Is a real estate bubble forming in the science of life?

One of the newest breakthroughs in commercial real estate, the life science sector has been elevated to new heights by the race for vaccines against COVID-19 and innovative technologies that have been evolving for more than 10 years.

Robert Albro, CIO and Partner, King Street Properties

Private capital, as well as public funding from organizations such as the National Institutes of Health, invests billions of dollars in research, development, and manufacturing. After a record $ 26 billion in venture capital in 2020, investment in life sciences rose to $ 39 billion last year, according to JP Morgan Chase’s 2022 annual forecast for the industry.

Despite this recent leap,, the life sciences have been constantly expanding for years. “Long before the pandemic, it was a growing industry,” said Robert Albro, a partner at King Street Properties, one of the largest property science owners and developers in the United States.

Over the last decade, the development of CRISPR – an acronym for Revolutionary Gene Editing Technology – has ushered in a boom that is still strong. In just a decade, the number of gene and cell therapy products has risen from zero to 450, while Serie A companies are still forming a consistent, important market indicator. The development of therapies takes a long time and can take 20 years to move from the idea to the final product.

Philadelphia continues to expand its footprint in life science with projects such as the $ 365 million research and production base planned by Longfellow Real Estate Partners and the University of Pennsylvania. Image courtesy of Longfellow Real Estate Partners

Growing markets

In response to these trends, large-scale, modern projects are emerging throughout the country. According to a recent report by Cushman & Wakefield, 17 million square feet are under construction in the top 10 life sciences markets.

Matt Gardner, Head of Life Sciences in America, CBRE

Boston, San Diego and the Gulf region still rank as the most powerful centers, but there is no shortage of competitors. “There are at least a dozen emerging markets that need to be considered, probably more,” said Matt Gardner, who heads CBRE’s life science department in the United States. Philadelphia and New Jersey have strong life science industries with long histories, while the research triangle Raleigh-Durham, Seattle, Boulder, Colorado, Chicago, Atlanta and Houston are showing growth. The connecting thread between these geographically diverse markets: a strong university presence, large medical facilities and a vibrant urban culture.

In New York, which has long sought biotechnology hub status, a growing cluster is generating noise. Long Island City, the Queens neighborhood where Amazon first announced and then canceled plans for a second plant, is emerging as a favorite.

The enclave is an attractive place in no small part, because Midtown Manhattan is five minutes by subway at one stop. And unlike its neighbor, Long Island City offers plenty of space to build. “The science of life reached Long Island City before Amazon, but it has real endurance. Many of the projects came after Amazon withdrew, “said Bill Harvey, a Manhattan-based managing director of Newmark.

Harvey served as a 275,000-square-foot leasing broker for Innolabs, which is owned by King Street Properties and GFP and welcomed its first tenants last fall. Nearby, Boston-based Longfellow Real Estate Partners and Sculptor Real Estate are developing a 210,000-square-foot facility called 43TEN. The $ 120 million conversion project is scheduled to open in the second quarter of 2023.

Other projects are underway, including a couple from Alexandria Real Estate Equities, the country’s largest owner of life sciences. Although all of these facilities are projects for adaptive reuse, there is room for development in the science of life on earth, Harvey said.

Kate McNamara, Senior Vice President, PIDC

Elsewhere in the Northeast, Philadelphia is a rising leader in the science of life. The city’s talent fund in the science of life ranks fourth in the country from Cushman & Wakefield, after only Boston, the San Francisco Bay Area and the New York-New Jersey region.

“There are so many companies looking for a place, and we really had to fight in Philadelphia,” Kate McNamara, head of real estate planning and development at Navy Yard in Philadelphia, told PIDC Philadelphia, the city’s economic development agency. Much of the 1,200-acre naval yard is being remodeled to add new industries, and the life sciences account for 11 million square feet of laboratory and production space under construction on campus.

McNamara attributes the rise of Philadelphia as the center of life sciences to the cluster of the city’s best research hospitals, including the Children’s Hospital of Philadelphia (CHOP) and the main center for gene and cell therapy at the University of Pennsylvania.

“Many companies are splitting from the University of Pennsylvania and CHOP and can’t get enough space,” she said. In June, the University and Longfellow announced $ 365 million, 455,000 square feet of construction at Pennovation Works, a 23-acre campus adjacent to Penn’s campus.

The diagnosis

A joint development of King Street Properties and GFP, Innolabs has more than 250,000 square feet of laboratory space for biotech tenants in Long Island City, part of Queens, New York. Image courtesy of King Street Properties and GFP

With so much demand, product and investment capital flooding the real estate life sciences sector, this raises a crucial question: is a bubble forming?

Certainly the combination of factors suggests the possibility. All real estate sectors, no matter how well they perform, are subject to business cycles and financial market turmoil, and industry leaders do not rule out periods of instability for the sector. And as is often the case with fast-growing economic sectors, the shortage of professionals with specialized skills is a real concern.

As a result, industry insiders do not rule out the possibility of instability or disruption. But they also advise such unexpected events to be considered in context. “Will there be short-term turbulence?” It’s possible, but the basics and the demand are still there, “Albro said.

Gardner of CBRE, a 30-year veteran of life sciences, does not see the formation of a bubble, but suggests that a cycle of consolidation is possible: “We are going through cycles in biotechnology like any other sector,” he said.

Rising interest rates could lead to market restructuring, and developers will need to be careful to make sure their projects and investments are stable, McNamara said. However, she added, the signs point to continued growth in life sciences companies and the demand for more supply.

By all indications, the delayed search for new research, innovation and treatment will require life science equipment for years to come.

“Even if we are still treating things at a rapid pace, given human nature, we will not cure 1,000 out of 10,000 diseases and say ‘enough,'” Albro said. “We will continue to develop and we believe that real estate in the field of life sciences will play an important role in this. Even in today’s vibrant market, life sciences are still only part of the nation’s office inventory – and that leaves a lot of room for growth.

Bill Harvey, director, Newmark

This evolution is already evolving in the regulatory arena. The industry is in talks with the US Food and Drug Administration and other agencies to develop a new type of agreement to speed up clinical trials. If the process can be safely shortened, it could lead to a quantum leap in industry growth, Gardner said.

In addition to cell and gene therapy, investments in the biotechnology arena are driven by a growing specialty: synthetic biology, which creates products such as modern materials, refined chemicals, cosmetics and plastics. “I think these two big things” – cell and gene therapy and synthetic biology – “will stimulate continued investment.” The industry has attracted billions of dollars in investment and some products are close to market readiness, Gardner said.

For McNamara, helping to expand the Philadelphia life sciences industry is deeper than creating jobs and investing. It is about the scope of science itself, beyond the boundaries of the biotechnology center.

“We have two companies in the Navy working on cancer drugs,” she said. “It’s amazing what they do, and if they do it successfully, it will change the way we deal with disease in this country and around the world. This really changes the game. The more we can help them grow and thrive and enter the market, it will be transformative. “

Read the CPU issue of July 2022.

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