Demand for Lab Buildings Soars

"The rapid growth of life-science research during the pandemic is triggering a record boom in the development of new lab space and offices serving these companies.

Development of buildings geared toward biotechnology, pharmaceutical and other laboratory firms was on the rise before 2020. But demand for this space intensified as billions of dollars poured into research and development of a Covid-19 vaccine and other therapies for the virus.

Life-science space is enjoying high occupancy rates because -- unlike traditional office buildings -- much of the lab work requires specialized equipment and building infrastructure.

More than 31 million square feet of life-sciences space was under development in the fourth quarter of 2021, a new high in any quarter and up from about 19 million in the first quarter, according to real-estate firm CBRE Group Inc. Those projects included ground-up construction and conversions of office buildings.

Developers believe this demand will continue even with the Covid-19 infection rate declining. For one, government funding of life-sciences research shows no sign of ebbing. Venture-capital funding of U.S. life sciences stood at more than $8 billion in the fourth quarter. It grew more than threefold over the past five years, according to CBRE.

Developers are racing to meet the new demand not only in the traditional life-sciences hubs of Boston, San Francisco and San Diego but in many markets where life-sciences ecosystems are growing near academic institutions and hospitals. Those markets include Los Angeles, Denver and Boulder, Colo., Chicago and Houston.

These cities "were considered emerging markets five years ago but have now created substantial bases of life-sciences demand," said Chris Bodnar, co-head of CBRE's healthcare and life-sciences capital-markets business.

Canadian investment giant Oxford Properties Group is making its first investment in Philadelphia, joining a local joint venture to develop up to 3 million square feet for more than $1.5 billion in a former Navy yard that dates back to the Revolutionary War. The new partnership, which includes Ensemble Real Estate Investments and Mosaic Development Partners, is breaking ground on its first building in a few weeks.

Lendlease, the Australian real-estate and construction firm, has worked as a construction manager on life-sciences products for decades. But it recently launched a venture with Montreal-based Ivanhoe Cambridge, to make "a meaningful entry" into the sector as an owner, said Denis Hickey, Lendlease's Americas chief executive officer. The partners are planning this spring to break ground on their first project, a 320,000-square-foot building at 60 Guest Street in Boston.

The life-science-development boom reflects major technological shifts that have been taking place in the business over the past decade. Research and development used to be controlled by big pharmaceutical manufacturers and other major corporations.

But in recent years, small entrepreneurial companies backed by venture capital have been responsible for numerous breakthroughs in research and new therapies.

These firms are often founded by people at top research schools and hospitals. They are often more nimble than large corporations, and they have had an enormous appetite for specialized office and lab space.

"What's happening with technology is that you're able to accelerate the study of your therapy that is probably 100 times faster than it was 10 years ago," said Chad Remis, an Oxford executive vice president.

Some owners of office buildings are hoping to convert them to life sciences to boost occupancy. But this strategy only works in some locations in a handful of cities with thriving life-sciences ecosystems.

"As much as every landlord would like to think their building could be a life-sciences building, it's not always the case," said Mr. Bodnar of CBRE.

Life-sciences development isn't without risk. The buildings are more expensive than regular office buildings because they need special systems for ventilation, cooling and moving equipment.

Most buildings serving life-sciences firms are being developed with very little or no preleasing, and their tenants are often startups that have yet to prove themselves. If the capital sources for these firms dry up, "building these very technical buildings on spec is not a good investment thesis," said Mr. Remis, of Oxford.

But, he added: "We believe that is a low risk."" [1]

If you see world class life science people around you - you can risk investing in lab space of your city.  

1. Demand for Lab Buildings Soars
Grant, Peter. Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 02 Mar 2022: B.6.