The Life Sciences Boom Has Cities Courting Labs. Many Won’t Find Match
In a news cycle dominated by vaccines and an economy focused on innovation, cities see life sciences as not just a good bet but a critical piece of their economic development future. But while many metros believe they can attract jobs with increased investment in lab space, only a relative handful can become new centers of industry growth.
As the life sciences industry rapidly expands within its three main U.S. hubs — Greater Boston, San Diego and the Bay Area — the increasing pace of investment, development and hiring has led many cities and property owners across the country to see an opportunity to develop their own lab space.
But to really make a development successful, a “build it and they’ll come approach” won’t work, said JLL Executive Vice President John Cunningham, who specializes in life sciences leasing. Workforce considerations must come first.
“A year ago, a week didn’t go by where I didn’t get a call from someone with an office building asking, ‘Should I build lab space or life science?’” Cunningham said. “It isn’t a magic cure-all to an empty suburban office building to put a lab in it, since 9 times out of 10, it’s not going to work or be possible.“
Increasingly, in an attempt to address those considerations, these developments are taking the form of large innovation campuses to attract talent, akin to the headquarters of tech giants. There’s a recognition that the growing demands of the industry mean more campus-style developments in more markets, and more opportunities for additional cities to see life sciences as a road to economic development.
“Cambridge can’t grow,” Cunningham said. ”If you could tap a wand and double it in size, you’d fill it in a few years as soon as construction catches up. That demand is why markets that we might have considered secondary or tertiary even five years ago are now considered emerging markets.”
The industry won't go just anywhere. It is dealing with a low supply of skilled scientists, the need to locate near research centers and universities that educate this talent, the requirement to work in person rather than remote, and the desire of this workforce to be near urban amenities.
For emerging markets that do land more life sciences developments, there is an expected knock-on effect on the local economy. United For Medical Research, an industry trade group, estimates that for every $1 in life sciences investment, there is $2.43 in business activity. And more funding is imminent.
In fiscal year 2020, venture capital investment in U.S. life sciences companies hit a new record, $17.8B, per CBRE, and the National Institutes of Health, which expects to see its budget increased this coming year, awarded nearly $37B in grants, which supported an estimated 536,338 jobs and $91.35B in economic activity.
Cambridge and its neighbor across the Charles River, Boston, will continue to be the industry’s most important market, said JLL Director of Life Science Research Audrey Symes, but tens of billions of dollars funding growth means a rising tide lifts all boats, providing more opportunity for other markets to rise in the ranks.
“Life sciences are traditionally located in high-cost, high barrier-to-entry markets,” Symes said. “But at some point, employees are ready to move to the next phase of life and buy homes and start a family, and with San Francisco and Boston being so expensive, suddenly Dallas and Raleigh are more appealing.”
She believes the campus model is the way to go in these newer, lower barrier-to-entry markets, projects like Philadelphia's uCity Square, or Chicago, where developer Trammell Crow aims to build 400K SF of lab space near one of the city’s largest nightlife and dining districts, Fulton Market, and Sterling Bay is building a 300K SF life sciences building at its Lincoln Yards megaproject. Symes calls it galloping growth: newer clusters of talent and lab space emerge, drawing their own funding and development, and create a virtuous cycle.
In addition, as more sophisticated computer analysis and artificial intelligence applications take on a bigger role in life sciences work, the distribution of workspace between chemistry and computers, and wet and dry lab space, is trending toward space for computational science, leading to workspaces that look even more like the offices of tech firms, Gensler Sciences Leader and Senior Associate Erik Lustgarten said.
In Houston, a forthcoming 52-acre development near the Texas Medical Center may highlight the evolving nature of life sciences real estate. A key catalyst for this development is its proximity to one of the world’s foremost centers for medical research and innovation, an ecosystem spinning out Ph.D.s, attracting NIH funding and running clinical trials.
Called Levit Green, the joint project by Hines and 2ML Real Estate Interests is a massive spec development on the former site of a wholesale grocer, seeking to lure lab tenants and startups with not just best-in-class workspaces, but an entire neighborhood. Plans call for a 5,800 SF fitness center and outdoor garden and 3,500 SF of café and restaurant space amid startup incubators and wet labs.
“It’s placemaking, a need to mix in amenities,” said Cunningham, whose team is leading the lease-up of the project, expected to deliver by the end of next year. “It’s not only about having an unbelievable environment to work in, there needs to be someplace nice to take a laptop out by the lake.”
Besides Chicago and Houston, many other cities are seeking these kinds of emerging life sciences clusters to spark wider economic development. A JLL project in Pittsburgh, the Innovation Research Tower, a joint project with Walnut Capital that’s in the process of finalizing design, is indicative of Pittsburgh’s turn as a tech hub, with universities such as Carnegie Mellon attracting tech players like Uber and Google.
Cunningham said he is talking to clients about projects in Kansas City and Phoenix. Symes said Phoenix has seen an infusion of funding, with $3B invested in developing 4.5M SF of life sciences and health services real estate projects over the last few years alone.
“If you don’t have the talent, you’ve got nothing,” Symes said. “You really don’t find a lot of Ph.D.s twiddling their thumbs looking for things to do.”
That talent is asking for more and more amenities, such as open space, roof decks and access to the outdoors, Lustgarten said. But there is also a big trend toward creating new collaboration space, what he calls the “membrane between the lab and office,” where computer and traditional hard science collide. Incubators in these campuses also serve as key ways to help smaller companies grow, allowing small teams of scientists to commercialize ideas much more quickly.
“They used to call that gap between academia and commercializing a product the valley of death,” Lustgarten said. “Developments that have these smaller-scale spaces are helping bridge that gap and help speed up the biotech revolution, which we’re at the early stages of right now.”
The alignment of the local talent pool is important when considering this kind of development, said Tom Schryver, the executive director of Cornell’s Center for Regional Economic Advancement. Building a lab in, say, Rochester, Minnesota, home of the Mayo Clinic, has a much higher degree of success than putting a new facility in a city where there is no history of biotech or healthcare innovation.
But there’s also more potential for biomanufacturing, which doesn’t require a workforce with advanced degrees; he points to Pfizer’s manufacturing of its Covid vaccine in Kalamazoo, Michigan, as an example of ways the larger life sciences industry can become an engine for economic development outside of the traditional list of superstar cities.
Lustgarten said lots of companies have taken a lesson from Covid and supply chain disruptions and are looking to increase manufacturing capabilities, which broadens the impact of developing a life sciences cluster.
“Can this industry be distributed?” Schryver said. “It’s a question a lot of cities are wrestling with.”