The biggest factor in the New Haven real estate market was the decision by Alexion Pharmaceuticals [NYSE: Alxn] to move its headquarters to Boston
Alexion has placed 280,000 square feet of office space on the market for sublease with a term ending in 2030. For the time being the company plans to keep its research personnel in approximately 220,000 square feet of lab space in the building.
Alexon’s ability to save the estimated $250 million dollars per year that its “reorganization” expects may well be challenged by the cost to move however, as conditions in Boston get more expensive. The Boston real estate market continues to tighten, likely presenting Alexion with square footage more than double what the company pays in New Haven.
Anecdotal reports from the Boston market is that hiring in the “tech space” has grown more difficult as competition for tech workers and the costs of living for employees in the city continue to escalate..
According to SmartAssets.com a financial services data website an Alexion employee will have to be paid $128,000 annually to live comfortably in Beantown. The median income in greater New Haven is approximately $68,000.
Considering the 30% Class A vacancy rate and the premium costs associated with the new construction of Alexion’s headquarters at 100 College Street the ability for the company to recoup its real estate costs through the sublease market may be in doubt.
The startup and small business nature of New Haven’s biotech and general business community illustrates the problems in filling the Alexion space at its current costs. The region’s premier Class A office building 555 Long Wharf has 68,685 square feet available for sublease from Medtronic [NYSE:MDT, formerly Covidien] at an advertised rate of under $20 per square foot.
Biohaven [NYSE:BHVN] recently raised more than $168 million in a public offering and chose to purchase the former Liberty Bank location a Class B building on Church Street for its headquarters in a purchase last August 2017. The opening in February [2018] of the 107,000-square foot District Tech space will also be an additional competitor for the sublease space.[ see New Haven's New Tech District is Right Around The Corner]
The Alexion relocation announcement has had a major impact on the city’s vacancy numbers, office vacancy citywide jumped from 14.1 to 19.3%.
Class A vacancy increased from 19.1% to 30.3%. Vacancy in the New Haven Central Business District rose from 8 to 16.1 %.
Most of the increase in the numbers is a result of the Alexion move, but the Class A vacancy rates also increased as Medtronic increased its offering of sublease space at 555 Long Wharf Drive from 37,265 to 68,865 square feet [see above]. The new sublease space resulted in a jump in non-CBD vacancy [a category that was unaffected by Alexion] from 21.7 to 22.9%.
In 2014 Winstanley sold a partnership interest in 100 College Street [Alexion building] and the nearby 300 George Street to Wexford Science and Technology, a division of BioMed Realty Trust of San Diego. The deal valued the two properties, which have a total just more than 1 million square feet, at $308 million.
Winstanley retained an equity interest and responsibility for management of the properties. Wexford has since been bought by Ventas Inc., based in Chicago.
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