Big Pharma, Small Startups Driving Demand For Select Life Sciences Markets
While the broader life sciences market deals with a supply glut that has flattened rental rates and kept new projects largely vacant, closer inspection of the various sizes, locations and types of properties needed offers a ray of hope.
At Bisnow’s International Life Sciences and Biotech Conference, industry figures found that emerging markets have been showing signs of momentum — and even signs that a bounce back will soon be underway.
“There’s plenty of space out there,” Thermo Fisher Scientific Director of Business Development Basile Siewe said during the event, held Sept. 11 and 12 at the Bethesda North Marriott Hotel and Conference Center in Rockville, Maryland. “But do we have the right space at the right size?”
Panelists placed their faith in the extremes, arguing that growing demand from Big Pharma and green shoots in the incubator space both offer signs of life for life sciences real estate.
The constant focus on overbuilding obscures some of the positive demand signs in the market, the panelists said. This year, demand remains on par with the best prepandemic years, Outshine Properties partner Jonathan Scheinberg said. In Boston, there is roughly 1.5M SF of demand in the market today, the same as 2019.
“Demand has been consistent outside the externality of Covid,” he added.
He predicted the larger market still has a year to 18 months left before a truly normalized environment — one without funding challenges from banks or excessive amounts of empty space — takes shape. Big Pharma, which has seen a renewed focus on research and development and mergers, will be an enduring source of capital in the coming months, and Scheinberg predicted additional development of biomanufacturing in New Jersey and North Carolina.
The supply situation also hasn’t hit every city in the same way. DPR Construction Life Sciences market leader Abhishek Dhawan said some cities, including Philadelphia and Seattle, have seen rent growth.
One sector facing a space crunch, and one that many panelists said symbolizes signs of a resurgence, was that of smaller biotech firms, especially those seeking incubator space. With a Series A funding cliff and companies seeking to expand their cash runways, many small startups require longer stays in more advanced research facilities.
But the basic building blocks of a local biotech ecosystem remain in short supply.
With a funding shift for startups more focused on passing more testing milestones, these testing grounds for new ideas and firms have become even more important, Siewe said.
But startups’ growth, while still a smaller niche sector of the market, also pinpoints emerging markets. Siewe sees incubators opening up in under-the-radar markets like Nashville and Atlanta, as well as a need for more shared spaces.
Charles River Laboratories created CRADL, a shared vivarium environment, in more than 30 locations globally that helps startups gain access to testing facilities without having to make costly and long-term lease commitments. Charles River Executive Director John Mathew said the service has been as popular as WeWork, with constant use by younger firms.
Others see more activity in the mid-Atlantic markets. Scheinberg said in Maryland, Philadelphia, New York and New Jersey, developers didn’t rush to break ground and consequently didn’t oversupply those areas, so the fundamentals are more balanced.
For DPR’s Dhawan, the emerging markets stretch even farther from the coasts. He is tracking growth in Georgia, Ohio and Texas. The Lone Star State has seen a run of new projects in Dallas and Houston in recent years, including Alexandria Real Estate Equities’ $200M project in The Woodlands.
The introduction of incubators and new lab developments like Levit Green around the Texas Medical Center have benefited small companies seeking proximity to talent and innovation, Greater Houston Partnership Senior Director for Global Life Sciences Verena Kallhoff said.
“Texas is certainly pushing into life sciences,” Kallhoff said. “I’m not saying that we weren’t affected, but because we have funding from the Cancer Prevention & Research Institute of Texas, we have support for research and startups. Some of the funding in Texas and Houston may be growing at a slower pace than before, but we’re definitely getting capital.”
Kallhoff added that the growth in cell and gene therapy startups that have spun out from the city and state’s cancer research, as well as the ability to find lower-cost manufacturing space nearby, has helped speed up development in this growing niche.
Another dynamic taking shape concerns amenities and the search for quality space. Firms defensively grabbed any space they could find in a supply-constrained prepandemic world.
In today’s market, tenants can be choosy, leading to dynamics similar to the flight to quality found in office. Scheinberg said potential tenants touring the Northeast Science & Technology Center in Kenilworth, New Jersey, aren’t just looking for benches and space to work. They know they can get anything and shop around accordingly.
What may be most positive is that while companies continue to work through the record-high inventories of available space in the big three markets of Boston, San Diego and the Bay Area, the market isn’t collapsing demand in emerging regions. Instead, it seems to be incubating new opportunities.
Mathew said his firm was looking to build a new location and found itself debating between two cities in the Southwest, far from the big coastal markets.
“We were debating between Austin and Oklahoma City, due to some phenomenal incentives from these cities,” he said. “You usually just don’t think about life science located in Oklahoma City.”
