Boston Properties Investing Over $500 Million in Life Sciences, More to Come
The pandemic has shaken the office market. Companies were quick to move to remote working, leaving investors unsure whether they would return fully to their high-rise office buildings in a post-pandemic world. Many companies have presented plans to offer their employees the opportunity to work from home on a permanent basis.
While some industries can work remotely, the life science sector cannot. It requires special laboratory space and personal collaboration. This means that office properties that have been rented to life science companies have become a coveted commodity in the pandemic. This is REIT’s lead office, Boston Properties (NYSE: BPX), which is investing more than $ 500 million in new life science development projects with more opportunities in the pipeline.
Benefit from a Pandemic Booster Shot
Life science real estate was a hot commodity during the pandemic. For starters, they’re immune to disruption from remote work, as life science companies need dedicated laboratory space to develop and test therapeutics, vaccines, and diagnostics. Meanwhile, money is pouring into the sector as the pandemic highlighted the need for investment to end the current health crisis and prevent future crises and gave the industry the means to expand.
Boston Properties on its first quarter conference call discussed the hot demand for these types of properties. CEO Owen Thomas stated, “Significant $ 15 billion office property sales were sold in the first quarter, despite a 37% decrease in volume from the first quarter of last year. Assets with limited lease rollover and all life sciences has to do with getting the best prices right now, often better than before the pandemic. “
One notable deal was The Exchange building in San Francisco, which sold for $ 1.1 billion and a record $ 1,440 per square foot. While it’s currently 100% rented to a tech company, the tenant is trying to sublet the property. Thomas stated that given current demand in the sector, the buyer “could attempt a life science conversion of the property”.
Another notable deal was the purchase of Brookfield Asset Management’s (NYSE: BAM) life science portfolio by Blackstone Group (NYSE: BX) late last year for $ 3.45 billion.
Building a first-class life science portfolio
Boston Properties already has an extensive life science platform. It has an area of 3.3 million square meters in 46 buildings that have been rented to more than 85 tenants. These locations are in key life science clusters such as Cambridge and Waltham, Massachusetts and South San Francisco.
Thanks to the strong demand for life science space, “we had a very active start year in the first quarter, in which three new laboratory developments and renovation projects were launched,” said Thomas. This has expanded the current life sciences development pipeline to include four projects.
A total of $ 558.1 million is planned to be invested in these projects, three in Waltham and one in South San Francisco, to add 920,000 square feet of life science space. The Lone Holdover Project, a 138,000 square foot redevelopment in Waltham, is expected to be completed by the fourth quarter of this year. The three new ones are to be occupied for the first time in 2023 and 2024. Thomas pointed out that “a large part of our active development pipeline now consists of laboratory projects.
The company is committed to “making life sciences an even more significant part of our overall business in the future” as it continues its remediation and development projects. Thomas noted in the call for proposals for the first quarter that the REIT: “Approximately 2 million square meters of current and future office-laboratory remodeling projects and locations for approximately 4 million square meters of basic life science development, mainly in the strongest Life science markets in the US namely Cambridge, Waltham and South San Francisco. “
Building a leading company in the life sciences
Boston Properties has quietly built the second largest life sciences portfolio among publicly traded office REITs. However, with four projects under construction and an extensive pipeline of office conversions and fundamental development opportunities, there is significant growth ahead. That makes the company a compelling opportunity to invest in this fast-growing office sub-sector that is working hard to end the pandemic and prevent future ones.