildings, it has been a few years of trying to fill the space.
Catherine Carlock can be reached at [email protected]. Follow him @bycathcarlock.
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