Saturday, July 31, 2021

At $39/square foot, Suburban Maryland is not a Premium Market

 By David Gross

Earlier this week, I commented on Boston Properties' (BXP) strategy of pursuing lab space in Metro DC, a market it knows well from its office holdings, but not one that commands premium pricing in wet lab space.  Cell therapy tools developer MaxCyte recently announced a 67,000 square foot lease at 9713 Key West Boulevard in Rockville, for what appears to be approximately $40 per square foot based on SEC filings, and Sensei Biotherapeutics leased 7,000 square feet in Alexandria's 1405 Research Boulevard building last year for $39 per foot.  This is nowhere near the $60+/square foot rates now seen in Boston, San Francisco, New York, and San Diego. 

In its recent earnings call, BXP said labs are just over 6% of its portfolio, and it expects this to double over the next few years.  It recently acquired 435,000 square feet near the Shady Grove Life Sciences Center for just $267/square foot, and will be converting all the properties it bought into labs.  While it's also pursuing lab properties around Boston, BXP is likely developing properties this region because of its strong presence in the DC area office market, which often commands premium rents from high billable rate law firms and contractors seeking proximity to the Federal Government.  But in biotech, the activity is centered in a suburban area that has few geographic barriers to entry, is driven by NIH funding, not venture capital, and where lease rates are about 1/2 of what they are in more VC and IPO-driven life sciences markets.  

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