Stable Startups Drive Innovation Economy

Stable startups drive local innovation economy

Over the last few months, the venture capital world at large has shown great consistency in its preference for more mature, established companies. The halcyon days of easy money and limited due diligence are long gone, and for the most part, that’s a good thing: investors are putting their capital and other resources into companies with established product pipelines and clear paths to monetization.

Of course, the side effect to this is it becomes harder for fledgling startups to secure investors, but with the support of local incubator groups and the robust network of higher education institutions near Kendall Square and downtown Cambridge, even the greenest of emerging firms can find support.

In the commercial real estate sector, we see the downstream effect of these trends most clearly in the mix of companies that are asking to see offices and lab spaces that would suit an organization with a clear path to sustained growth. Many of these organizations have spun out of local colleges and universities, often with at least a Series A round in hand. But there are other indications that both occupiers and landlords have shifted their strategies in an environment that clearly prefers stability.

Practical office space attracts capitalized tenants

For landlords, this cautious environment is ideal for making more investments in their portfolio properties. Despite fewer potential tenants making the rounds, knowing that the firms that are interested in an office move have solid financial footing drives confidence in the future. Therefore, investments in updated furnishings, lab benches, and the like are on the uptick, even without a tenant in hand.

On the occupier side, the need for a fully equipped facility isn’t as strong as it once was, namely because these emerging companies are sticking close to their incubator spaces or university labs where they can continue to access equipment, saving on some of the costs of outfitting an empty space. There’s also an openness to sticking with the basics as it relates to laboratory users: with less focus on frills and an emphasis on simply doing the work, more affordable industrial properties are finding favor with companies that have outgrown their incubator home.

In addition, lab users are growing comfortable with a mix of space that is more office-oriented versus solely being used for research as traditional R&D work is increasingly outsourced. Some firms are also open to more affordable locations like Watertown, especially if the workforce is close to amenities and lifestyle needs. In general, emerging companies are still making moves, but on very practical terms.

While there’s a tendency to associate a flurry of tenants signing deals with a roaring economy, there’s a lot to be said for a less buzzy market that places an emphasis on the right companies making the right moves at the right time.