Real estate overview
Why are Life Sciences properties thriving?
Life sciences real estate is concentrated in a relatively small number of market clusters, typically centered around the universities and research hospitals that receive funding from the National Institutes for Health (NIH). It is crucial for life sciences organizations to locate near these institutions for a few reasons. Some of them originate from ventures within these institutions, relying on a tight network of medical and research professionals. The nature of life sciences work demands proximity to these same professionals, as well as other parties such as physicians, clinical trial participants, and suppliers (which often now includes technology companies). With such a concentration of skillsets and ever-present competition for talent, life sciences companies frequently cannibalize each other. Thus, the industry is concentrated in a small number of established geographic clusters—but new ones are also emerging in places where new talent is graduating.
Trend: Constrained supply makes conversions attractive
The clustering effect, along with the physical building characteristics required for lab and manufacturing space, combine to produce a constrained supply environment. With demand burgeoning and suitable developable tracts scarce, office-to-lab conversions are surging in markets like Boston despite the costs and operational challenges involved.
Life sciences offer several attractive real estate best practices
1
Net leases
Unique requirements for utility consumption makes NNN leases the industry standard, simplifying asset management prospects.
2
Tenant-funded TIs
Life sciences occupiers often have extremely specific buildout requirements that can cost upwards of $200 per square foot; however, they are typically well-funded and willing to share the cost to execute them.
3
”Sticky” tenants
The degree of cost and customization involved in suiting life sciences tenants makes some of them reluctant to relocate at the end of a lease; on the other hand, small companies that have grown will often move on, leaving their former spaces available to the many organizations at earlier growth stages.
