When Boston’s King Street Properties set out to build a 45-acre, $1 billion-plus manufacturing campus in Devens in 2020, it did so to meet anticipated demand for such space from the region’s life sciences industry, which was then at the beginning of a Covidfueled boom.
But as the first buildings went up, the properties drew significant interest from another sector: clean energy.
King Street has leased one of the three facilities built so far to climate technology firm Electric Hydrogen, and is in advanced negotiations with battery recycling company Ascend Elements on another. Nearby, the renewable energy supplier Commonwealth Fusion Systems began operating at another King Street property in Devens earlier this year.
In the past six months, clean energy companies have leased hundreds of thousands of square feet in Greater Boston that had been marketed to biotech and pharmaceutical companies. That includes not just manufacturing space, but lab and office properties.
The cleantech sector is benefitting from the federal government’s allotment of hundreds of billions of dollars through the Inflation Reduction Act, just as life sciences companies face a major slowdown in venture capital funding.
“We’re still seeing biotech demand. It’s just that clean energy has come up quickly,” said King Street managing director Tyson Reynoso. “Companies in that space right now are pressing fast to get into space.”
The ascendancy of clean energy helps developers and landlords who rushed to build labs and biomanufacturing sites during the pandemic, when life sciences stock prices and VC investments were surging. More than 17 million square feet of life sciences space is now under construction locally, according to CBRE.
Meanwhile, lab leasing activity has slowed, asking rents are down, and vacancy rates are the highest in a decade, Newmark research shows.
To be sure, cleantech will not fill that glut of lab and biomanufacturing space on its own, given the relative size of the sector. But real estate executives see clean energy as a major source of demand going forward, in buildings that were not long ago seen as surefire homes for biotech. The same goes for advanced manufacturing and “tough tech” like 3-D printing and robotics.
“It’s another sector they can tap into, and it diversifies their portfolios from a tenant perspective,” said Colliers Executive Vice President Kevin Hanna of developers and landlords.
Since 2020, cleantech and tough tech firms have leased more than 800,000 square feet in Greater Boston, according to Newmark. A big chunk of that has come just this year. And now, the Healey and Wu administrations are both prioritizing clean energy as a sector.
Shared needs
The real estate needs of cleantech and tough tech companies are often similar to those of life sciences firms. They include significant amounts of electrical capacity and advanced mechanical and HVAC equipment.
In June, battery maker Form Energy leased nearly 100,000 square feet of R&D space at 200 Inner Belt Road in Somerville, a building that until recently housed the biotech Finch Therapeutics. The company plans to use the space to test batteries and process material, among other tasks, according to Ted Wiley, its co-founder and chief operating officer.
“We need seven air changes per hour,” Wiley said. “That’s more than in a typical building you might rent, certainly more than what an IT (company) needs.”
Similarly, the clean tech Via Separations recently leased over 50,000 square feet at a Watertown mill building redeveloped by Berkeley Investments, in a property envisioned for life sciences tenants.
From the perspective of developers and landlords, cleantech and biotech startups are alike in that they both push for more money upfront to build out their spaces, since many are not yet generating revenue. One big difference, however, is that cleantech is a broader category than biotech from a manufacturing standpoint. Clean energy companies produce everything from batteries to electrolyzers. That can make it harder for property owners and managers to later transition a space from one tenant to another.
Another characteristic of cleantech is that in an industry so young, few can afford the rents of places like Kendall Square and the Seaport District for research space. Many are in the suburbs. The energy-storage tech firm Nanoramic Laboratories, for instance, moved to Wakefield from the Seaport last year in order to save on real estate costs.
Constraints to growth
There are limits to the industry’s demand for Massachusetts real estate, chief among them the high cost of construction and labor in the Bay State. Form Energy may have just inked a lease for labs and offices in Somerville, but it opted to build a 750-employee factory in West Virginia. Cleantech startup Nth Cycle is moving its headquarters to Burlington from Beverly, but debuted a refining facility in Ohio in June.
The state is ready to offer financial incentives to keep at least some of that type of manufacturing in Massachusetts, Gov. Maura Healey and Economic Secretary Yvonne Hao told the Business Journal during an editorial roundtable this spring.
“Making those investments is really important,” Healey said. “Life sciences didn’t just happen. We didn’t become the global epicenter because we woke up one day and had a lot of life sciences stuff going on. It happened because a former governor set a mark and made an intentional effort to say we as a state are going to lean in and make this investment. And here we are, many years later.”
Hao said that she’s reached out to companies that decided to set up out-of-state operations — not just, she joked, because she’s “a little bit angry at them,” but to discuss why they made the decision.
“In some cases, I think, for legitimate reasons we never would have been able to close the gap,” Hao said. “But in some cases, I think we could have, and we should, and we are.”
The administration gave Form Energy a $1.2 million tax break for its Somerville expansion, which is to create at least 165 jobs. By comparison, the company is expected to receive $280 million in federal and state money for the West Virginia factory.
Earlier this year, a state panel approved a property tax break of $1.9 million for Electric Hydrogen to open its facility, an electrolyzer factory, on King Street’s Devens campus. That company is expected to create 70 jobs to earn the incentive. In Boston, economic development chief Segun Idowu and other city officials are in early talks with business groups on a plan to establish downtown Boston as a cleantech hub in order to help fill commercial vacancies. That would also support Mayor Michelle Wu’s vision of a “Green New Deal” city, according to those involved in the discussions. The initiative could include incentives and infrastructure support, they said.
With the Inflation Reduction Act already a year old, companies are deciding now where to expand, giving public officials and local developers a limited window in which to woo them.
“There’s a lot of money available now for these companies to take advantage of, and that’s part of the reason we’re seeing such a big, immediate jump in activity,” King Street’s Reynoso said.
From Greg Ryan at Boston Business Journal: