Biomanufacturing Activity Heats Up In Mid-Atlantic Amid R&D Freeze

The lab market in suburban Maryland, like its peers across the country, has been battling a supply-demand imbalance for a few years now. 

A surge in construction followed by a drop in venture capital funding — and more early-stage biotech companies shuttering — had already created pain in the market. That pain has only worsened this year as the Trump administration has slashed federal research funding.

But for commercial real estate, there is a glimmer of light in the darkness, panelists said at Bisnow’s Mid-Atlantic Life Sciences and Biotech Summit this month: a growing biomanufacturing sector. 

“Biomanufacturing is all the rage now,” South Duvall Vice President Matt Brown said onstage at the Bethesda Marriott. “It's where the investment is going. It's where the capital is going.

“The next 12 to 24 months is probably going to be a manufacturing story,” he added.

As of midyear, Maryland’s biomanufacturing footprint had a 1.1% vacancy rate, while its research and development footprint sat at 10.8% vacant, according to CBRE.

The mid-Atlantic this year has secured several big wins from pharmaceutical giants committing billions of dollars to developing new manufacturing facilities.

Last month, AstraZeneca announced it would invest $2B in its Maryland manufacturing operations, including expanding its Fredrick biologics manufacturing facility and constructing a new facility in Gaithersburg to develop molecules for clinical trials. The investment is poised to fund 2,600 jobs across the sites. 

That is on top of a new investment in a $300M facility in Rockville, where it plans to start production in early 2026.

In Virginia, AstraZeneca announced in October that it is planning to invest $4.5B in its new manufacturing facility in Albemarle County, which would create 3,600 jobs. 

Also this fall, Eli Lilly and Merck & Co. announced multibillion-dollar investments in new Virginia manufacturing sites. Lilly is building a $5B manufacturing facility in Goochland County to develop active pharmaceutical ingredients and drug products, and Merck broke ground in October on a $3B manufacturing facility planned to total 400K SF in Elkton, Virginia.

These types of endeavors are poised to spawn new development and absorb some existing space. Panelists at Bisnow's event said this side of the industry, late-stage production of pharmaceuticals, is where the opportunity lies.

“Over the last year, there hasn't been a whole lot of R&D activity, but what our clients specifically have been asking us is, ‘Where can we find built-out [Good Manufacturing Practices] space,’ whether it's 5K, 10K, 50K or 170K SF,” CBRE Senior Vice President Kevin Reap said. 

Prebuilt or semibuilt manufacturing space doesn’t stay on the market for long. 

In June 2023, AstraZeneca took over an 85K SF manufacturing facility in Gaithersburg that Alexandria Real Estate Equities had developed in 2019. The development saw its first two leases fall through before Cambridge, UK-based AZ took over its lease. 

“That's a perfect example of what high-quality manufacturing space is worth and how much we need it,” Brown said. “If there is available good space, it is quickly taken.” 

AstraZeneca's $300M facility there is now set to bring in 150 employees to manufacture a cutting-edge cancer treatment: CAR T-cell therapy.

“We really need to focus in this area on where is the new value-add coming from, and it’s coming from manufacturing,” Linden Lake Labs co-founder and CEO Thomas Haag said.

“Manufacturing has become so specialized and so difficult and so complex that there’s enormous value to be had there, and it’s going to create enormous bottlenecks.” 

Haag’s company is taking advantage of that value with its North Bethesda-based subsidiary Xcellon Biologics. He said the company is manufacturing “hyperspecialized biospecifics and biologics.” 

The story is vastly different for the early-stage companies that are in the scientific stages of drug development. 

Leasing demand has slowed dramatically from these companies over the last two years after venture capital funding dried up. Many developers had anticipated the stronger pandemic-era demand would continue when they started new lab projects on spec, and when that demand didn't materialize, vacancy rates soared. 

The suburban Maryland corridor experienced this rising vacancy dynamic, though to a lesser extent than some competing markets like Boston, San Diego and the Research Triangle that built more speculative labs. 

But many Maryland companies are reliant on the type of public funding the government has taken away this year. 

Brian Darmody, chief strategy officer of the Association of University Research Parks, a nonprofit that represents university-related life sciences developments, pointed to two federal grant programs that the government has frozen: the Small Business Innovation Research and Small Business Technology Transfer programs.

“So we need to collectively make sure that gets reauthorized,” he said.

The uncertainty these early-stage companies are facing is playing out directly in their real estate footprint decisions, panelists said. They are now more likely to opt for smaller, flexible spaces.

“We're in a more uncertain market, whether you're reliant on venture capital funding or grant funding and you're reluctant to maybe commit to a longer-term lease or you don't have the capital to do a build-out,” Connect Labs Baltimore Director Mark VanderZyl said.

And while demand from the companies themselves is softening, landlords are also pumping the breaks.

Building on spec has become unthinkable, developers say. And they are being more careful about their funding outlays, the tenants they choose and assessing their longevity.

They are also focused more on ensuring they clearly understand the science backing the companies as they try to assess whether they will be successful.

“Nobody's building spec labs anymore, and people are being very tight with the capital that they’re going to spend into these facilities,” Brown said. 

He said spending $200 per SF for a five-year lease may have made sense when VCs were “endlessly pouring into the space,” when National Institutes of Health funding was status quo and when vacancy rates were around 2%. But the environment has since changed.

“Now it’s completely flipped,” he said. “We are not trying to spend a ton of money on the space. We’re trying to maintain the space as it is and keep our basis low.”