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Biotech’s Quest for Real Estate

Biotech's Quest for Real Estate

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The good news: There has never been a better time to be in the biotech sector. The bad news: There is simply not enough workspace to meet the burgeoning demand.

If you examine the real estate market for biotech hubs such as San Francisco, Boston and New York, you will find a combination of extremely limited vacancies, sky high prices per square foot, and design issues for expanding or creating a biotech structure. This makes it challenging for larger firms to secure space and nearly impossible for start-ups to put a roof over their heads.

No Vacancy

Biotech real estate availability rates in the aforementioned hubs are currently somewhere between 1% and 3%. Why so low? Start-ups prefer one-year leases in order to determine the viability of phase-one research and financing efforts. However, real estate developers prefer large anchor tenants that will sign long-term leases, such as when Roche committed to an 11-year lease for 420,000 square feet at New York’s Alexandria Center for Life Sciences. Waiting lists and leases that begin several years from now are often the best options for small start-ups.

Prices Through the Roof

In Cambridge,biotech rents are in the $70-$80 per-square-foot price range and increasing at a rate of 10%-15% annually. Prices for Kendall Square’s Lab Central incubator—in the heart of Boston’s biotech sector—start at $400 per month for membership, $3,840 per month for a bench spot, and $430-$535 per month for a lab desk. Private lab suites cost $16,000-$18,000 per month, and additional office space is $960-$2,610 per month. The reason why: The 2.5 square miles of Kendall Square contain roughly 130 life sciences companies, along with investors, attorneys, and other ancillary service providers, not to mention easy access to Harvard, MIT and a bevy of talent. But those prices are a tall order for early-stage biotechs.

Construction Zone

Why not just build more incubators or retrofit empty commercial space? Biotechs have very specific requirements as to water systems, fire suppression systems, HVAC, electrical systems and spatial clearances. In addition, the local permit process can be lengthy and expensive. This is why improvements cost in the $200 per-square-foot range, and new construction can be upwards of $600 per square foot.

Amenity Space

While the biotech hubs have more staff than offices in which to put them, new construction is being built with people in mind. Attracting and retaining biotech professionals may come down to which company is housed in a building that has a gym, a bowling alley or a basketball court. And because city dwellers (Millennials in particular) are less likely to have a car, their choice may hinge on which company is closest to public transportation—or even the best places to eat.

Suburbia to the Rescue?

So what is a small, early-stage start-up to do? Many are fleeing to the suburbs. Boston: Watertown. San Francisco: the Peninsula, East Bay or Marin County. New York: Westchester; or New Jersey. In these suburbs, commercial real estate is plentiful post-Great Recession and the costs are significantly less. There is also biotech space available at former pharma locations, like Roche in northern New Jersey. Small companies are increasingly using virtual biotech, where they are based in an urban hub but outsource the lab work to research organizations located elsewhere.

Shovels in the Ground

With apologies to the suburbs, there’s no substitute for being based in a downtown life sciences community with easy access to funding, collaboration, research institutions, hospitals, universities and a talented workforce. Politicians in these large cities are also gaining a better understanding of the value of becoming a biotech hub.

Officials in New York are interested in putting life sciences facilities on Roosevelt Island and near Bellevue Hospital. One incubator, Harlem Biospace, offers workspace to early-stage companies for only $995 per month. The Alexandria Center is undergoing significant expansion with its LaunchLabs to help offer affordable space for seed-stage companies, with rents at approximately $1,995 per month. LaunchLabs hopes to open in 2017. BioBAT at the Brooklyn Army Terminal offers 500,000 square feet of space. Thus far, most takers have been mature and mid-stage companies.

A massive project in San Francisco, the Cove at Oyster Point, will bring an additional 1 million square feet of biospace to the city when complete in 2017. Also, Genesis Towers in South San Francisco will add more than 800,000 square feet by early 2018.

Safe at Home

It is certainly better that biotech facilities are bursting at the seams, rather than being vast wastelands—like some of commercial real estate is today. But the lack of biotech space is an issue nonetheless. Hopefully, with continued funding from developers, cooperation from local governments, and success in the research labs, biotechs—both big and small—will have a place to call home sooner rather than later.


Catalyst - Fall 2016

John Pennett has public accounting experience with a strong emphasis on life sciences companies. Member New Jersey Society of Certified Public Accountants and New Jersey Technology Council and advisory board of eLabs.

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