Even in the current challenging market, dozens of biopharma companies are looking for additional space to accommodate operations that are growing or expected to grow. At the same time, some companies are looking to downsize their digs. Whether they plan to expand or contract their laboratories and offices, biopharma companies are weighing many more factors than the one cited in that old saw about real estate. You know: location, location, location.
This shift reflects the slowdown in the biopharmaceutical industry following the rush by corporations and establishments to rush to confront the COVID-19 pandemic by diving headfirst into the progression of drugs and vaccines. ” COVID-19 has created what I call a sugar high,” Robert Coughlin, managing director of the life sciences sector at real estate advertising firm JLL, told GEN.
“When we were facing a global pandemic, and the most important thing to the entire global economy and the well-being of people on earth was to find vaccines, we got a lot of attention,” Coughlin explained. “People would invest in life sciences funds when they weren’t traditional life sciences investors. Developers would build [life sciences facilities] when they weren’t traditional life sciences developers. Now, we’re coming out of a correction.”
The life sciences real estate market’s challenges—and signs of a comeback—are discussed by JLL in its 2023 Life Sciences Industry and Real Estate Perspective. The report acknowledges that demand for life sciences space by startups slowed to over 10 million square feet of space as of midyear 2023 from 25 million in 2021, as capital became harder and costlier to obtain due to rising interest rates.
Demand in the life sciences area is expected to increase, Coughlin said, as startups gain advantages from more than $22 billion in jointly raised capital since 2021 through the 20 most sensible venture capital (VC) firms focused on life sciences investment.
Companies looking for space will be faced with a growing pool of life sciences sites to choose from, although more commonly in larger regional centres. The national portfolio of life sciences space to be built is three times larger than in 2019.
Of the 37 million square feet of laboratory domain owned by investors under development in the U. S. , the U. S. Department of Agriculture and the U. S. Department of Agriculture and the Caribbean. Of the U. S. Census Bureau, 63% are in the Boston/Cambridge domain or the San Francisco Bay Area, JLL found. In contrast, 10% of the existing inventory is in Los Angeles. , Raleigh-Durham, and the Washington DC/Maryland portion of the BioHealth Capital Region.
Owners and developers—and the real estate firms representing them—are encouraged by a jump in small biopharma companies seeking up to 30,000 square feet of space. They accounted for 82% of lease deals signed in the first half of 2023, up from 65% a year earlier.
Developers keen to attract smaller and larger biotech corporations come with Georgetown Company and Beacon Capital Partners. The two men are partnering to expand 707 Eleventh Avenue in New York City, a 185,000-square-foot construction that will rise on Manhattan’s West Side with the New York City Industrial Development Agency (NYCIDA), managed through the nonprofit New York City. York City Economic Development Corporation (NYCEDC).
Developers say 707 Eleventh Avenue would be the first new purpose-built life sciences asset in a Manhattan community in more than a decade.
Jonathan Schmerin, chief executive of the Georgetown Company, told GEN that developers have a number one tenant between 75,000 and 100,000 square feet, as well as several tenants renting between 15,000 and 50,000 square feet — “the lion’s share of the market,” according to his estimate. In partnership with NYCIDA and NYCEDC, 707 Eleventh Avenue will also feature “graduation suites” for life sciences startups, ranging in size from 5,000 to 10,000 square feet, to be built speculatively or “specifically. “
“By having a modern construction with amenities, with all-electric operations, with smaller ground plates to fully serve the New York market, which is comprised of early-stage life sciences companies, we believe we can offer an A-plus exclusive. product,” Schmerin said.
New York City and its suburbs have seen a parade of new life sciences developments emerge in recent years, reflecting industry growth, developer interest in converting older commercial buildings, and incentives from New York City and New York State authorities. “We believe that the West Side is ultimately going to be the winner as to where biotech in New York will ultimately grow,” Schmerin said, given its transportation accessibility to life sciences talent across the Hudson River in New Jersey, its walking distance from Midtown Manhattan, and zoning that allows life sciences uses as-of-right in manufacturing areas.
The West Side also comes from a developing critical mass of life sciences institutions, homes, and companies.
The New York Mount Sinai Health System’s recently opened Discovery and Innovation Center anchors the Georgetown Company’s 787 Eleventh Avenue, a mixed-use redevelopment of the original Packard Motors Building. The West Side is also home to Taconic Partners’ West End Labs (a research laboratory complex at 125 West End Avenue) and HiberCell (a cancer therapy developer at 619 West 54th Street).
Analysts at real estate advertising firm CBRE are tracking shrinking skill sources and emerging pricing in the largest life sciences regions. According to Matt Gardner, CBRE’s chief scientific advisor, those trends are propelling many corporations into emerging regions beyond those classified in GEN. Annual A-list of the 10 most sensible U. S. biopharmaceutical groupsU. S.
“More features will be needed for developing companies, which will create greater flexibility for developing companies,” Gardner said. “There’s been so much investment on both coasts, especially in the Bay Area, San Diego, Boston and North Carolina, that their skills markets are being tapped in the short term. “
Gardner noted that when developing corporations want to compete for scarce talent, they look particularly to emerging markets. He cited several examples: Houston, Atlanta, Denver/Boulder and Indianapolis.
In August, according to a CBRE study, venture capital investment for life sciences companies reached $4. 6 billion in the third quarter of 2023, the second consecutive quarter-over-quarter increase, bringing the total for the first to third quarters of 2023 to $12. 7. However, startups are expected to conduct fewer rounds of venture capital investment in 2023 than in the past six years. The first startups in the Series A stages experienced a percentage of expanding investment: to 41% in the first to third quarters of 2023. compared to 39. 5% for all of 2022, while investment for late-stage companies declined. Series B funding has fallen to 10% since 2020.
This slowdown partly explains why life sciences employment grew by only 1. 4% between January and August 2023, higher than the 1% expansion in overall nonfarm payroll. Smaller funding deals and a slowdown in employment mean slower expansion trajectories, which ultimately leads corporations to hire or buy smaller spaces than they would otherwise.
“If you’re a seed to Series B company, you might look for 25,000 square feet today rather than the 100,000 square feet you might have been looking for two years ago,” Gardner suggested. “If you’re raising the $20 million or $40 million that we’re seeing in some of these headlines today, instead of $100 million, you’re probably thinking differently about your growth rate. We think that means the industry’s returned to what was once more the norm.”
One source of optimism for life sciences asset owners and the real estate companies that constitute them is confidence that the IPO market will finally recover in 2024 after more than two years in which companies have stayed on the sidelines or settled for smaller companies. The larger-than-expected donations followed a drop in percentage prices.
This optimism stems from a surge in IPOs in the second part of this year, when 11 corporations went public as of Nov. 28, down from just 8 in the first part of this year. This year, it slightly surpassed 2022’s 17 IPOs and is well below the 158 in 2021. Acelyrin completed the largest initial public offering of 2023 by the deadline, raising $621 million in gross proceeds ($573. 7 million in net proceeds) in May.
“I think he’s going to bounce back faster than a lot of people think,” Coughlin said. “If other people are hiring, they’re going to want more area in the end, which will lead to more demand for area for renters, and that’s smart for the real estate industry. “