Bostons in a lab-building boom. What will that mean for the city and its neighborhoods? – BetaBoston

The second act of 601 Congress which John Hancocks parent, Manulife Financial, sold at the end of 2020 to lab developer BioMed Realty reflects a striking shift in Bostons commercial real estate world, nearly a year into the COVID-19 pandemic. Developers and sometimes owners of existing buildings are turning away from traditional office towers toward life-sciences space, hoping to capture an industry thats growing fast even as stalwart insurance companies and law firms retreat from big offices.

It really just comes down to fundamentals, said Liz Berthelette, research director at the real estate firm Newmark. Theres more demand in lab market than office at the moment.

Its a trend that reflects the resilience of Bostons economy: Few cities are so well-positioned to capitalize on a wave of investment in drug-making and research, one thats spilling beyond the industrys longtime home in Cambridges Kendall Square to the Seaport, the Fenway, Watertown, and Somerville.

But the surge in devloping space for life-sciences companies also highlights the risks of overbuilding to serve one slice of the regions economy. Catering to the needs of such businesses could alter the fabric of the citys dense business districts: With their focus on equipment over cubicles, lab buildings typically hold about half as many workers as a comparably sized office tower. That means fewer customers for restaurants and stores on the streets below.

The shift also is taking place at a time when the pandemic-forced move toward working from home is causing companies to recalculate how much office space they will need in the long term. The downtown vacancy rate is the highest it has been in a decade. More than 3.5 million square feet the equivalent of several towers is available on the sublease market. The drug industry, however, is booming, with life-sciences firms signing leases at a healthy clip and billions of dollars in venture capital pumping things up even more.

That has some developers rethinking projects long in the works.

Oxford Properties, one of Bostons largest traditional-office landlords, had been planning a 24-story office building on the site of a parking garage at 125 Lincoln St., on the edge of the Leather District. In December, Oxford went back to the Boston Planning & Development Agency with a new idea: Build a shorter building, with 14 stories, aimed at technology and life-sciences companies. That would cut the square footage by a third, and probably reduce the buildings daytime population by even more.

The plan was inspired partly by neighborhood feedback, said Oxford executive vice president Chad Remis. Residents of the Leather District and Chinatown had objected to the idea of a 340-foot tower on the site, which is surrounded by much shorter buildings. But the revision was also inspired by a change in the market for commercial space, he said.

We build buildings that we believe will meet the demands of society for 30 years from now, not demand two years ago, Remis said. And we believe that research and innovation space will always be in demand.

Buildings that house labs and tech space have different design requirements than traditional office buildings. For instance, the new plan for 125 Lincoln includes higher ceilings and vast open floors; the lower floors would jut out over an onramp to the Thomas P. ONeill Jr. Tunnel. Heating, cooling, and power systems would be more sophisticated, to handle the demands of tech and research companies.

This building, per square foot, will cost us significantly more to build, Remis said, though he noted the rents it would command would be higher than for office space.

When retrofitting existing office buildings, the equation gets even more complicated.

BioMed is planning a full overhaul of 601 Congress, said vice president Colleen OConnor, converting all but the top two floors into life-sciences space. That will mean finding room within the existing skeleton for a lot of sophisticated mechanical equipment, a design job that OConnor said is already starting. But BioMed has experience on its side it has turned office buildings into lab space before, mostly in Kendall Square.

OConnor also noted that such renovation has advantages over new construction: chiefly, speed. Permitting and constructing a building from scratch takes years. Swapping out cubicles for lab benches while technically complex can happen a lot faster, and research companies are looking for space now, so the time between renovations being completed and a tenant moving in is relatively short.

We can have this open by the end of 2022, and theres a real hole in the market there that this building can fill, she said. For us, it was kind of a no-brainer.

Yet some people worry that more lab space is in the works than the market really needs.

Yes, demand is strong now, but the amount of lab and life-sciences space thats on track to open in Greater Boston by mid-decade 3 to 4 million square feet annually is four or five times the amount companies here typically fill in a year, said Bob Richards, head of the life-sciences brokerage at Cushman & Wakefield, a real estate firm. And while office-tower construction at least in Boston doesnt typically start without major tenants signed up, buildings aimed at fast-growing drug makers often are started that way. That creates the potential for a glut of partially completed projects without enough tenants to fill them, threatening what today feels like a solid investment.

There are going to be some winners, and some places that are really going to struggle, Richards said. The pipeline is just stacked.

There also are questions about what the life-sciences real estate surge might mean for the look and feel of neighborhoods. Because the buildings are typically bulkier and less populated than office towers, the areas around them can appear relatively empty at times.

Density of people is important, obviously, said architect David Manfredi, founding principal at the Boston architecture firm Elkus Manfredi. It helps support all the places that make a vibrant city. It makes restaurants work. It makes bars work. It makes live music work.

Manfredi, whose firm has helped the Massachusetts Institute of Technology plan much of its property in Kendall Square and designed many buildings in the Seaport, has been thinking for years about how to make lab districts more lively. He notes that as Kendall Square has developed it has become more of a cultural destination than the strictly-business district it used to be. Other emerging lab districts will evolve along similar lines, he said.

Such evolution is common, Manfredi noted. He said he sees an example every time he crosses the Boston University Bridge into Cambridge and passes a five-story brick building with a distinctive rounded edge on Memorial Drive.

It was built in 1913 by Ford Motor Co. as a vertical assembly plant for Model Ts. After Ford moved Model T production to Somerville, Polaroid moved in and made camera parts there for decades. In the 1990s, MIT converted it into lab space, and today the building is largely occupied by the drug giant Sanofi Genzyme. The company will soon move to a new campus Sanofi is building on old railyards in East Cambridge and some other company will probably move in. Whatll they use it for? Who knows?

Thats the story of this city, Manfredi said. Its still this brick building on the outside, but the inside has been transformed several times. Thats a good thing. Thats the layers of the city, evolving.

Tim Logan can be reached at timothy.logan@globe.com. Follow him on Twitter at @bytimlogan.

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Bostons in a lab-building boom. What will that mean for the city and its neighborhoods? - BetaBoston