The positive absorption is significant, the report indicates, as the previous two years experienced substantial negative absorption, most dramatically in the East and mid Cambridge submarkets. Vacancy rates still jumped 3% to nearly 20%, mainly due to the completion of the 290,000 sf building at 673 West Kendall St. in Cambridge and the repositioning of the former NECCO factory at 254 Massachusetts Ave. in Cambridge.
The increase in vacancies is also attributed to overcommitments of space taken by tenants in 1999 and 2000. But the report notes that the growth of a broad number of companies is a positive indicator for growth in demand for lab space.
The report further points out that the financing community has been more receptive to biotech companies than to other types of companies over the past three years. In 2003, 30% of all venture capital financings in the state were for biotech firms, up from 4% in 2000.
In Cambridge, 790,000 sf of completions has caused the vacancy rate to surge from 4% to 21% during the two quarters ending March 31, 2004. Still, the area absorbed 374,000 sf as companies readjusted their needs. The market also has a lot of sublease availability and asking rents for the area are down to $40 to $45 per sf.
The small lab market in Boston continues at a low 2% vacancy rate. Merck's nearly completed 410,000-sf biotech building is adding significantly to the market, which competes with the area's medical and educational institutions. Conversely, the suburban lab market experienced negative absorption of 95,000 sf these two quarters, and its vacancy rate rose from 3% to nearly 28%. But the suburban lab market continues to be a lower cost alternative to the two Cambridge and Boston markets and average asking rates have dropped even further recently to $30 to $35 per sf.
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