With some of the nation’s highest rents and most prominent innovation tenants, it’s well understood that Cambridge is a hot real estate market, but can it last?
At NAIOP’s aptly titled Cambridge: Still in the Lead event, an esteemed panel moderated by Steve Purpura (Executive Managing Director, Transwestern) and composed of Tom Andrews (SVP, Alexandria Real Estate Equities), Bryan Koop (EVP – Boston Region, Boston Properties), Steve Marsh (Managing Director of Real Estate, MITIMCo) and Keith Wallace (Senor Managing Director – Head of Acquisitions, Eastern Region, DivcoWest), discussed how Cambridge reached such lofty heights, and what needs to happen to maintain that status.
Here are a few highlights from the program.
Cambridge wasn’t always this hot
It seems difficult to fathom in today’s market, but Cambridge’s real estate success is a somewhat recent occurrence. In his table-setting market overview, Steve Purpura noted that after the dot com boom, Cambridge lab/office vacancy exceeded 25 percent. Today it’s about zero percent. That growth would not have been possible without the development of the human genome project, which began in 1990, and the spirit of collaboration that has shaped and defined Kendall Square in the 21st century. More unique to the area, though, is the closeness to intellectual capital. As Steve Marsh said, it’s “critical to be near knowledge” and Kendall Square’s proximity to MIT, Harvard and a slew of other institutions may be its biggest asset. In a bold prediction of the future, Purpura indicated he expects rents in the neighborhood to eclipse $100 per square foot because “there’s no limit to what people will pay to get in front of the right labor.”
Keeping up with the competition
The panelists were universally bullish on the future of Cambridge, but it was not without some caveats. With vacancy so tight, it will be imperative to create spaces so that the next Akamai or Biogen can start and grow in Cambridge. Without availability or affordability, companies could move to other markets that are hungry to grow their own ecosystems. “Smart people find ways to create capacity,” said Steve Marsh. Tom Andrews noted that Alexandria’s strategy in the neighborhood includes repurposing spaces, like the recently acquired One Kendall Square and the Met Pipe building, to create new opportunities.
Desirability of the area is also a key focus. Remarking on the change in the spirit of Kendall Square, Bryan Koop noted that it used to be like a suburban office park where people came for work and left at the end of the day, but now it has community. Steve Marsh added that MITIMCo is thinking about innovation as a system and that includes trying to create an environment where people want to be.
Amazon to Boston? Probably not.
The elephant in the room was the looming decision on Amazon’s new headquarters. Despite the fact that projects from two of the panelists were suggested as possible landing spots, none gave any indication that they believe the Bay State was the top option. Keith Wallace described the company’s plans of 50,000 jobs on eight million square feet “incredibly ambitious” and indicated DivcoWest’s national research didn’t generate any results that checked all of Amazon’s boxes, so some compromise would be required. Steve Marsh agreed with Wallace and added that if Amazon did come to Boston it would have to be broken up over multiple sites. Panelists also suggested predicting Amazon’s strategy might be a little more difficult than the New York Times indicated. Bryan Koop suggested that Amazon’s unique talent search methods would make the decision “unlike any real estate decision we’ve ever seen.” Tom Andrews added that Amazon may make their decision based on proprietary data no one else has seen.
The acceptance of Amazon going somewhere other than Massachusetts was indicative of the energy and buzz currently around Cambridge. While everyone would be ecstatic to land a blue chip tenant like Amazon, the sheer volume and diversity of opportunities that are already in place in Cambridge have made it a top real estate market. Importantly, the panelists did not focus on their accomplishments and stature, but rather, they emphasized the need to build on the momentum and ensure that Cambridge stays in the lead.