Kendall Square’s pain can be Union Square’s gain

On October 30, 2015, in Latest News, by The Somerville Times

shelton_webBy William C. Shelton

(The opinions and views expressed in the commentaries of The Somerville Times belong solely to the authors of those commentaries and do not reflect the views or opinions of The Somerville Times, its staff or publishers)

Kendall Square’s growing pains could be Somerville’s economic gains. This is not a matter of wishful speculation. It is a statement of current and quantifiable market opportunity that exists for private developers and public leaders with vision, will, and capacity sufficient to seize it.

The world’s densest innovation cluster

In 1890, British economist Alfred Marshall observed that firms within a particular industry tend to cluster in a particular geographical location. He speculated as to why. A century later, Harvard Business School’s Michael Porter explained the dynamics driving cluster formation.

Firms, particularly those that succeed through continual innovation, can thrive when they locate in geographical areas with concentrations of relevant research institutions, skilled workers, capital sources, supporting industries, and competitors.

Porter says that there, relationship networks form “the social glue [that] binds clusters together.” The resulting synergies increase productivity, accelerate innovation, and spawn new businesses.

The densest innovation cluster on the planet is located a mile from Boynton Yards. Not only have major Internet and IT companies like Google, Microsoft, Apple, Twitter, and Facebook located research operations in Kendall Square. Preeminent biomedical research institutions—MIT, Harvard, Broad Institute, Whitehead Institute—help center the world’s leading biotech cluster.

As C.A. Webb, who until last month was the New England Venture Capital Association’s Executive Director, recently observed, “This is not an office park. It’s an ecosystem.”

Kendall Square is eating itself

An ecosystem’s survival depends on the interaction of diverse species. A business cluster’s survival depends not just on its industry’s giants, but also on firms of every size and stage of development.

And increasingly, emerging and medium-sized firms cannot pay skyrocketing Kendall Square rents. Commercial real estate experts whom I speak with estimate that demand for space there is four times supply. In the words of one, “Kendall Square is eating itself.”

The innovation cluster centered there requires these real estate operatives to find what they are calling “safety valves.” Thus far, the safety valves have been the South Boston waterfront and the suburbs.

Last year, for example, Vertex Pharmaceuticals consolidated operations scattered among eleven Cambridge sites into one Fan Pier development that generates more property tax revenue for Boston than Somerville’s entire commercial tax base combined.

Perhaps the factor most critical to an innovation firm’s competitive advantage is its ability to recruit and retain talented employees, particularly those early in their careers. And a factor critical to that ability is a location with attractive amenities and populations.

Biotech managers identify Union Square and Boynton Yards as such a location—“dynamic,” “cool,” “sexy.” But there are no office and R&D facilities there for them to move to.

The opportunity

Somerville has the worst jobs-to-workers ratio in the Commonwealth. But biotech creates jobs across a wide range of skill levels, most with upward mobility.

Fifteen percent of jobs in biotech are held by people who have never gone to college. And for 22 years, Inman Square’s Just-A-Start Corporation has been delivering biotechnician skills training to financially constrained adults.

Somerville has the worst commercial-to-residential property-tax base in the Commonwealth. Yet commercial property here pays 162% the tax rate of residential property but generates far lower municipal services costs.

That’s why the city relies on uncertain state welfare to meet a quarter of its budget. That’s why Somerville homeowners pay a $12.61 tax rate while those in Cambridge pay $6.99. Few real estate uses generate the tax revenues per square foot that biotech R&D facilities do there and could here.

Many locally owned Union Square businesses are languishing for the simple reason that the area does not have a significant daytime population. Meanwhile commercial landlords are increasing rents or not renewing leases in anticipation of renovating or replacing existing buildings with high-value residential uses.

Massive residential development would do little to bring daytime vitality and revive, expand, and diversify Union Square’s retail and services business environment. But massive office and R&D development would do all of that.

Affordable family housing is disappearing in Somerville much faster than 20% of any new residential development can realistically replace. But housing prices are only half of the affordability equation.

The other half is family incomes sufficient to pay market rents. And innovation companies bring jobs, as well as tax revenues sufficient to train ‘Villens to fill those jobs.

Those companies would prefer to conduct their operations as close to transportation nodes as possible for the same reasons that you or I would.  So zoning the blocks immediately surrounding the Green Line station site for residential use would be a tragic squandering of economic, fiscal, and social potential that could not be corrected for a century.

As recently as a year and a half ago, biotech managers were skeptical of Union Square and Boynton Yards as a viable location for their enterprises. For many, that is no longer so.

It’s past time for Somerville’s public officials, business leaders, and property owners to form a consortium with the goal of recruiting biotech and innovation industry firms and workspace developers.

 

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