Is NYC’s Billion-Dollar Lab Bet Foresight Or Folly?
The review process has begun for New York City's $1.6B push to create a hub of life sciences real estate on the east side of Manhattan, a planned 2M SF lab, education and innovation center called the Science Park and Research Campus Kips Bay.
Mayor Eric Adams' administration is touting the project as an opportunity to make New York a center of the life sciences industry, seen as a critical component of driving economic growth in the future. Officials with the New York City Economic Development Corp. told Bisnow SPARC Kips Bay will be a “shining star for life sciences in the city.”
But it’s a significant gamble on a massive expansion of lab real estate at a time when the market has shown little to no appetite for new space.
“I think it's folly,” a local life science analyst, speaking on the condition of anonymity, said about SPARC Kips Bay. “It's way too much space. We definitely don't need it. I really believe the money would be better spent building and supporting smaller spaces.”
There is 3M SF of lab space today in New York City, according to CBRE data. Despite anemic demand and leasing activity — there wasn't a single lab lease signed during the first quarter of the year — there is another 3M SF in the pipeline expected to deliver in the next five years.
That is roughly when SPARC Kips Bay would deliver. Land use review can take up to two years, and the project's dedicated lab space may not show up until 2030.
“If we build a million square feet, you have a million square feet to lease,” CBRE Vice Chairman Bill Hartman said. “And in New York, I know better than anyone else in the market how difficult that is.”
Two EDC officials spoke to Bisnow to defend the project but declined to put their names on the record. They argued that the market will catch up to the Kips Bay project, predicting that enough life sciences demand will materialize in the next half-decade to fill the space.
If 1M SF of lab space were added to the market tomorrow, that would be a problem, the officials admitted. But by building now during a downturn and creating a cluster for future growth, they said, it guarantees the industry has room for expansion.
“SPARC follows the Cambridge model. I like that,” Hartman said. “But I’m also pretty conservative. Building a million square feet and trying to lease it can be a little bit risky and challenging from a developer's perspective. Five years to lease up a million square feet could be challenging, and the returns might end up not being so great. But alternatively, remember this is five, six years out.”
The EDC's push in Kips Bay comes as the greater New York City life sciences real estate world remains deflated.
Alongside the total absence of leasing activity in the first quarter of the year, venture capital funding also totaled just $148M, the vast majority of which went to two firms. That followed a slow 2023, when lease volume was down 13% from the prior year with just 398K SF of life sciences space taken. Two-thirds of that activity came from a single institutional lease by Weill Cornell Medicine.
During a January call with analysts, Alexandria Real Estate Equities Chairman Joel Marcus said his firm would be selling the former Pfizer headquarters in Midtown due to the state of the city’s life sciences market, adding that even 14 years after his REIT entered the market, New York City remains a “small, startup market.”
Pfizer's building is on the verge of being converted into 1,500 apartments.
JLL Senior Vice President John Cahill, a 20-year veteran of the city’s life sciences industry and an appointed member of EDC’s Life Sciences Advisory Board, said he was “definitely disappointed in the last 12 to 16 months.”
“With private equity and VC money just drying up and sitting on the sidelines, it obviously affected everybody in the industry,” Cahill said.
SPARC, a transformation of the Hunter College Brookdale Campus, was initially announced in October 2022 during a much stronger life sciences market in New York City and nationally. That’s not the case now, as many recent projects have delivered almost or entirely vacant.
The 400K SF West End Labs has announced one lease, while the 200K SF Labs on 121 in East Harlem has yet to land any tenants. The Rockefeller Incubator and Longfellow’s Hatch Incubator, which was completed in December 2023, have also struggled to find businesses to take space.
The EDC put out a request for interest for a sizable lead tenant to locate at SPARC, with $100M in city capital attached. Proposals will be due in August.
An adjoining project, Innovation East, to be co-developed by Taconic Partners and DivcoWest, will be blocks from SPARC and add an additional 500K SF. It is likely to be completed in the next five years.
Cahill sees the extra space in the market today and in the immediate future as a positive for the city because it’s never had additional space for expansion before.
The roughly 300K SF of vacant, ready-to-occupy space finally gives the industry in NYC room to grow. Before the pandemic, that number hovered near 0%
The city is “not overbuilt and not oversupplied compared to other markets,” Cahill said, adding that he’s seeing increased activity in recent weeks.
Cahill said when the floodgates open, as soon as the second half of this year, there could be a busy 12 to 24 months in store for the New York market. After no leasing activity in Q1, there was a trickle of “two to three very small leases banked. And when I say small, I mean incubator-style, 2K to 3K SF.”
Hartman said there have been recent big raises by life sciences startups in New York City, including a $372M funding round by Formation Bio. Neither have signed new leases.
“I think biotech is here to stay. I think New York's a great place to do it,” said Yasmeen Pattie, founder of local life sciences consultancy East Egg Project Management. “I think the best thing to do now is to think small, right? Biotech companies are spending a little smarter, spending a little less to, you know, try to extend their runway. The city and industry need to do the same thing.”
