As vacancies in the biggest markets for the life sciences industry remain low, companies in that sector are competing for top talent and space, which is leading rising markets, such as New York City, to develop life sciences hubs.
Overall the vacancy rate for the top life sciences clusters hovered just above 8 percent in the third quarter, but in Cambridge, Mass., a top market, vacancy is virtually 0 percent, says Lisa Strope, vice president, director of research at real estate services firm JLL. “It is incredibly competitive in this market,” Strope says. In the top clusters, this has led to rising rents that companies are willing to pay to remain in these top markets. In the popular East Cambridge lab market, rents average about $75 per sq. ft. and have risen over the past few years, according to a recent report from JLL.
While many companies want to be located in or around Boston, some have opted to move to the city’s suburbs for competitive pricing and properties that can offer top amenities, according to the report. The suburbs of the Greater Boston area—which has a 5.7-million-sq.-ft. lab market—has seen 526,000 sq. ft. of positive take up over the last two years, and vacancy has dropped to 7.2 percent from 9.6 percent, according to a mid-year report on the sector from Transwestern.
But the competition is not just over space—it’s over talent as well. In the sector as a whole, unemployment is below 2 percent, Strope says. And now, many life sciences companies are innovating at facilities to attract those in this labor pool, according to the JLL report. “These companies are really having to roll out the red carpet to get the talent they need to grow,” Strope says. For example, HCP is developing a seven-building life sciences campus in the San Francisco suburbs called The Cove at Oyster Point. The campus will include amenities like bocce ball courts and a bowling alley, according to the report.
While the life science workplace today is evolving, the flexibility also is paving the way for increased productivity and efficiency, according to the JLL report. It is a trend evidenced elsewhere in office design. For example, some companies are building labs with plug-and-play research equipment and moveable benches, among other adaptable amenities. “In these adaptable spaces, scientists can share space even if they are working on different projects. Workplace flexibility helps organizations stay competitive as their business objectives change,” the JLL report states.
The markets that are going to succeed the most in this space, given all of this competition for space and talent, are those that have close proximity to top talent—such as those near universities that produce these graduates—and great access to public transportation, notes Roger Humphrey, executive managing director of life sciences at JLL. A third factor contributing to a top life science cluster is the willingness of governments to offer tax incentives to companies who want to invest in those areas, he adds.
This last point is something that New York is doing aggressively, making the city a rising life science cluster to watch, Humphrey adds. “There’s definitely a potential to make it a great cluster,” he says.
According to a Transwestern report on the sector in the city from the fall, there is an estimated 1.7 million sq. ft. of existing life science lab and research space in the city, but lab space—fully occupied in the city—continues to be one of the most supply-constrained markets, with little development in the future. Even though New York has long been a financial-services focused market, this is changing, as the life sciences could be the next growth industry space occupier: “Landlords are always looking for new ways to fill their buildings,” says Jonathan Schifrin, senior vice president at Transwestern in New York. And though the Cambridge/Boston market is a top region for the industry, it also is full and there is a wait list for space. “It’s really tapped out,” he adds.
New York City has been investing in the sector, as state and city tax incentives have been adopted to try to attract such companies—over $1.1 billion in new incentives were announced in 2016, according to the Transwestern report. The Alexandria Center for Life Science (ACLS), is an example of a public-private partnership where the land was leased to Alexandria in exchange for a long-term tax abatement. Currently both the East Tower and West Tower encompassing about 750,000 sq. ft. is fully leased to an array of credit tenants, says says John Isaacs, executive vice president and life science practice group leader at CBRE in New York.
Aside from having government support, New York is the second-largest recipient of funding from the National Institutes of Health, has high-quality talent, venture capitalists and a slew of world-class academic and research institutions, says Isaacs. “What’s unique about New York is that it’s at the very early stages of a thriving life science community and extremely fertile ground for all stakeholders,” he adds.
There are still many challenges to building a life science cluster. Such companies have a slew of needs—for example, lab spaces may necessitate technical and complicated infrastructure requirements, which can boost lab build out costs to $300 to $400 a sq. ft. Other requirements may be emergency generators, floors that carry heavy equipment, higher ceilings or robust heating and air conditioning systems, Isaacs says.
Given the lack of space in New York, the city needs a significant increase in all types of space, Isaacs adds. Over the next six months, the city will see more incubator space coming online. By mid-2018, the city is expected to have about 120,000 sq. ft. of new, occupied incubator space developed by Jlabs, Biolabs/NYU Langone and LaunchLabs. Currently there is about 30,000 sq. ft. of such space. One to two years after companies start in incubator space, they need to graduate to step out/graduation spaces, making incubator spaces “an important first step in building a fully functioning life science ecosystem,” Isaacs says.
Aside from New York City, other top life science clusters to watch are Chicago, Houston and Philadelphia, Strope notes.
