Is Raleigh’s Rapid Rise In Biotech Impacted By An Uncertain Market?
In recent months, signs of Raleigh-Durham’s rise as a biotech center haven’t all been promising.
In late March, Taysha Gene Therapies canceled plans to build out a facility in Durham, announcing it was discontinuing its plans and seeking a buyer for the site, which cost $75M two years ago. Alexandria Real Estate Equities announced on a recent earnings call that it was pausing a $180M project. And Pfizer also said it’s "exploring externalization opportunities,” including potentially selling a gene therapy manufacturing facility it opened in 2021.
According to Sondra Wenger, CBRE Investment Management head of Americas commercial operator division, there has been a slowdown in Raleigh, but not nearly as much as those in the big coastal markets.
“It still has a lot of potential growth,” Wenger said. “If you look at top-tier markets, what really pushed rents up was having tech firms come in and try to compete for talent. Raleigh’s only recently seen that happen. The rents didn’t rise as high, so they aren’t falling as much.”
In recent years, as biotech startups and life sciences real estate have seen record years of funding, investment and construction, a constant has been the tremendous growth of the Research Triangle. Buoyed by a core of scientific talent, the state’s investment in workforce development and a cheaper cost of doing business, new lab spaces and massive biomanufacturing places have taken shape at a steady clip.
Last year, when national venture capital funding for life sciences dropped 28%, the region saw a 6% increase, netting $628M. North Carolina Gov. Roy Cooper’s office announced that last year, life sciences firms pledged $2.1B in investment, projecting the creation of 2,700 jobs.
Raleigh’s continued role as the cheaper alternative — rents for lab space run from $30-$40 per SF versus $80-plus elsewhere — will continue to fuel long-term growth, despite any short-term issues. Wenger said she looks at the market for its potential, with strong demographics and the unique appeal of Research Triangle Park. Rents in Raleigh-Durham are what rents were in San Diego two decades ago. For every sign of slowdown, there’s also long-term investment. Novo Nordisk bought 104 acres in March, and Eli Lilly is still constructing its new $1B facility.
It’s a challenging time for any kind of retrenchment: The region is expecting 1.4M SF of flex lab space to open by year’s end, according to a Triangle Business Journal analysis, and nine of 10 new building projects had no tenant commitments as of May 5.
“I would say the [Raleigh] market overall has slowed down,” Wenger said about the current state of leasing. “If we take it to Raleigh-Durham, the groups that will do better are those with curated research clusters. If you’re in the RTP, you’re much safer than someone outside of it. If you’re outside, you don’t have that special sauce. When the market was on fire, anybody thought they could build life science anywhere. Now that the market has started to soften, the importance of those clusters is that much more dramatic.”
There’s a decrease in biotech VC investment these days, but this year is still shaping up to be the third-largest haul in the last decade. Raleigh, which CBRE ranks the fourth-best life sciences market in the country, still has solid fundamentals. That’s where real estate should invest, she said, in RTP and established subsectors.
“Focus on the core markets, that’s where there’s the least risk,” Wenger said.
