Technology

Biotech Boom

This growing sector offers new commercial real estate opportunities.

Nearly five years have passed since the high-tech boom and bust. Emerging from the dust is a more mature, focused industry that offers unexpected opportunities for commercial real estate professionals. This special Web series offers a look at what's happening in today's high-tech scene.

Biotech Spreads

Understanding these companies' space needs is the key to finding new opportunities in this niche.
by Stephanie Bell

In 2003, the U.S. biotech industry spent $17.9 billion on research and development, and in 2004 biotech companies raised $20.8 billion in new financing, up 26 percent from the previous year, according to the Biotechnology Industry Organization. This rapid growth opens up a world of opportunity for commercial real estate professionals interested in this field. Life sciences, pharmaceuticals, and other industry-related companies require specialized services for their very specific needs, says James V. Cahill, CCIM, a real estate adviser with the Staubach Co. in Vienna , Va. , who specializes in biotech facilities.

Cities and states with biotech companies often are known as “life science clusters,” Cahill says. Currently, New Jersey , Maryland , Boston , Philadelphia , Seattle , the San Francisco Bay area, and San Diego are active clusters that are attracting companies that want to locate near like-minded businesses. Among these clusters, there has been an uptick in biotech activity in the Maryland , Boston , and Philadelphia markets in particular, Cahill says.

What Biotech Tenants Want

From a tenant's point of view, it is important to educate landlords about biotech practices because many are concerned about hazardous materials use and what happens after a biotech company leaves the space. Landlords may assume that the risks are greater than they really are, so tenants should be proactive in educating landlords about the potential problems.

For the most part, biotech tenants have very specific needs for lab/office space, according to Cahill. For example, life sciences companies need traditional lab space as well as office administration space whereas pharmaceuticals companies need mission-specific facilities for product R & D.

Companies often seek one-story flex buildings with 16-foot clear ceiling heights, water and steam systems, and heavy roof and floor landings. Also, “Zoning is an important factor,” Cahill adds. Some companies use animals for tests and experiments, which requires specific zoning as well as other restrictions for code compliance. Landlords also should be aware of such activities, especially in markets with active animal rights organizations. Property insurance is another consideration: “Housing a vivarium can have an impact on property insurance, but the landlord usually will pass this increased cost on to the tenant,” Cahill says.

Build New or Adapt?

“It goes on a case-by-case basis,” Cahill says. “There is no right answer to this question.” Cost analyses are the best way to determine whether it's better to adapt an existing space or build new. In many cases, the company's specific needs can make it very costly to adapt space, Cahill explains. Sometimes the potential tenants assemble a team that includes both the landlord and a property manager to decide whether or not they can retrofit the space to their needs. Other times, landlords will hire a third party to analyze the space.

Clean Room Standards

Most biotech companies must meet the Food and Drug Administration's Good Manufacturing Practices standard. Depending on the line of work, laboratories and offices have certain clean room standards that limit amounts of dust and particles allowed in work-space air. The space then needs to be validated. “The FDA requires that some labs, R&D facilities, and pharmaceutical manufacturing facilities be built in strict compliance to the GMP procedures. These standards are extremely high and the tenant that builds these facilities must demonstrate that the design, construction, and procedures for conducting their business are in compliance with FDA regulations. The FDA will then inspect the facility and validate that [it] meets the standards,” Cahill says. Tenants usually hire a biotech expert to design and build these facilities so the space's design meets the standards.

Biotech utility needs differ from traditional office utilities, which is another important factor that property owners and landlords must consider, Cahill says. Most users need to have clean and reliable power because electricity spikes could harm research equipment. Labs also need backup generators in case of power outages during experiments. Proper climate control is essential because humidity levels also can affect research outcomes. Some companies even require purified water to avoid any sort of contamination that may ruin their work. As for general tenant improvements, Cahill says that landlords sometimes will pay a portion of the costs, but the tenants usually fund a majority of the TIs for lab buildouts.

Industry Trends

Because of high start-up costs, many states offer incentives that attract biotech companies. Some states have targeted the life sciences industry specifically, and as a result, build generic speculative lab space that reduces start-up companies' costs, Cahill says. Other incentives include incubators, modular clean rooms, and quality lab space for young companies.

