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Lack Of Data Helps Keep Nascent Life Sciences Real Estate Sector A Small Club

Labs and life sciences represent a small niche in the larger commercial real estate world: JLL tracks 165M SF of commercial, investor-owned lab space across the country, compared to 4.7B SF of offices and 14.2B SF of industrial space. 

But conversations with sector analysts and researchers suggest that despite the relatively small footprint, tracking the burgeoning life sciences sector can be tricky. That lack of transparency has meant significant advantages for the select few companies that dominate the space. 

Rendering of a forthcoming biomanufacturing plant in Maryland by Matan Cos.

“Having this data is a big advantage, but one that might not be evident in the short term,” CBRE Senior Director of Research Ian Anderson told Bisnow. “The market is so good that it is likely players without access to accurate data and information might be able to execute sufficiently, but with potentially greater exposure to downside risks. If the market were to turn, those risks may be exposed and realized.”

Outside of Boston, which has 10 to 15 years of statistics and records, the rapid growth and expansion of the life sciences market has meant accurate data is hard to find. There isn’t historical data or consistent data across different markets, according to Newmark Research Director Liz Berthelette, complicating comparative analytics. Adequate sample sizes are only available in a select few markets, she added, so many within commercial real estate are just beginning to implement consistent data collection processes. 

The somewhat uncertain state of life sciences data, which can make it challenging to track market fundamentals like asking rents, leases and vacancy rates, means firms rely on internal data collection, favoring those with a better broker network and market awareness. CBRE, like many of its competitors, is able to get almost all of its leasing and sales data from its brokers and clients, Anderson said.

Some go to extreme lengths. Newmark Executive Managing Director Eric Bluestein keeps his own “seven-tab Excel matrix” where he inputs information from emails, CoStar data and tips from colleagues.

“I could show it to you, but I’d have to kill you,” he said. “You can’t rely on one single source of data. It’s so hard to know where existing lab spaces are. It’s about critical mass and having more boots on the ground.”

But relying on internal data can be tricky, according to some researchers, because competition between staff for deals, especially with so many other CRE sectors suffering, makes some loath to share potential leads.

“A lot of life science brokers don’t want to share that info and give other brokers the opportunity to tread on their expertise,” said a research specialist at a firm with a large life sciences practice, who asked to remain anonymous. “The numbers are a springboard into a discussion. The better your professionals, the more you have, the better your information is going to be.”

Lab space within the Centers for Breakthrough Medicine in King of Prussia, Pennsylvania.

This lack of universal standards and data may not sound like a pressing problem, outside of altering city scores on annual rankings of the best markets for investment. But the industry is already concentrated among a handful of big players, and the lack of transparency and universal market awareness means the biggest players have a distinct advantage.

Alexandria Real Estate Equities owns more than 40M SF of life sciences space, BioMed Realty Trust owns 16M SF and Healthpeak Properties owns 11M SF, according to Newmark's midyear 2021 life sciences report. The next seven-biggest owners across the country combined own 32.2M SF of the property type.

The somewhat knotty issue of defining what lab space actually is — a recent Urban Land Institute report classified it as a type of office space — also makes life sciences much harder to track, and suggests it should be treated as its own asset class.

Historically classified as a subsection of industrial and R&D, due to the largely mechanical nature of the work in decades past, life sciences have evolved to be more focused on digital research, and now biotech work can take place in an office building. 

Since buildings in this sector can be multi-compositional, with lab, office and drug production facilities under one roof that often shift over time, data collection gets complicated. 

“The challenge is getting comps and construction costs and finding out what’s happening inside the building,” JLL Senior Director of Research Amber Schiada said. 

Data sources like CoStar don’t typically define lab spaces the same way real estate firms and brokers do. Conversions and larger mixed-use campuses and innovation centers with lab space can muddy the water. Measurements can even vary by city.

CBRE tracks lab inventory on a market-by-market basis by professionals with specific insights into the market; lab space in Cambridge, for example, has stricter criteria than emerging markets.

“In some properties that we identify as a lab building, there may be some tenant office space that doesn’t contain a lab,” Anderson said. “Still, a majority or substantial part of the overall building is dedicated to lab space. We strive to track an inventory that most directly affects the supply and demand of lab space.”

More accurate tracking of different types of life sciences real estate adds additional complications. The biomanufacturing sector, which is seeing incredible demand due to new drug development, vaccine manufacturing and onshoring, has been the focus of limited research. Newmark, for instance, is tracking new construction, net absorption and asking rents in Boston, but not in other markets. 

This sector is going to be an increasing area of focus for JLL’s Schiada, especially trying to get a handle on inputs and outputs and the bandwidth for manufacturing, in response to the increasing volume of clinical trials and drug approvals.

This underscores one of the biggest outcomes of a lack of standard, transparent data: It is more challenging to fill and find space. 

“If we don’t have enough capacity to meet the demand for drugs, that means turning to contract manufacturing, and that’ll end up in gridlock,” she said.