It’s an oft-told story in neighborhoods around the country. What begins as an attractive, affordable spot soon draws the attention of monied outsiders, raising the cost of coffee and rent on the way to pricing out longtime residents.
And it’s no different for Kendall Square now that a cash-laden cabal of pharma companies has descended on the area.
But unlike traditional gentrifiers, who seem not to care that their very presence is destroying the distinctive flavor they crave, many of the world’s largest drug makers say they’re mindful of the effect their arrivals are having.
They came to Kendall, executives say, in part because of its thriving startup scene. And if their proximity makes it unaffordable for mom-and-pop biotechs to find lab and office space, their investment would be that much less valuable.
“I think you have to walk that fine balance,” said Divakar Ramakrishnan, head of drug delivery and device research at Eli Lilly. “I’m hoping that the market forces adjust, because you’re here for the close density of partnerships.”
Lilly is the latest to set up shop in biotech’s hotbed of startup creation. The Indianapolis-based drug giant cut the ribbon on its Cambridge outpost on Wednesday, but it’s bringing only a small team to the neighborhood, relying on external collaborators to advance its science.
The idea, Ramakrishnan said, is to immerse Lilly’s researchers and engineers within the surrounding Kendall community, seeking “that unstructured innovation that happens in Peet’s Coffee, in Voltage, or wherever, which is priceless.”
Pfizer (PFE), one of Kendall’s biggest tenants, says it’s trying to be conscientious, too. According to site leader Torben Straight Nissen, who leads strategic portfolio management and planning at Pfizer, the company is “exploring” the idea of turning some of its more than 500,000 square feet of space into an incubator for fledgling companies.
AbbVie (ABBV) also opened a neuroscience outpost in the area this month and is, like Lilly, installing only a small team of employees and directing them to look outside the company. And Amgen (AMGN), which has a sizable structure in Kendall, sponsors local startup accelerator LabCentral, as does recent transplant Bristol-Myers Squibb.
But pharma’s efforts haven’t gone far enough, according to some in the biotech world, and the recent slew of land-grabs has only exacerbated soaring rents in Kendall.
According to local landlord JLL, the average cost for a square foot of lab space in Cambridge jumped nearly 12 percent in the first few months of 2016 to an all-time high of $65.33 per year, and vacancy rates are now down to just 1.1 percent, as more and more multinational companies swoop in to claim huge parcels.
And while the likes of LabCentral can provide reprieve for companies with single-digit staffs, biotechs that have grown out of that stage are finding themselves priced out.
Unum Therapeutics (UMRX), a small company focused on immune therapies for cancer, sprung from its incubator earlier this year in search of a new headquarter that would allow it to double in size. What it found, Chief Financial Officer Christiana Stamoulis said, was insufficient space at an inconsiderable cost.
In the end, Unum settled into a new home in Alewife, about a half-hour drive from its Kendall birthplace, with space for about 80 employees but without the walking-distance allure of its former neighborhood. And that puts it at a disadvantage among the many companies competing for biotech talent, Stamoulis said.
Such stories are common, LabCentral cofounder Johannes Fruehauf said, and “if we’re not at least awake and paying attention, Kendall Square might lose its mojo.”
The issue is space, particularly its finity. Companies large and small want to be close to the Massachusetts Institute of Technology, the Broad Institute, and Kendall’s other anchor institutions.
Big firms have bankrolls that inoculate them from sticker shock, and Wall Street’s recent embrace of biotech has put a lot of cash in the hands of emerging drug developers. That’s led to “a perfect storm of demand” since the end of the downturn, said Thomas Andrews, an executive at Alexandria Real Estate Equities, a major life sciences landlord.
The resulting market can be unfriendly to upstarts scouting for space, but Kendall hasn’t yet slipped into a have-and-have-not holding pattern, realtors said.
On the supply side, locked-up lab space tends to make its way back to the market, said Bill Kane, senior vice president at BioMed Realty. Many biotech companies fail, forcing them to downsize or close altogether and thus spurring the peaceful transfer of leases.
Ariad Pharmaceuticals, for example, was once a high-flying local drug developer with a 15-year lease on some prime Kendall real estate. Clinical and regulatory setbacks later reared up, and Ariad had to hand that space over to a surging IBM.
And the industry’s landlords have a vested interest in mixing up the sizes of their tenants, Kane said. Pharma companies, with their deep pockets and corporate stability, make for excellent lessees, but agreements with nascent companies are like investments in the future, he said: If they align with you at the outset, they’re likely to come back when it’s time to expand.
Plus there’s more inventory on the way. Alexandria is adding more than 2 million square feet of rentable space over the next few years, and MIT last week secured approval to begin a $1.2 billion project that will add six new buildings to Kendall.
“The first step is to create capacity,” MIT Provost Martin Schmidt said, adding that the school is acutely aware of the rapid rise in rents. From there, the plan is to convene stakeholders large and small in hopes of finding a model that might satisfy both.
“This is the pathway by which ideas are converted to impact from MIT,” Schmidt said, “and if we don’t have this vibrant ecosystem next door, it limits the impact of the ideas on this campus.”