Shire PLC said Tuesday that it will lease the 343,000-square-foot Genzyme Center building in the heart of Cambridge’s Kendall Square, and plans to create a “rare disease innovation hub” that also will serve as a base for the Irish drug company’s US operations.
The 12-year deal was negotiated over the past few months before the building was even listed on the market — a reflection of the rabid demand for real estate in the country’s hottest biotech center.
Shire chief executive Flemming Ornskov said his company is expanding so rapidly in Massachusetts that it was becoming hard to find quality space. “Given our long-term growth plans and given that Kendall Square is a great place to be, we wanted to put a stake in the ground,” he said.
The company is now the state’s second-largest biopharma employer, with more than 3,000 workers in Lexington, Cambridge, and several other communities. Ornskov said Shire needs to fill about 400 job openings and expects to hire even more employees in coming years. The newly leased space will be home to about 1,000 workers starting in 2019. After Genzyme moves out, he said, Shire will renovate the building to create fewer offices and an “open space culture.” The employees who move in will be a mix of new hires and current employees relocated from other sites, he said. Financial terms of the deal weren’t disclosed.
Genzyme, now called Sanofi Genzyme, is building a new headquarters nearby.
Unlike other big drug makers that in recent years have gravitated to the neighborhood near the Massachusetts Institute of Technology, Shire has kept most of its US operations in the Boston suburbs. Nearly 2,300 of its Massachusetts employees work from a campus in Lexington, which will remain open.
As part of its $32 billion purchase of Baxalta Inc. last year, Shire took over a Baxalta research center at 650 Kendall St., next door to the Genzyme Center. Ornskov has since moved his US office to that site from Lexington. When the company leases the building at 500 Kendall St., it will create a 550,000-square-foot campus in the two adjoining buildings for rare-disease drug research and US and global business operations.
The building was designed for Genzyme in 2002, but four years after French drug giant Sanofi SA purchased the biotech in 2011, it decided to lease a more functional headquarters for its Sanofi Genzyme rare-diseases drug division in a building under construction at 50 Binney St.
Another rapidly growing biotech company, Alnylam Pharmaceuticals Inc., last year negotiated a “right of first offer” on Genzyme Center. But under the terms of that deal, the option couldn’t go into effect until Alnylam had occupied another building at 675 West Kendall St., diagonally across from Genzyme Center, in 2018, creating an opening for Shire to lease the space sooner.
As more big pharma firms have piled in to the Kendall Square neighborhood in recent years, rents have soared. The average price of $76 per square foot for prime space ranks among the highest of any business district in the country, according to real estate firm JLL, and is twice the Greater Boston average. The 3.8 percent vacancy rate is far lower than those in other high-end Boston markets, such as the Seaport and Back Bay.
That’s fueling a wave of construction, most of which is already spoken for.
Alexandria Real Estate Equities is at work on two large buildings on Binney Street — about one million square feet in all — one of which will house Sanofi Genzyme and the other Bristol Myers Squibb. Early next year, Boston Properties plans to launch construction on a 486,000-square-foot headquarters for tech firm Akamai Technologies Inc. at 145 Broadway. And MIT is starting work on six new buildings it has planned along Main Street, much of it office and lab space, at a total cost of more than $1.2 billion.
In addition, companies eager to set up shop near MIT and potential research partners are making space commitments well before they would in normal market conditions, said Bill Kane, senior vice president of BioMed Realty, which owns the Genzyme Center building and several adjacent properties. The practice is known as “forward leasing.”
“We’re seeing demand outpace supply 5-1 in the past year,” Kane said. “The scarcity in Kendall Square is forcing companies to look far in advance to secure their space.”
Steve Purpura, executive managing partner at brokerage firm Transwestern, which negotiated the lease with Shire, said the Genzyme Center was “one of the best research and development campuses in the world,” making it easy to lease before it was formally listed.
“Kendall Square is the hottest life sciences market right now,” Purpura said. “When companies like Shire lease space before it officially becomes available on the open market, it shows just how hot that market is.”
Shire’s move is rich in symbolism, too — 65 percent of its business and 75 percent of its research pipeline is in rare diseases and the company has long competed with Genzyme to market treatments for enzyme deficiencies such as Gaucher and Fabry diseases.
“We’re moving into the building of one of the pioneers and maybe the pioneer in rare diseases,” Ornskov said. “What Genzyme did under [retired chief executive] Henri Termeer was trailblazing in its time. We’re continuing to grow and we think there’s a huge opportunity in rare diseases. For us, Kendall Square is the right place to have a major innovation hub.”