As the pandemic and remote working have caused havoc within commercial office spaces, the life sciences industry is picking up some of the slack in vacant office spaces.
Pandemic & Remote Working Dealt One-Two Punch to Owners/Landlords of Office Buildings
The collateral damage of the COVID pandemic and its remote work revolution has caused a slew of broken leases, reduced construction, plunging rents and vacant offices. According to Cushman & Wakefield, the vacancy rate for downtown office buildings throughout the US has risen to +16.4% over the past year.
What’s a commercial office building owner/landlord to do? Look to the life sciences industry.
Life Sciences Industry Coming to Rescue of Worried Owners/Landlords
With a record $70B of private and public capital investments in North America this last year, a +93% increase from the previous record of $36B received in 2018, the life sciences industry has money to claim empty office spaces. Cushman & Wakefield data indicates that more than 20% of built lab spaces are conversions from offices across the six largest US life sciences markets. Asking rents for lab space have increased more than +60% in San Francisco, Chicago, Boston and Raleigh NC since 2016 while office rents have risen only 15 to 30%.
Austin Barrett, head of the life sciences division for Savills, said, “It’s been a wild 15 months. The office market and the lab market are a tale of two cities right now.”
Industry’s Breakneck Growth Creating Need for +34% More Lab Space
As in the residential housing sector, demand for more lab space far outpaces supply. According to CBRE, record-breaking funding and a pandemic-driven focus on biotech spurred record-high growth rate of more than 1.9M workers within the life sciences sector in April. Why is this figure of 1.9M workers within life sciences important? Lab scientists cannot complete their assignments and tasks on Zoom.
Newark, a commercial real estate industry advisory firm, indicated in its latest report that this growth in life sciences is creating a need for +34% more lab space than one year ago. Liz Berthelette, Newark’s director of research and co-author the firm’s latest report, said, “The pandemic shone a brighter light upon the (life sciences) industry, and the global community is now looking at life sciences and health care in a different way.”
Big Role for Commercial Real Estate Agents & Advisors within Life Sciences Sector
Office building conversions may look like no-brainers in terms of cost effectiveness and “get-up-and-running” time to developers, landlords and life sciences professional specialties alike, BUT office conversions to lab spaces are not headache-free due to the following reasons:
- Life sciences tenants often require more electricity and water
- Higher floor-to-floor berth requirements
- Specific shipping and loading zones
- Enhanced structural capacity for equipment loads
- Upgrading building codes
- Installation of dedicated service elevators
- Upgrading systems for power, exhaust and fire protections
- Overhauling electrical systems that may include cooperation with local power grids and utility services
- Specialized ventilation for exhausted rather than recirculated air
Both/And Options for Conversions & New Builds
Some companies, such as 10X Genomics, are doing both…expanding its properties by office conversions and by building custom sites for specific tasks. Michele Hodge, 10X Genomics’ senior director real estate and facilities, said, “…not every building can work. A lot of analysis has to go into (expansion/conversion) decisions, a lot of due diligence, because there are things you need when you’re doing labs that office buildings don’t always provide.”
Commercial real estate agents and advisors can be both useful and welcomed by developers, landlords and life sciences professionals alike to provide such due diligence, guidance and expertise.
Thanks to The New York Times.