The Real Estate Problem Holding Back NYC's Life Sciences Industry
Life sciences in New York City is poised for growth, but industry leaders said that will only be assured if developers build enough spaces for startups of all sizes. Unless the city can accommodate life sciences companies in their earlier years, when they need less space, experts warn NYC could lose talent to rival life sciences hubs.
Graduation space is a problem for aspiring life sciences hubs across the U.S., but for NYC, which is hoping to create a hub to rival Boston and Cambridge, space for labs between their initial and final sizes is a crucial missing piece of the puzzle. Without those spaces, NYC risks losing talent it helped create and fund to Cambridge, Silicon Valley or San Diego as companies look for space to scale.
“There’s a lot of room to catch up,” Nuveen Head of New York Acquisitions Patrick Li said at Bisnow’s New York Life Sciences event last week. “It's a bit of a chicken and egg situation. We have the talent, the institutional presence and the funding, but we need more product.”
NYC has just shy of 2M SF in lab inventory leased, according to CBRE, with almost 1M SF in the pipeline. Demand for space grew by 67% in 2021, and a record 433K SF of life sciences leases were signed during that period, according to CBRE. The city’s total life sciences inventory is predicted to reach 4.6M SF by 2025.
But the market pales in comparison to Cambridge and Boston, which had a combined 42M SF at the end of last year, as well as the Bay Area’s 33M SF and San Diego’s 18M SF.
Startups are reluctant to move far from the place they begin, seeking instead to grow in place, Li said. But without adequate graduation space, NYC will lose out on retaining talent it has helped develop via an array of incentive programs, Nan Fung Life Sciences CEO Matt Powers said.
“There's a brain drain that I see every day of New York-based [intellectual property] that's going up to Boston and Cambridge because we have the most mature cluster there — serial entrepreneurs, mature VC community and more availability on the real estate side,” Powers said. “I think what’s really interesting and important in New York is not as much attracting companies as not losing them.”
Incentives from city and state governments are making the prospect of staying in the city more attractive for startups. Last June, the NYC Economic Development Corp. announced it would add more than $500M to the city’s LifeSci NYC initiative over the next 10 years, bringing the total investment to $1B. Life sciences companies can also claim property tax and mortgage deductions from the NYCEDC, as well as city and state tax credits.
That investment has led NYC’s life sciences market to swell, from roughly 150 companies prior to the pandemic to more than 300 today, NYCEDC Senior Vice President for Life Sciences and Healthcare Susan Rosenthal said at the Bisnow event. But some are too small to take space in the lab buildings that make up a large chunk of the city's construction pipeline, she said.
“In order to make New York City the place that companies stay once they spin out of Columbia or NYU or Rockefeller or other schools, we need them to have the space,” Rosenthal said. “Whether they’re incubators or whether they’re going to a medium-sized graduation space — something that’s more 7K SF, 10K, not 20K or 50K — because you really need spaces like that to have the stickiness for companies to stay.”
Some of those companies will go on to sign bigger leases, Rosenthal said, but they need time to grow to the right size first. Companies coming out of NYU Langone’s BioLabs accelerator have a whole range of different needs, looking for anywhere between 1K and 20K SF, Director Glennis Mehra said.
Once they can establish a foothold, the growth can happen quickly. TMRW Life Sciences, an automated platform to safeguard frozen eggs and embryos for in vitro fertilization founded in 2018, had a 5K SF space at 250 Hudson St., but after raising $105M in July, it expanded its footprint to 38K SF in the building, Commercial Observer reported.
But others stay in smaller spaces despite an influx of capital — like biotech startup Immunai, which raised $275M in its Series B and C funding rounds last year but still moved to a space smaller than 13K SF at the Alexandria Center for Life Sciences in Kips Bay. More of the startups graduating from NYU Langone’s BioLabs space have demands similar to Immunai than TMRW Life Sciences.
“Founders are creating platforms that are designed to stay lean and nimble. They’re not anticipating building out a large team, and they are still doing some basic development,” Mehra said. “Being able to make sure that those companies can be accommodated in New York is crucial. We’re seeing it more and more — I think about a third of our companies fit that bill right now — and after three years, there’s nowhere for them to go.”
NYC has the academic institutions, access to capital and the live-work-play setting necessary to attract workers, experts said at the event. But without the right spaces available for growing startups, NYC's nascent life sciences market may struggle to grow as fast as its boosters and developers hope.
"It's about building an ecosystem, it's about the workforce, it's about creating access to these opportunities in an equitable way," Rosenthal said. "And ultimately, that is to draw on the talent and enable the talent for companies to stay here."