In what is currently a challenging period for commercial real estate, there are a few bright spots. One of the industries showing signs of growth: Life Sciences.
The COVID-19 pandemic may have positively impacted biotechnology investments. S&P Global reported in late July
that in the first half of 2020, the industry drew nearly $12.6 billion in funding from private equity and venture capital. That represents a 73% increase over the first six months of 2019. The financing boom means more companies are forming or expanding operations, and they need space.
For those interested in capitalizing on the surge of activity, here is some fundamental information:
What is the Life Sciences industry?
In addition to biotechnology, companies that research and develop pharmaceuticals, biomedical technologies, life systems technologies, cosmeceuticals, and medical devices are typically considered part of the industry.
What are the Life Sciences industry hot spots?
BioSpace, a self-described digital hub for news and careers, has provided life sciences insight and tools for more than 30 years. Its 10 Hotbed Maps highlight thriving geographical regions within the industry.
for a synopsis of each region including number of companies, number of workers, and average annual wage. And, view this year’s top spots in the video below.
What are CRE facets of the Life Sciences industry?
Local Geographic Market
Major cities and their submarkets have unique dynamics regarding occupancy permits, parking, mass transit, and nearby attractions. Each region also has a unique personality. For example, Eastern Massachusetts is known for its mature life science eco system, plethora of industry talent, and relationships with academic institutes, such as Harvard and MIT. The New York Metro area, including Long Island and Jersey City, has enormous potential because of its many hospitals, significant real estate portfolio, and available capital funding.
Function of Space
When considering the amount of space required, it is critical to determine the ratio of use cases. What percentage of the footprint will be dedicated to laboratory work versus office space? Will there be collaborative spaces and meeting rooms? Will manufacturing be onsite? Often the stage of development a company is in can affect these assessments. A shift in focus, such as from small molecule research to large molecule research can also affect spatial needs. Modular building and structural systems can offer flexibility for both the tenant and landlord with the ability to break down components and move them easily.
Workplace features historically associated with Silicon Valley tech companies are making their way to the life sciences industry. The quality of a workspace is a very important component in the competition to attract top talent. The amenity base within the building, which may include gyms, eateries, and concierge services, is also a factor for those working long hours. Even the community where the company is located can play a role in appealing to new employees.
Complex mechanical systems are required for life sciences spaces, particularly air handler systems with circulations 10-20 more times per hour than a traditional commercial space. Filtered water with a proper pH balance is needed. Because the vertical shaft space accommodates air duct and pipe distribution, a ceiling height of 13 to 14.5 feet is recommended.
Access to electrical power is also important with the high-performing equipment and complex computer systems at work. The excessive heat load from them must be properly vented.
Thirdly, floor loads—especially in a vertical building—are important to consider because the benchwork in a lab can vary in size and weight, as well as the afore-mentioned equipment.
Some organizations that have secured first-round funding opt to share space within a business incubator real estate model. For the first one to two years, this can be an opportunity to control costs while providing networking opportunities. In the case where an incubator is government funded, there may be grants available for workspace, or it may be offered at a subsidized rate.
Once established, organizations sometimes enter into a co-tenant agreement or act as an anchor tenant with one or more sub-tenants. Still others, such as Quest Diagnostics that broke ground in 2019 on a 250,000-square-foot flagship lab build
in Clifton, New Jersey, will remain owner-occupied.
With vacancy rates in some regions close to 0%, there is an increasing demand for real estate in the life sciences industry. Ground-up construction projects can be time consuming and costly, prompting some companies to pursue lab space conversions. However, redevelopment is also capital intensive with special accommodations required and the need for a strong team with industry expertise. Look for speculative (spec) spaces that are lab-ready or lab-friendly to come on the market more aggressively in the next 12 to 24 months. Additionally, real estate firms will likely employ individuals who are knowledgeable and dedicated to the unique needs of the industry.