City gets creative to find space for red-hot life science sector
Jul 21, 2021
In the first quarter of the year, New York City's amount of vacant life science real estate was among the lowest in the nation, according to the latest report from CBRE, a Dallas-based real estate services company. And although the city's inventory is expected to expand in the coming years, demand for space now requires developers to get creative when it comes to construction and conversion, experts said.
Although not quite the heavyweight that the Boston-Cambridge and the San Francisco Bay Area clusters are, New York is holding its own as an attractive place for life science companies to set up shop, said John Cahill, senior vice president of life sciences at JLL, a Chicago-based real estate services company.
The construction of the Alexandria Center for Life Science in Kips Bay, a 21-story, 1.3 million-square-foot building planned for completion next year, really overturned the idea that life science research can't be done in New York City, Cahill said.
"It used to be that startups were conceived here but then moved to Boston or the West Coast to grow," he said.
With multiple life science incubators, advanced academic institutions and a comprehensive transport system that connects them, life science startups are sprouting up and they're happy to stick around, said Kaitlin Kincaid, senior managing director of Keller Augusta, a Midtown-based real estate recruiting firm. The city also attracted a record $2.9 billion in federal grants for life sciences last year, leading to growth in employment, she added.
But with the city having only started building up its real estate inventory in the past decade, there's immense demand for limited space, Cahill said.
During the first quarter, the city had nearly 1.9 million square feet of lab and R&D space, of which 1.9% was vacant, according to the report. A few announced projects should add 1.9 million square feet of space in coming years, and there are 43 tenants seeking over 1.1 million square feet. The city has seen a 33% increase in demand in the past nine months.
There's probably an additional 1 million square feet of construction to be announced in the coming months, Cahill added.
However, biotech tenants that just raised their first institutional round have no interest in waiting years for a project to be completed, Cahill said. That's why many of the city's developers and life science groups have looked to convert existing space into labs and R&D facilities, Cahill said.
It's not clear how much existing office space can be easily converted, Cahill said. Some older buildings cannot bear certain loads or don't have sufficient height clearance or the ability to feed the high amount of power needed by the startups. That's not including zoning restrictions and considerations, Cahill added.
In the first quarter, over two-thirds of the space added in the city was through conversions, according to the CBRE report. In comparison, the traditional life science hubs of Boston-Cambridge and San Francisco added over 80% of space through new construction.
"Life science developers in the city are realizing playing the conversion game right will be what it takes to stand up against the likes of Boston," Kincaid said. However, given the expense and complications of converting office spaces, there is currently a lack of talent that can navigate those waters, she said.
Real estate developers have to ensure they're offering the right mix of quick leases and bigger construction projects for heftier anchor tenants to allow for sustained growth of the sector, Cahill said.
"You can't put all your chips into the big projects and miss out on the immediate demand or just convert immediate lab spaces without thinking how they will continue to be used," he said.
"The way I see it," Cahill continued, "we're 10 years into a 30-year process, and we're merely waiting for the first wave of projects to deliver." —Shuan Sim