Cambridge startups feeling real estate squeeze | Crain's Boston

Cambridge startups feeling real estate squeeze

There might be no better place in the country to launch a business based on technology from Boston’s two leading universities than in their own backyard. But early-stage startups making their way in Cambridge today face an increasingly tight real estate market, with rents that make tuition at Harvard and MIT look manageable by comparison.

Last week Akamai announced it would consolidate hundreds of jobs into a new 19-story building in Kendall Square, which remains one of the country’s most competitive commercial real estate markets thanks to huge demand from data and biotech companies who have their roots in the area’s academic institutions.

Smaller companies, however, are feeling the squeeze. The problem is more acute for Boston’s booming biopharma industry than for tech companies like Akamai. More than 96 percent of Cambridge’s 10.24 million square feet of lab space is occupied, according to an analysis by commercial real estate investor Transwestern.

In July, Alexandria Real Estate Equities agreed to pay roughly $1,124 per square foot for an eight-acre complex called One Kendall Square, which is one of the highest prices ever paid for a large office building in the Boston area, according to the Boston Globe. Add to that domestic demand a flood of foreign investment, and the neighborhood widely touted as Boston’s innovation hub is becoming prohibitively expensive for some early- and mid-stage companies.

“It’s not a new problem,” said Joel Marcus, CEO of Alexandria Real Estate Equities, today one of the neighborhood’s biggest landlords. In 2003, the company entered Cambridge with a project called the Science Hotel, which offered small chunks of office space—between 3,000 and 7,000 square feet each—to fledgling companies coming out of MIT.

Nor is the problem unique to Cambridge, according to Marcus, whose company owns commercial real estate in all of the nation’s major tech hubs, from Seattle to Silicon Valley.

“We’re seeing all the markets become very tight,” he said. “Part of that is people focused on being in the urban locations rather than the cheaper suburban locations.”

More biotech startups are skipping the traditional quest for venture capital, Marcus said, opting instead to stay small while they develop intellectual property into viable products with verified lab results and clinical trials.

That’s the market Amrit Chaudhuri is cornering with Mass Innovation Labs, a blend of the traditional models for incubator and co-working spaces designed specifically for growing biotechs. Chaudhuri encountered the lab space drought while launching his own company in Kendall Square in the mid 2000s. Stymied by zoning challenges, he hatched the idea for a shared lab facility that could promise the economies of scale enjoyed by biotechs big enough to build their own complexes, but with the affordability and flexibility of a stripped-down incubator space.

“We decided we were going to basically take the model that pharma uses,” said Chaudhuri , “and allow smaller companies to modularly access that.”

Startups can rent office suites at Mass Innovation Labs, as well as bite-sized labs with all the equipment and infrastructure necessary for biotech research, from mammalian cells to genetic sequencing. Tenants rent “modular” labs and office space at just $200 to $250 per square foot, Chaudhuri said, a fraction of the cost of renting a floor in a new commercial building with the same amenities.

That’s an attractive proposition for early-stage biotechs that need professional-grade lab space but can’t afford to rent more space than they need.

“As a startup company you have to go and make a seven to 15 year lease, so either you pick a space that’s right for you in years one and two, and hope to be able to get rid of that liability in the future as you outgrow it,” said Chaudhuri, or you buy as much as possible and hope to grow into it.

“It’s a capital burn," he said. "It’s a risk they take.”

Mass Innovation Labs’ alternative approach has worked for at least one biotech. CRISPR Therapeutics grew from a single employee to a workforce of 40, striking more than $350 million in deals with Vertex and Bayer while at Mass Innovation Labs. To date they’re the only company to graduate from the space into their own standalone offices.

Chaudhuri says Mass Innovation Labs is on the hunt for new real estate of its own, scoping out a second building in Kendall Square as well as a possible expansion to the West Coast. Perhaps fittingly, they’re running into a bit of a problem finding space themselves.

Meanwhile other landlords in the area are taking note of the model. MIT is devoting more of its property to co-working spaces, and the Cambridge Redevelopment Authority is working on a plan to integrate “innovation spaces” throughout its Kendall Square Urban Renewal Plan area.

“We’re trying to work this squeeze by making sure there’s a little more supply,” said Tom Evans, executive director of the Cambridge Redevelopment Authority. “Right now we see that most of the new supply is picked up by large lease-holders.”

Early stage biotechs need more options, Evans said, but the neighborhood can’t be everything to everyone. He points to Biogen, which moved its headquarters back to Cambridge after several years in suburban Weston, Mass.

“Kendall Square we hope will continue to be the key innovation center for Boston, but that doesn’t mean everything has to stay here,” said Evans. “We have to acknowledge that, just like housing, it’s a regional market, not just Cambridge or Kendall.”

Editor's note: An earlier version of this article misspelled Amrit Chaudhuri's name. We sincerely regret the error.

September 19, 2016 - 12:46pm