Biotech Faces a Real Estate Shortage

DP: So Dave, give us the lay of the land, so to speak, when it comes to biotech real estate.

DK: Well, there’s good news and there’s bad news. Good news is there’s never been a better time to be in the biotech sector, but the bad news is there’s simply not enough workspace to meet the demand. If you look at the biotech hubs such as San Francisco, Boston, New York, you’ll find extremely limited vacancies – somewhere in the 1% to 3% – sky-high prices, design issues for expanding or creating a biotech structure. That makes it challenging for larger firms to secure space and nearly impossible for startups to put a roof over their heads.

DP: What kind of sky-high prices are we talking about?

DK: If you look Cambridge, just over the river from Boston, rents are in the $70 to $80 per square foot range and increasing at a rate of 10% to 15% annually. Prices for Kendall Square’s Lab Central incubator, which is in the heart of Boston’s biotech sector, start at $400 per month for membership, $3,800 per month for a bench spot, and $430 to $535 per month for a lab desk. Private suites costs $16,000 to $18,000 per month, and additional office space is somewhere in the $1000 to $3000 per month range, and that’s a lot of money and tall prices for early bio stage companies.

DP:So instead of renting, why not just build more incubators or maybe look at some commercial real estate and just retrofit that?

DK: Yes, it’s a good question. So, biotech has very specific requirements as to water systems, fire suppression systems, HVAC, electrical systems. In addition, the local permit process can be lengthy and expensive. That’s why improvements cost in the $200 per square foot range, and new construction could be upwards of $600 per square foot.

DP:The numbers are pretty daunting. So what does that mean for the small, early stage startups?

DK: Many are fleeing to the suburbs. You go to Boston, they’re going to Watertown; you go to San Fran, they’re going to the Peninsula or East Bay or Marin County; New York to Westchester or to New Jersey; and in these suburbs, commercial real estate is plentiful post-great recession, costs are significantly less. There’s also biotech space available at former pharma locations like Roche in northern New Jersey. So small companies are increasingly using virtual biotech, being based in an urban hub but outsourcing the lab work to research organizations located elsewhere.

DP:That all sounds good, but I’m assuming that nothing beats being centrally located in a big city.

DK: That’s right. There’s really no substitute for being in a downtown life science community with easy access to funding, service providers, research institutions, hospitals, universities and a broadly talented work base, and politicians in these cities are also starting to gain a better understanding of the value of becoming a biotech hub.

DP: Any major construction on the drawing board?

DK: Officials in New York are interested in putting life science facilities on Roosevelt Island and near Bellevue Hospital. A relatively new incubator, Harlem Biospace, offers workspace to early stage companies for about $1,000 per month, and the Alexandria Center is undergoing significant expansion with its LaunchLabs to help offer affordable space for seed-stage companies with rents in the $2,000 per month. LaunchLabs hopes to open in 2017. And then you have BioBAT at the Brooklyn Army Terminal, which offers 500,000 square feet of space. So, thus far, most takers have been mature and mid-stage companies, but we might see some early stage companies get in there as well. In San Fran, 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 Fran will add more than 800,000 square feet by early 2018. We may also see the continued development of up-and-coming biotech hubs like Seattle and Texas, so these developments are encouraging.

DP:You’re a business advisor, you’re out at clients, on the frontlines so to speak. Where do you fit into all this? Where can you help these companies that are looking to efficiently and price-effectively obtain real estate?

DK: So there’s ample opportunities, whether it’s performing cost segregation studies, due diligence, calculating NOLs or forensic accounting. We can help mitigate some of the sticker shock for life science companies looking to expand or acquire space.

DP:Well Dave, thanks as always for your expertise and your insight.

DK: Thanks Dave.

DP:And thank you for listening to the Dave & Dave Show, as part of the EisnerAmper podcast series. Visit EisnerAmper.com for more information on this, and a host of other topics, and join us for our next EisnerAmper podcast when we get down to business.