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Biotech
To hear different people tell it, biotech is either
the next pillar of the New England high tech economy or a prize that will
be so competitively bid that its eventual benefits to regional winners
will scarcely exceed original costs. With its teaching hospitals and MIT,
Massachusetts has succeeded in attracting a large proportion of the first
phase of the industry's growth without the all out marketing effort some
states have made. But stiff competition locally has already resulted in
the much publicized "theft" of one former Cambridge company,
Genzyme, which now has its prominent new home under construction at Allston
Landing on the Boston side of the Charles.
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
24 Thorndike Street
Cambridge, Massachusetts 02141
(617) 577-0096
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