Why the smart money is flowing into lab space

jll.com.co/es/trends-and-insights/workplace/why-the-smart-money-is-flowing-into-lab-space

9 de agosto de 2017

With a lively base of well-funded potential occupants, a shortage of suitable properties and
rising rents, the life sciences sector has all the factors for a strong return on investment. In
fact, life sciences research and development (R&D) space is increasingly recognized as a
distinct and highly specialized property type, alongside data centers and self-storage
facilities.

As such, life sciences companies large and small continue to pay top dollar for amenities-rich
locations and facilities in a select group of top U.S. markets. Visit a major research university
in San Francisco, Boston, San Diego or any of the other top 10 life sciences clusters, and
you’ll find biopharmaceutical companies paying a premium to be near the researchers who
drive innovation.

“The life sciences industry has a unique dynamic in which established and start-up
companies, investment firms, patent lawyers and related resources all cluster around the
major research institutions,” says Roger Humphrey, Executive Managing Director of JLL’s
Life Sciences business. “It’s all focused on creating and commercializing innovation, which
creates demand for real estate.”

Investor capital spurs start-up demand for space

For life sciences R&D, the right real estate is in short supply. Laboratory vacancy rates are in
the single digits in nine of the top 10 U.S. life sciences clusters, according to in JLL’s
latest Life Sciences Outlook. In East Cambridge, for instance, only 6.8 percent of lab space is
vacant and year-over-year rents have risen 10.2 percent to reach more than $75 per square
foot.

Much of the recent demand for life sciences R&D space has come from start-up companies
flush with an influx of investor capital. While the overall volume of U.S. venture capital
transactions dropped by 20 percent in 2016, life sciences volume dropped by just 8 percent.
Only the software industry attracted more investment.

The needs of mature biopharmaceutical companies are also presenting property investors
with opportunities. Whether operations are located in the city or the suburbs, major
companies are seeking out amenities-rich properties that will help recruit and retain talent.

“These facilities offer investors the security of guaranteed cash flow from long-term leases by
credit tenants in a sustainable industry that’s facing space shortages,” says Humphrey. “If
you’re a property investor, what’s not to like?”

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Institutional investors see real estate opportunity

In early 2016, Blackstone Group acquired BioMed Realty Trust, the largest provider of life
sciences real estate. The 18.9 million-square-foot portfolio transaction encompassed
significant square footage in the top life sciences markets of Boston, San Francisco, Raleigh-
Durham and Seattle.

Another eye-catching move was Ventas’ $1.5 billion acquisition of the life science and
medical real estate assets of Wexford Science and Technology from affiliates of Blackstone
Real Estate Partners VIII LP, in 2016. The acquisition brought Ventas 25 class-A assets
leased by leading universities, academic medical centers and research companies.

“As an asset class, life sciences real estate has come into its own,” says Humphrey. “To date,
investors have primarily focused on properties in the premier clusters, but watch for this to
spill over into other clusters as life sciences real estate as the asset class matures.”

Creative solutions to the space shortage

Developers and property investors are responding to rising rents with creative solutions. In
San Diego’s UTC submarket, for example, most of the 1.1 million square feet of new lab space
that became available in the past year is from office buildings that were acquired by investors
and converted into laboratories and other life sciences facilities. In fact, San Diego’s entire
Sorrento Mesa submarket comprises industrial and flex buildings converted into lab
facilities.

Urban lab space is becoming more and more popular – a turnaround from the suburban
facilities of previous years. In New York City, Alexandria Real Estate Equities has opened
Alexandria LaunchLabs, an incubator/accelerator platform, at the Alexandria Center for Life
Science. In Boston’s Seaport District, Related Beal and Kavanagh Advisory Group are
developing Innovation Square (iSQ Seaport), a 375,000-square-foot, LEED-certified
laboratory facility for both start-up and established biotech companies.

Similarly, in the San Francisco-Bay Area’s Mission Bay/China Basin submarket, Kilroy Realty
is developing The Exchange. The 750,000-square-foot facility is not far from the Golden
State Warriors’ old practice facility, which is being redeveloped to house life sciences
companies. Also in San Francisco, the real estate investment trust HCP has started
building The Cove at Oyster Point, a seven-building campus with world-class public
amenities such as bocce ball courts, a bowling alley and a full gym.

“Real estate decisions have the ability to attract and retain talent as well as cultivate the type
of quality work environment that enables companies to prosper,” says Humphrey. “This is
resulting in bold new projects that have the potential to redefine the future of space and even
the industry as a whole.”

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Indeed, the life sciences sector thrives on the ‘new’ – new spaces help ideas develop into new
innovations and new clusters emerging in response. Where life science innovation goes, the
property investors will undoubtedly follow.

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