Biotech Cautious but Still Kicking

The life sciences industry faces hurdles to growth familiar to most other sectors of the economy. As a new Jones Lang LaSalle Inc. study points out, two important sources of capital shrank dramatically last year. Initial public offerings for biotechnology firms declined 96 percent compared with 2007, and venture capital funding slipped 14.9 percent. Ten times as many publicly held biotech companies are valued at less than their cash on hand as only two years ago. And the Biotechnology Industry Organization has concluded that one-quarter of all public biotech companies have only enough cash on hand to last for six months.The odds appear to be stacked against growth of research and development space, but the reality is more complex. The companies that control much of the life sciences laboratory market in the United States—Alexandria Real Estate Equities Inc., BioMed Realty Trust Inc., HCP Inc., Wexford Science+Technology L.L.C. and Forest City Enterprises Inc.—are on sound financial footing compared with other real estate investor categories. Jones Lang LaSalle expects those leaders to invest selectively, reporting, “A more conservative use of capital will contribute to a slowdown in speculative construction that is already being seen in most markets.”One of the nation’s largest life sciences markets, Greater Boston, is going through a mix of problems and opportunities that now characterize the niche. Availability in the 15.2 million-square-foot lab market stood at a respectable 13.5 percent by year-end. Each major submarket fared differently, Jones Lang LaSalle reported. In Cambridge, average asking rents for lab space slipped 4.6 percent after mid-year to end 2008 at $52.24 per square foot. New Class A lab space commanded average rents of $60 per square foot, and those premium prices drove a steady stream of firms to seek out less expensive suburban space. As a result, the Cambridge lab market tallied negative absorption of about 12,000 square feet.Efforts to expand Boston’s life sciences footprint beyond 3.1 million square feet hit a significant snag last fall. Sluggish leasing activity forced National Development and Alexandria Real Estate to halt construction of a $300 million, 425,000-square-foot lab, clinical and office project in the Longwood Medical Area. Nevertheless, there might be a silver lining. “This delay in construction, an availability rate of 7.3 percent and only four available blocks of space with more than 25,000 square feet will keep options limited for companies looking for lab space in Boston,” contended the Jones Lang LaSalle report. Among the area’s suburban submarkets, the Route 128 region fared the best, as availability stood at 7.3 percent at the end of last year.