Overall, commercial property owners and landlords can find many new opportunities in the biotech market, particularly if they are located near a biotech cluster. Understanding these companies' unique space needs in the first step toward breaking into this growing niche.

 

Nanotechnology: A Small Science With Big Promise

by Sara Drummond

The science of small -- working with matter on a molecular scale –- is the next big high-tech field, experts say. That assumption is based on the amount funding pouring into nanotechnology: Last year more than $8.6 billion was spent on research and development, according to Lux Research. State funding for research, facilities, and business incubator programs topped $400 million, and the federal government kicked in another $1 billion, making nanotech the most prominent publicly funded science initiative since the space race.

Compared with biotechnology, nanotech has a better shot at commercialization because it can be applied to all manufactured goods. Current innovations using the science include NanoDynamics' self-correcting golf ball, EnviroSystems' EcoTru burn wound dressing, and Nanofilm's Clarity Defender windshield protector, which repels bugs and precipitation.

Several states, including Washington , Pennsylvania , and Minnesota , are ramping up nanotech initiatives, challenging the field's existing leaders -- California , Massachusetts , and Texas .

 

Top 10 State Nanotechnology Clusters, 2004

State Number of Companies
California
89
Massachusetts 35
Texas 20
New York 19
Colorado 13
New Jersey 10
Illinois 9
Washington 9
Arizona 8
Ohio 8
Virginia 8

Source: Plant Sites & Parks

 

Nanotechnology Sales Increases

Year

Sales
(in billions)

2004 $12.9
2005 $30.7*
2006 $51.6*
2007 $88.4*
2008 $150.1*
2009 $291.6*
2010 $507.7*

*Projected

Source: Lux Research

 

Biopharm Is on the Rise

The biopharmaceutical industry is expected to grow significantly in the next decade, creating new employment opportunities in several states.

Biopharmaceutical Employment Growth, 2004-2014

States with current industry Projected growth
Massachusetts 64.3%
Maryland 62.4%
Utah 50.5%
Connecticut 45.4%
California 39.8%
Washington 36.3%
Pennsylvania 34.4%
States without current industry Projected growth
Nevada 239.7%
Vermont 223.9%
Rhode Island 208.7%
Alabama 144.1%
New Hampshire 101.4%
U.S. total 29.6%

Source: Milken Institute

 

5 Tips for Building on Regional Technology Activity

by Sara Drummond

Commercial real estate professionals who want to cash in on local tech trends should pay attention to a new set of market indicators. Follow these few tips to help develop the “tech sense.”

  1. Understand key trends. Commercial real estate professionals need to understand how technology innovation affects work flow. For example, today's new office space is being built in edge cities because of lower land costs and companies' abilities to connect electronically with clients, vendors, and subsidiaries. A physical connection --such as close proximity in a central business district -- is no longer necessary. Instead, today's CBDs attract small service firms such as design companies and legal professionals who like the nontraditional office space and live/work opportunities of rehabbed historic buildings.
  2. Find out about local technology initiatives. To attract new tech companies to your market, find out what technology initiatives local governments and universities support. For example, Atlanta has built contacts and networks between regional information technology companies, logistics companies, and other key clusters. Cleveland promotes the use of technology innovation in manufacturing. Minneapolis supports an incubator for biomedical companies. In addition, many of these regional programs focus on clustering similar companies in specific business corridors.
  3. Sell the urban quality of life. Tech workers like the diversity and culture of big-city amenities without the traffic hassles. Re-emerging downtown business districts with loft apartments and rehabbed condos and the bustle of restaurants, retail entertainment, and a burgeoning night life often appeal to young, highly educated technology workers.
  4. Encourage investment in IT infrastructure. Small and mid-size cities with wireless capabilities, broadband, and a strong high-tech infrastructure have a distinct advantage over offshore locations companies might consider for back-office operations. Find out what infrastructure amenities your market offers and how companies can tap into them.
  5. Focus on education. Tech companies place a high priority on education. Universities and related research institutions are often incubators for start-up tech companies. While the amount of space they need in the beginning might not be great, many of these companies grow quickly once a product is commercialized.

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