'Others Are Chasing Us': Life Sciences Development Picks Up To Preserve Philly's Lead In Gene Therapy
This year is shaping up to be one of development milestones for Philadelphia's life sciences market, and not a moment too soon.
At the end of 2021, the Philadelphia metropolitan area boasted 9.6M SF of operational lab and Current Good Manufacturing Practice space, with 2.6M SF more under construction or being renovated, CBRE reported in quarterly market data shared with Bisnow. Another 4.1M SF was in the planning phase at year's end, bringing the market's overall pipeline to 9.2M SF.
Of proposals in the planning phase, a large chunk is set to be cGMP space, representing nearly three-quarters of the development pipeline, CBRE reports. Though the city currently suffers from a lack of biomanufacturing capacity, the suburbs have no such deficiency. Of the 9.6M SF in operation across Greater Philadelphia, 1.8M SF is cGMP space, which CBRE called a better ratio than that of most major life sciences markets in the country.
Despite all that development, Philadelphia's life sciences market has not fully matured yet, the report stated. Its average asking rent was $41.44 per SF in Q4. Meanwhile, Boston, by many accounts the standard-bearer for the U.S. in life sciences, averaged over $97 per SF at the end of the year, CBRE reports. The Boston region also has over 50M SF in its pipeline, more than five times that of Philly.
Though it still has a long way to go to catch up with Boston, rent growth in Philly has accelerated since the outbreak of the coronavirus pandemic, CBRE Executive Vice President Bob Zwengler, who leads the company's life sciences practice in Philadelphia, told Bisnow. In University City, average asking rent for lab space cracked $60 per SF in Q4, nearly twice as much as average asking rent for office space in Center City.
Though life sciences space will always be more expensive than office due to its infrastructure requirements, the gap between the two asset classes is wider than it has been in at least several years, if not all-time, Zwengler said. Unsurprisingly, office-to-lab conversions are seemingly all the rage, with the first two such properties to come to market, 401 North Broad St. and The Curtis, both leasing up at rates that leave their office contemporaries in the dust.
Philadelphia has managed to carve out a niche for itself as home for some of the first breakthroughs in the fields of cell and gene therapy, as exemplified by University of Pennsylvania professor Carl June's lab announcing that its CAR-T cell therapy can cure cancer at the beginning of February.
Cell and gene therapy were the driving forces behind Philadelphia bringing in over $900M in venture capital funding in 2021, the second-most in the city's history behind 2019, CBRE reports. That has both kept innovators like June and Spark Therapeutics, which originated in research at Children's Hospital of Philadelphia, in Philly and lured some out-of-market companies to the city, but cell and gene therapy development is very much happening in mature markets like Boston, San Diego and the San Francisco Bay Area.
“There’s going to be more competition for these companies as time goes on; it’s inevitable,” Zwengler said. “Others are chasing us, believe me.”
It is in that competitive environment that the next two developments in the sector will deliver this year, both of them lab buildings with multiple floors worth of space still available. One uCity Square, developed for University City Science Center by Wexford Science + Technology and Ventas, has landed four tenants and topped off in October. 3.0 University Place, now owned by a joint venture of University Place Associates, Silverstein Properties and Cantor Fitzgerald, will top out on March 10 and expects to open its doors in December, UPA President Anthony Maher told Bisnow in an email.
"I expect both projects will be either fully leased or very close to it by the end of the year," Zwengler said.
Behind One uCity Square and 3.0 University Place, Brandywine Realty Trust is under construction on a combination lab/multifamily building as part of its Schuylkill Yards project, while Gattuso Development Partners began construction on a speculative biomanufacturing development in the Philadelphia Navy Yard late last year.
But the most exciting life sciences development in Philly is one that doesn't even officially have a developer yet: Spark's planned $575M cGMP facility in University City, steps away from its headquarters at Schuylkill Yards.
When built, the 500K SF project is expected to produce gene therapies for all of Roche, the multinational conglomerate that bought Spark for over $4B in 2019. As a presumed owner-occupied building, it wasn't included in CBRE's estimation of the city's pipeline.
As the darling of Philly's gene therapy sector, Spark's decision to operate its own cGMP facility rather than farm out operations to a Contract Development and Manufacturing Organization, and to place that facility inside city limits, represents a massive win that could give other projects confidence to move forward.
“Spark’s announcement is meaningful to the future of cGMP in the city,” Zwengler said. "There’s certainly a benefit for companies based in the city to have access to their cGMP facilities, so you’ll start to see more of that. It doesn’t have to be right [in University City], so it could be elsewhere in the city.”
In addition to the Navy Yard, both the Lower Schuylkill Innovation District currently being marketed to developers and the former PES refinery being transformed by Hilco Redevelopment Partners are explicitly targeting biomanufacturing uses, though any concrete deals are still years off.
For now, the pipeline is fuller than it has ever been, with a growing list of developers to keep it that way — on Feb. 1, Chicago-based Sterling Bay and New York-based Botanic Properties announced plans for a 13-story lab building in University City, which would be the first Philly project for both companies.
