Why Hasn't The Life Sciences Boom Come To Downtown Bethesda?

A life sciences building in downtown Bethesda seemed like a slam dunk when StonebridgeCarras and Donohoe Cos. first proposed it in 2018. The site at 8280 Wisconsin Ave. was located close to the National Institutes of Health, the largest source of life sciences funding in the country, and in an urbanized core primed to attract a vibrant millennial workforce.

Doug Firstenberg, principal at the since-rebranded Stonebridge, called the northern edge of Bethesda "one of the most attractive, untapped markets," in a press release announcing the project. But almost four years later, the developer acknowledges the difficulties that forced the joint venture to scuttle those plans at the start of the pandemic.

"What we really learned was a couple of things: to be successful in life sciences, you have to build a cluster," Firstenberg told Bisnow last week. "And one building does not make a cluster, even in an area as attractive as Bethesda."

The wave of growth in the life sciences industry has helped bring big projects to Montgomery County nodes like Gaithersburg and Shady Grove — nearly 2M SF of new construction and conversions are underway, which are set to increase the suburban Maryland life sciences market's overall inventory by more than 20%, according to JLL. 

Downtown Bethesda, the county's economic engine, has been surprisingly slow to catch on. Despite the presence of NIH and Walter Reed National Military Medical Center, Bethesda's central business district, surrounded by dense multifamily and a shopping environment anchored by Bethesda Row, has little private lab space to speak of.

But some think that as the life sciences industry matures in Montgomery County, life sciences businesses currently clustered in markets will finally begin to draw south.

“For the next three years, we are on an upward trajectory,” said Pete Briskman, co-lead for JLL's Mid-Atlantic Life Sciences Practice. “It’s a combination of early to later-stage companies through manufacturing, and we’re going to have a variety of space needs as a result, and new owners entering the market to satisfy those needs.”

Building a cluster isn’t easy. The county currently has 17 life sciences startups with pharmaceuticals in Phase 3 clinical trials or better, meaning they're looking to mature into Food and Drug Administration-approved medications that can be manufactured and marketed in the region, according to research provided to Bisnow by JLL.

But many of those startups are based in suburban markets with lower rents than Bethesda offices. Early on in a life sciences startup’s life span, cash preservation and speed to market are key. When you combine that with a desire to be where the workforce is, clusters begin to form far away from expensive urban centers, said Lynne Benzion, director of economic development at the Montgomery County Economic Development Corp.

“They love each other. It’s like the Diamond District in New York City,” Benzion said “That’s also efficient too, everybody likes to know what everyone else is doing. It just makes sense for folks to be near each other, and you hear that in every other kind of industry.”

County officials and the public-private MCEDC are looking for ways to reshape those clusters to fit with their vision for urbanized, transit-oriented development in the future. That includes a newly proposed zoning text amendment that would significantly shorten the process required to get new life sciences spaces approved.

Benzion said paradoxically, the biggest challenge downtown Bethesda faces is its density. Smaller land parcels in its urbanized core translate to smaller floor plates, forcing developers to build vertically. Building up, instead of out, can be “logarithmically” more expensive for spaces where high-cost utilities and ventilation are essential, MCEDC Senior Vice President Brad Stewart said.

“When you look at life sciences, floor plate matters,” Benzion said. “If you can spread out more, which you can do better in North Bethesda … your cost of operation is just less.”

At least one developer is trying a novel approach to circumvent the challenges of urbanized life sciences space. In North Bethesda, about 15 miles up Rockville Pike and three Metro stops away from Downtown Bethesda, Federal Realty Investment Trust plans to expand its Pike & Rose development with a 260K SF life sciences building at 935 Prose St.

Current plans for the 10-story building feature ground-floor retail and a fourth-floor amenity space, along with manufacturing floors and lab space. That combination of uses, combined with the high-end amenities that allow Federal Realty to charge a premium, are meant to offset the high costs.

Federal Realty Vice President of Development Jay Brinson said the developer hopes the amenities can attract more mature tenants now that Montgomery County is getting flooded with cheap new lab space. If all goes well, Pike & Rose could feature a second life sciences building of similar size as well, effectively creating a new mini-cluster.

“As the market was building, they were solving for functions. They just needed to find a way to build lab space,”  said Matt Brady, principal and senior vice president at Scheer Partners. “Now you need to solve for the aesthetics and the amenities and the quality-of-life elements.”

Brady is assisting Federal Realty in leasing out the space. He said just as similar markets in other parts of the country, like Boston/Cambridge and San Francisco, have begun to urbanize, he expects Pike & Rose to be at the vanguard of a new generation of dedicated, trophy-class life sciences spaces in Montgomery County.

“Having this product type in an urban environment is a really important next step for our growth in Maryland and the I-270 region,” Brady said. “Having the option to compete with those markets is a really important piece to win those headquarters facilities.”

For now, the market conditions appear to favor developers. JLL found that suburban Maryland has a lower lab vacancy rate than any of the other premier markets in the country, and demand is exceeding supply.

JLL's Briskman cautions that 935 Prose St. hasn’t found its lead tenant yet, but he anticipates it will be a key indicator of where the market is going.

“I think that location and the idea is terrific, because you have a built-in cluster close to mass transit with walkable amenities,” said Briskman, whose office is at Pike & Rose. “But for now it’s just an idea. Time will tell.”

Brinson said Bethesda is just too far from the current life sciences clusters to make a human resources director in a life sciences business looking for talent seriously consider the market. But he believes Pike & Rose could be the new mini-cluster that would allow talent to eventually hopscotch much closer to Downtown Bethesda.

“I don't think we've got the connectivity yet to get to the business CBD,” Brinson said. “I think at some point it could happen … but it's just not there yet. There needs to be less of a jump.”