Best Little Lab Space In Texas: Will Building Boom Level Up Lone Star Life Sciences?
Texas real estate and development news often focuses on who’s entering the state, like the California-to-Austin tech company relocations that have helped buoy the state’s economy.
But Texans in the life sciences world have been paying a little more attention to who’s leaving the state, specifically homegrown firms like Instill Bio (which opened an LA research hub) and Peloton Therapeutics (acquired by Merck). Like others who left before them, these companies found the local ecosystem of lab space, venture capital funding and paths to commercialization lagging or lacking.
“In Dallas, we’ve had an enormous amount of science created here that hasn’t stuck around,” JLL Senior Vice President and Dallas Region Lead Ethan Garner said. “A great idea or discovery needs access to capital, space for growth and the right government support, and until recently, all three legs of those stools didn’t exist in North Texas.”
A recent string of high-profile projects seeks to not just reverse that trend, but to turn cities like Houston and Dallas into high-profile destinations for biotech firms and startups. Two projects in particular — Pegasus Park in Dallas, an in-development, 750K SF, 23-acre office campus, which includes a startup incubator space from Boston-based BioLabs; and Houston’s TMC3, a 37-acre mixed-use, lab-focused development near the city’s sprawling Medical Center that broke ground last week — are intended to begin filling in some of the holes in those city’s life sciences markets.
Developers of these campuses and others hope to provide the kind of graduate space and critical mass needed to spin out ideas from top-tier local universities and research institutions such as UT Southwestern Medical Center and University of Texas, Dallas, or Baylor and MD Anderson Cancer Center in Houston.
Lyda Hill Capital Director Matt Crommett, whose firm co-developed Pegasus Park, said that when the BioLabs space fully opens there in December with 37K rentable SF of lab space, it’ll start filling in the gaps, providing a needed physical hub for local talent to grow. He points to Taysha Gene Therapies, which spun out of the medical center in 2020 and now has space in Pegasus Park, as an example of the kind of growth this development can foster.
JLL Houston lead Chris Wadley, who specializes in life sciences and healthcare, said major spec projects underway symbolize big changes in the local market. These include Levit Green, a 3M SF spec space by Hines; the Ion, a 266K tech hub led by Rice University; and Innovation Tower, a high-rise in the Texas Medical Center. As those deliver over the next few years, Texas will become more of a magnet for life sciences firms wary of the competition and high costs associated with coastal markets, he said.
The state has a long way to go to catch up to those tier-one cities in terms of product, and current pipelines won't even shrink the gap. As of late 2020, there was 4.3M SF of lab space proposed or under construction in Houston, and 600K SF in Austin, per Newmark. For comparison, Boston has 37M SF proposed or under construction.
But Lone Star State biotech backers believe the timing is perfect to rise to prominence, as the demand for space nationally will only increase, and the state’s central location, talent base, biomanufacturing potential and lower costs will make Dallas, Houston and Austin draws.
“There aren’t enough companies currently in Houston to absorb the amount of lab space coming through the pipeline,” Wadley said. “The developers are 100% counting on companies to relocate or expand, and betting on overflow.”
Beacon Capital Life Science President Steve Purpura, one of the developers of the TMC3 project, believes Houston can be a market with 10M SF of lab space in the next few years, roughly doubling the space it has today. TMC3 can be the city’s own Kendall Square.
“The life science market in the U.S includes between 120M and 130M SF of space right now, and will roughly double in size over the next 10 years,” Purpura said. “That can’t all happen in Boston, San Francisco and San Diego. Emerging markets are where it can happen.”
Dallas, Houston and Austin have been featured in lists of up-and-coming life sciences destinations for years. Newmark named Houston 11th on its most recent ranking of life sciences clusters and pegged Austin as No. 14, and a recent CBRE report found Houston (2), Austin (3) and Dallas (6) as three of the nation’s top emerging clusters.
In Houston, local government and business leaders have focused on developing biotech for the past five years. The TMCx initiative, launched in 2016 and led by startup vet Tom Luby for years, was meant to provide a platform for startups spun out of the Texas Medical Center, a world-class research institution specializing in immuno-oncology and cancer research and therapeutics. Venture capital funding in the life sciences sector has doubled since, from $124M in 2016 to $256M last year, according to Greater Houston Partnership Chief Economic Development Officer Susan Davenport. The city has the scientific talent, a large base of students (440,000 total), and a diverse, booming population to be the “third coast for life sciences,” Davenport said.
Houston has the potential to offer more than just talent and lab space. The city’s location near a port and the engineering talent from the energy sector provide the backbones of a potentially robust biomanufacturing sector. Those factors enticed contract manufacturer Lonza to open up a facility for cell-and-gene therapy in suburban Pearland in 2018.
McCord Development President Ryan McCord has been developing Generation Park in the northeast corner of the Houston region for a decade, aiming to land a big biomanufacturing client in his new ground-up innovation center. He said he believes Houston’s location and logistics advantages make it a great place for biomanufacturing. Combined with the ability to run clinical trials at the medical center (1 in 5 such trials in the nation is running in the medical center, per the Greater Houston Partnership), Houston offers a lot of the less glamorous aspects of the biotech supply chain, which has hindered growth in markets such as Boston.
Austin also has its own strengths — there’s a reason pharma giant Merck nearly located a new office in town before backing away from an incentive-heavy deal in 2019 — though the city’s success at attracting corporate relocations and new tech offices, even during the coronavirus pandemic, hasn’t incentivized commercial landlords and developers to look toward lab space like it has in other markets. But the labor pool’s strength in hardware development and tech has caught the eye of life sciences firms.
“Life science isn’t limited to developing molecules and therapies,” JLL’s Garner said. “There’s an entire other nanotech industry out there, and Austin has a huge supply of graduate degrees coming out of UT.”
The bet on Texas' largest cities relies on local growth and the spillover effect of national growth. The big question is whether, as lab space delivers over the next few years, the rest of the pieces fall into place, especially increased venture capital funding. Alexandria Real Estate Equities Chairman Joel Marcus told Bisnow that while Houston has the institutions, it doesn’t have the risk capital or the roster of “scientists or academicians or political people who have any experience in translating science.”
Backers believe that in the next few years, with the right type and volume of lab space coming online, the other important aspects of a growing ecosystem will take shape.
With rising investor interest, a fertile business environment, and “science that has never been stronger, it does feel like an inflection point,” Crommett said.