Record levels of VC financing and R&D boom left biopharma companies clamoring for space. How bad is it?
There are multiple ways to measure just how vibrant the life science industry is: the influx of venture capital (now retreating slightly from a record high), the number of new incubators and startups and Big Pharma spinoffs (still going strong despite slowing down), the M&A as well as partnership deals (megabillions in cash were exchanged just last year), and so on. But one metric is particularly helpful if you want to track activities on the ground, and that is real estate occupancy.
The big picture: Vacancy for lab space is at 7.1% across the 12 major life sciences clusters in North America identified by Cushman & Wakefield, a real estate services company. That’s lower than the office vacancy rate (12.4%) in these markets, while rents are generally higher.
In the buzzing biopharma hub of Boston, only 0.8% of lab space is still available for rent, with East Cambridge — which houses the venerable Kendall Square — reporting a vacancy rate of 0.0%. A couple of other neighborhoods are also fully occupied, according to the report.
At the same time, Boston also has the highest asking rent among the markets surveyed at $108 per square foot, an all-time high.
Rent vs vacancy comparison in Boston (Credit: Cushman & Wakefield)
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The reality has not escaped those living in it. Arie Belldegrun, the biotech entrepreneur best known for his work at Kite Pharma, has launched a new real estate venture with developer Tishman Speyer. Breakthrough Properties’ first campus — designed to foster a sense of community — is slated to open in the Seaport complex next year.
“There is plenty of life sciences supply under construction or proposed,” Cushman & Wakefield noted. “The lab market could grow by 55% to 32 msf by 2024. While the market is incredibly tight, it is one of the few markets in the country that is building aggressively enough to placate demand.”
When you zoom out to the broader market of San Francisco, the area just trailing Boston in the cost of renting a lab space, has a vacancy of just 7.5% — middle of the pack, higher than Chicago (1.3%), Seattle (6%) and even the Washington DC area (4.1%). But drill down to San Francisco County and you’ll find another 0.0%.
To put the average rent of $84 into perspective, the San Francisco Business Times recently reported that lease rates were in the $30 range a decade ago in the highly coveted vicinity of South San Francisco, where Genentech and Gilead call home.
What does this mean for the other cities vying for biopharma hub status?
Philadelphia currently claims the third spot on the list for most lab space, and you can expect it to keep expanding with a key focus around its “Cellicon Valley” brand. Then there’s San Diego and New Jersey, which could soon reach saturation if there’s no new construction. And where New York City falls far behind in terms of space, it plans to make up with incentives and the lure of its talent pool.
“With the strong underlying fundamentals it looks like the life sciences era is here,” Cushman & Wakefield concluded.