by Lenny Pierce, Research Analyst
One of the most memorable building surges in the Cambridge market’s history occurred between 1999 and 2002, when it saw over 4.4 million square feet of new development across 27 office and lab projects. This spike in building activity, which was coupled with the later stages of the Dot.com era, was preceded by 3 years of only 1.2 million square feet of new construction and was followed by period from 2003-2012 that saw only 1.7 million square feet of new construction – allowing us to confidently identify the ’99-‘02 stretch as the definitive peak of the cycle. The 9-year lull that occurred after this peak period was broken in 2013 when Biogen singlehandedly rebooted the market with the preleasing of new 225 Binney Street and 17 Cambridge Center projects for a total of close to 512,000 square feet. These two developments have been followed by 11 more projects, totaling 3.3 million square feet. This recent uptick in building activity in Cambridge is grounds to assume we’ve entered another building cycle. What is less clear is where we are in that cycle. Without a single banner year as the previous cycle had in 2000 – which had 10 building starts – it is harder to say whether we are ramping up, plateauing, or slowing down. However, two key indicators, the scarcity of uncommitted space within the new developments and the demand for space in Cambridge that will need to be met soon, suggest that there is still plenty of building ahead.
Of the 4.4 million square feet built during the ’99-’02 cycle, only 60% was pre–committed or owner occupied by specific users prior to commencing construction. Examples of buildings being entirely preleased upon groundbreaking during this period included 500 Kendall Street with Genzyme (350,000 SF) and 35 & 40 Landsdowne Street with Millennium Pharmaceuticals (440,000 total SF), but the remaining 1.89 million square feet was entirely available when construction began. In the current building cycle, on the other hand, there is 3.3 million square feet either complete or under construction so far, with a full 3 million square feet or 90% of it pre–committed. Cambridge users who have already spoken for this newly constructed space include Ariad Pharmaceuticals taking the entirety of 75-125 Binney Street (388,000 SF) and Sanofi doing the same with 50 Binney Street (258,000 SF). Owner-occupied projects in this cycle have included Novartis’ 550,000 square feet at 181 Massachusetts Avenue and EF Education’s expansion of their campus by 320,000 square feet at Eight Education Way. Projects like these have spelled a current gap between total developed square feet and pre–committed square feet that is over 80% smaller than it was in the ’99-‘02 cycle. Much of this discrepancy in pre–commitment is due to the fact that the number of spec buildings going into the ground in this cycle is down considerably. In the ’99-’02 cycle, 8 buildings totaling 856,000 square feet, including 100 Technology Square (255,000 SF) went into the ground with no preleasing. Our current cycle, on the other hand, has seen only 2 spec buildings going into the ground, 450 Kendall Square (65,000 SF) and 150 Second Street (120,000 SF).
The lack of spec building and the 300,000 square feet of available space across these new developments is enough to signal that more shovels will need to hit the dirt, but the current demand in Cambridge bolsters this assertion even further. CBRE/New England considers tenant demand in Cambridge to be how much space the market’s current tenants are looking to expand into combined with how much space prospective new-to-Cambridge tenants are looking for in the area. The current net demand for these 70+ companies totals 2.6 million square feet. The overall availability in Cambridge was 2.6 million at the close of Q1 2015 and with the new uncommitted 300,000 square feet under construction that figure goes to 2.9 million square feet. Since this 2.9 million square feet is made up of small blocks across many buildings, the fact that the availability is technically greater than the demand does not mean much. A handful of big users could find homes in preexisting space, but with 9 different groups looking for over 100,000 square feet each, the market will still need to provide more options.
The answer for growing Cambridge tenants and tenants looking to find a new home in said market will be a willingness among developers to raise that 3.3 million square feet of developed square feet, an initiative that wouldn’t necessarily widen the developed-committed gap for long when considering the abundance of upcoming need. Even though each year so far in this cycle has seen building the 3-4 project range, could we see another 10+ project year like 2000, where close to 2 million square feet of space got under way? 2015 could wind up marking the middle or possibly even the beginning of this building cycle, but all signs point to it falling nowhere near the end.