1M SF Of Purpose-Built Real Estate Could Boost Houston’s Life Sciences Market Ranking
Houston’s life sciences market gaining a significant swath of purpose-built real estate this year could be key to moving Houston up in the ranking of life sciences markets nationally, according to a new report.
Four buildings expected to deliver this year will add almost 1M SF of purpose-built life sciences real estate to Houston, per Transwestern’s summer-fall report released last month. That is likely to be a major catalyst in attracting and retaining life sciences companies and talent in the area, said Justin Brasell, the company's executive managing director of healthcare and life sciences.
CBRE ranked Houston 14th this year on its list of the top 25 largest life sciences employment clusters.
The delivery of the new real estate will help solve a longstanding “chicken-or-the-egg” problem that Houston has been facing as it strives to crack into the top tier of competitive life sciences markets, he said.
“It’s, ‘We want tenants so we can build buildings.’ Well, the tenants are saying, ‘We need the buildings to sign leases,’” Brasell said. “So somebody at some point just had to rip the Band-Aid off and build purpose-built life sciences buildings in Houston.”
The deliveries include a 124K SF building at Alexandria Real Estate Equities’ $201M life sciences campus in The Woodlands, a city that is proving its mettle as a nationally recognized life sciences hub. That building was delivered in August, according to Transwestern’s report.
“Life sciences tenants like to cluster,” Brasell said.
The other three buildings are within Texas Medical Center, including the 250K SF TMC3 Collaborative Building, the 350K SF Dynamic One and the 265K SF Levit Green Phase 1, according to the report. Levit Green was delivered in January, while the other two are expected to open in the coming months.
These buildings are no small investment, and they fill a gap for life sciences tenants in Houston, Brasell said. They offer redundant power, proper heating, ventilation and air conditioning units, and single-pass air for clean rooms. Many have move-in-ready spec laboratories.
These Class-A labs and buildings should give life sciences tenants an option they didn’t have before. In the past, tenants typically went into industrial buildings and paid for 100% of the construction costs, Brasell said.
What Houston is still missing is the middle-class option of buildings: 10-to-15-year-old lab space that costs about half of what a Class-A building would go for.
“We're still missing that, but we're working to shore that up through redeveloping existing buildings, instead of building new, to try to create a lower-cost option for tenants,” Brasell said. “But again, that's probably still another couple years away.”
Limited options previously made Houston a hard sell, Brasell said, speaking at Bisnow’s Montgomery County State of the Market event last month.
“‘Here’s what I need from you,’” Brasell said he would tell potential life sciences landlords. “‘I need for you to build out a $500-per-SF space, spec, so that if anybody needs it, they can move in. [These tenants are] not making any money. They’re raising a lot of money, but if they don’t raise money, they have to move out. They probably need another loan. And also, the building has to be 100% redundant and have all clean-air exchanges.’”
If any of those systems failed, Brasell warned landlords that $10M worth of research could be lost, a warning he joked didn't always go over well and nearly got him “fired a few times” for bluntness.
But now that landscape is changing, he said.
“We're not going to lose talent out of the region because we don't have the physical space to accommodate them,” he said. “So that’s going to really, really help us continue to grow as an emerging market.”
