The Greater Cambridge life science market faced challenges throughout 2024, primarily due to an oversupply of laboratory space that began in 2021, as construction significantly outpaced demand. This oversupply, along with persistent uncertainty in the capital markets and an excess of sublease space, impacted the market despite the Federal Reserve’s three rate cuts in the final four months of the year. While inflation appears to have moderated, a cautious approach remains prevalent in the capital markets. IPO activity, although increasing, has not shown substantial improvement, contributing to a lack of new tenant demand. Venture capital funding, while accessible, is now subject to greater scrutiny, making it challenging for early-stage companies to secure. Later-stage companies with successful drug trials and data are attracting increased funding, while early-stage companies with limited proof of concept are facing the repercussions of the exuberant VC funding in 2021 and 2022.

Cambridge Metro Lab Market Report – Q4 2024

The Greater Cambridge life sciences market faced several challenges in 2024, largely driven by an oversupply of laboratory space that emerged in 2021. This oversupply was a result of construction outpacing demand, with developments continuing despite uncertainty in the capital markets. Despite the Federal Reserve’s efforts to reduce interest rates, a cautious approach from investors and companies continued to impact the market. In particular, sublease space and a slow recovery in IPO activity contributed to the ongoing challenges, as early-stage companies found it increasingly difficult to secure funding.

Leasing Activity & Market Performance

In 2024, the Greater Cambridge market delivered 7.6 million square feet of new ground-up development and conversions, with 2.2 million square feet completed in the fourth quarter. However, the market’s active construction pipeline saw a significant reduction from the mid-2023 peak of over 17 million square feet to just 3.9 million square feet by year-end, with only 2.3 million square feet of that in speculative construction. The focus now is on upcoming deliveries in 2025 and 2026, with an estimated 1.1 million square feet expected in 2025.

Leasing activity remained subdued, ending the year with 3.8 million square feet of leases signed. The fourth quarter alone accounted for 544,000 square feet, with East Cambridge seeing the highest leasing activity, at over 211,000 square feet. Renewals were a major factor in the market’s leasing dynamics, accounting for 42% of leasing in the fourth quarter and more than 60% for the year. As companies sought to minimize costs, renewals became a primary driver of leasing, with many opting to stay put rather than moving to new spaces.

Market Dynamics by Submarket

In Cambridge, the sector continued to face challenges despite its reputation as one of the leading life sciences ecosystems in the U.S. Vacancy rates hit a 19-year high in 2024, closing the year at 15.9%, an increase of 3.8% since the previous quarter. Rents in Cambridge also softened, ending at $99.05 per square foot NNN, down from a peak of $119.88 in early 2022. In East Cambridge, vacancy reached 10.7%, while rents remained the highest across Greater Cambridge at $107.18 per square foot NNN.

The Cambridge market, meanwhile, also experienced negative absorption, with 33,000 square feet of contraction in Q4 and a total of 295,500 square feet of negative absorption for the year. The Seaport submarket, once a hotbed of development and leasing activity, saw a significant drop in demand, with vacancy rates climbing to 32.6%. The average asking rent in Seaport was $95.73 per square foot, a slight decrease from the previous quarter.

Suburban markets showed mixed performance, with the Route 128 West submarket leading the charge with 88,000 square feet of positive absorption. However, overall vacancy in the suburbs increased to 31.3%, driven by new construction deliveries. While the inner suburban areas of Watertown and Somerville showed positive absorption, the increasing vacancy rates in these locations raised concerns about oversupply.

Capital Markets & Investment Trends

Capital markets activity remained subdued as investors navigated an environment of uncertainty. The cost of capital remained high, and while the Federal Reserve’s rate cuts helped stabilize market conditions to some degree, the broader life sciences real estate market was slow to respond. However, some notable transactions in East Cambridge, such as the acquisition of properties by BioMed/Blackstone, demonstrated that investors are still targeting high-quality, well-located assets. These transactions signal a potential shift toward more selective investments, as the oversupply situation continues to evolve.

Outlook for 2025

Looking ahead to 2025, the life sciences market in Greater Cambridge is expected to remain volatile. Despite the anticipated delivery of new developments, the market’s future trajectory will depend on both macroeconomic conditions and demand from life science tenants. With the construction pipeline slowing and more properties pre-leased, East Cambridge remains insulated from some of the challenges facing other submarkets. However, the broader market will need to adjust to oversupply and evolving capital market conditions.

In summary, while Greater Cambridge’s life sciences market faced setbacks in 2024, there are signs of stability in the coming year. Renewals will continue to play a key role in leasing activity, and select submarkets like East Cambridge may weather the oversupply more effectively. Market participants will need to closely monitor these developments to navigate the evolving landscape in 2025.