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 for the entire global economy and the well-being of other people on the planet was finding vaccines, we gained a lot of attention,” Coughlin explained. “People would invest in the life sciences budget when they weren’t classic life sciences investors. Developers would build [life sciences facilities] when they weren’t classic life science developers. We are now coming out of a correction.
The demanding situations of the life sciences real estate market, and the symptoms of a comeback, are addressed through JLL in its 2023 Life Sciences Industry and Real Estate Outlook report. The report acknowledges that demand for life sciences areas through startups has dropped to more than 10 million square feet of area through mid-2023, compared to 25 million in 2021, as capital is more complicated and more expensive to unload due to emerging 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 venues to choose from, though most commonly in larger regional hubs. The national portfolio of life sciences space to be built is three times larger than it was in 2019.
Of the 37 million square feet of investor-owned laboratory space under development in the United States, 63% is in the Boston/Cambridge region or the San Francisco Bay Area, JLL found. By contrast, only 10% of current stock is in Los Angeles, Raleigh-Durham, and the Washington DC/Maryland portion of the BioHealth Capital Region.
Owners and developers, and the real estate companies that constitute them, are encouraged to create small biopharmaceutical companies in 30,000 square feet of space. They accounted for 82% of leases signed in the first part of 2023, up from 65% a year earlier.
Among developers eager to draw smaller biotech companies as well as larger ones are the Georgetown Company and Beacon Capital Partners. The two are teaming up to develop 707 Eleventh Avenue in New York City, a 185,000-square-foot building set to rise on Manhattan’s West Side with support from the New York City Industrial Development Agency (NYCIDA), which is managed by the nonprofit New 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. “
“Having a modern building with amenities, with all electric operations, with floor plates that are of a smaller size to address the bulk of the New York market, which consists of earlier-stage life sciences companies, we think, allows for us to deliver a unique A-plus product,” Schmerin asserted.
New York City and its suburbs have witnessed a parade of new advances in the life sciences emerging in recent years, reflecting the expansion of the industry, the interest of developers in converting old advertising buildings, and the incentives of New York City and State authorities. I think in the end the West Side will be the winner in terms of where biotech grows in New York City,” Schmerin said, given its accessibility to transportation for life sciences across the Hudson River in New Jersey, its walking distance from Midtown. Manhattan and zoning that allows life sciences uses in their own right in production areas.
The West Side also comes from a developing critical mass of life sciences institutions, properties, and companies.
The newly opened Center for Discovery and Innovation at New York City’s Mount Sinai Health System is the anchor of 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 laboratory complex at 125 West End Avenue) and HiberCell (a cancer treatment developer at 619 West 54th Street).
Analysts at real estate advertising firm CBRE are keeping track of shrinking skill sources and emerging prices in the largest life sciences regions. According to Matt Gardner, CBRE’s chief scientific advisor, those trends are driving many corporations into emerging regions just beyond those classified in GEN. Annual A-list of the 10 most sensible U. S. biopharmaceutical groupsU. S.
“More options are available to growing companies, creating greater flexibility for growing companies,” Gardner said. “There’s been so much investment in both coasts—in particular the Bay Area, San Diego, Boston, and North Carolina—that their talent markets are tapped out 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 only 1. 4% between January and August 2023, higher than the 1% expansion of overall nonfarm payroll. Smaller financing deals and a slowdown in employment lead to slower expansion trajectories, which in the end, corporations rent or buy smaller spaces than they would otherwise have.
“If you’re a Series B startup, you might be looking at 25,000 square feet today instead of the 100,000 square feet you were looking for two years ago,” Gardner suggested. “If you raise the $20 million or $40 million that we see today in some of those headlines, instead of $100 million, you’re probably thinking differently about your rate of expansion. This means that the industry has returned to what had become the norm again.
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 half of this year, when 11 corporations went public as of Nov. 28, up from just 8 in the first part of this year. This year, it slightly topped 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 it’s going to come back sooner than a lot of people anticipate,” Coughlin maintained. “If people are hiring, they’re ultimately going to need more space, which will lead to more tenant demand for space—and that’s good for the real estate industry.”