By Alan Harmon, associate director, Linesight
Special to New York Construction Report
With access to renowned universities and academic medical centers, New York City has become a global epicenter for the life sciences sector. Over the past year, NYC-based companies have created millions of units of life-saving personal protective equipment and provided valuable relief to frontline healthcare workers, both in the city and the nation at large. As attention shifts towards helping the city’s economy recover post-COVID, it turns out that the New York life sciences community may play an important role as well — especially for real estate developers and commercial building owners.
Cities were hit particularly hard by social distancing and the new, touchless economy. Shops and restaurants closed, offices went dark, and hotels were left empty. These were temporary hardships for some, but many of these businesses won’t be returning to their previous locations. Those that do may not need all of the space that they used to occupy. After conducting a year-long experiment in remote working, for example, many companies are introducing permanent telecommuting options and some are doing away with their commercial headquarters entirely. The availability of commercial office space in Manhattan has reached a high not seen since 2003.
Life sciences: a thriving sector
For commercial building owners, this means a massive drop in occupancy. This is where the life sciences sector becomes a beacon of hope for New York City’s real estate managers. The city is already home to a thriving community of experts in the field, and the continued importance of life sciences makes it one of the few industries that have not only survived the pandemic, but one that has actually grown.
According to an October 2020 report, total commercial laboratory space reached 95-million sq. ft. in 2020, with another 11-million sq. ft. under construction at the time of the report’s publication. This is an increase of 12 percent over the previous year. Venture capital funding also hit a record high in Q2 of 2020 at $17.8 billion. Much of this funding is being used to convert existing office space into life science facilities. For example, investment firm Deerfield Management is opening a life sciences campus in Manhattan’s Flatiron District. Named ’CURE’, this facility is part of an initiative called LifeSci NYC and is a $500-million investment by the New York City Economic Development Corporation (NYCEDC).
Proximity to well-funded and highly-regarded scientific research centers makes the city a hotbed for emerging biotech companies. Earlier this year, Mayor Bill de Blasio announced the distribution of grants totaling $38 million to Columbia University, Montefiore-Einstein, the New York Stem Cell Foundation, and Rockefeller University. In his statement, the mayor noted that “a crucial part of what we create in the city is the area of life sciences.” Reviewing and ensuring that any projects remain close to the leading scientific research institutions in this region would be a smart choice.
With the amount of private and public funds available for such undertakings, commercial property owners should see the potential for repurposing buildings that have become underutilized or fallen vacant during the pandemic. It’s not just these grants that make life sciences an attractive option though. The going rate for lab space in Manhattan is around $105 per sq. ft. — significantly higher than the $84/sq. ft. average for Class A commercial real estate on the island.
The life sciences sector has unique considerations for its spaces, including requirements around ceiling heights to account for the amount of ductwork needed for proper ventilation, systems to bear the need for more electricity to run equipment, and other details that make it difficult, if not impossible, to convert certain spaces into scientific use. Further regulations apply to dedicated lab spaces (as opposed to office spaces) and loading docks that can ensure both the safe delivery of sensitive tissues samples and the careful removal of potentially harmful chemical waste. Such requirements complicate matters even more, especially in urban areas where there is often no practical way of adding the necessary external components to a lab space.
Like any industry, the life sciences sector is made up of a mixture of small, medium and large enterprises that require office and lab facilities of all sizes. There are also startup companies, for whom some real estate developers have already capitalized on the opportunity to create incubators. And, like most businesses in the age of COVID, many life sciences organizations are encouraging employees to work from home at least a portion of the time. This underscores the importance of providing flexibility and modularization in office layouts. Can cafeteria space be repurposed for future lab space if in-office attendance trends downwards? Is there a way to replace meeting rooms easily with more cubicles should the opposite prove true?
Looking ahead with optimism
While a developer may be tempted to look at life sciences conversions as a way to recoup profit from conventional commercial space that has fallen into disuse during the pandemic, it is vital to understand the complexities behind the process. Life sciences companies aren’t just looking for a space — they’re looking for the right space that meets the specific requirements and regulations for scientific research and development.
The future is never certain, especially in these unusual times, but there is reason to be cautiously optimistic about the promise life sciences holds in lifting the commercial sector. It’s true that less than two million of the 500 million sq. ft. of office space in New York has been repurposed for lab spaces or marketed directly to the life sciences sector. However, innovation and reliance on new solutions from healthcare and pharmaceutical companies indicate that this is an industry well on the rise. It’s said that it will take the life sciences sector 25 years to mature, so if the seeds for growth can be nurtured now, there is every reason to hope that this industry will continue to flourish in New York beyond the impacts of the pandemic.
Alan Harmon is an associate director at Linesight, having joined the organization over ten years ago. He has worked across the U.S, Ireland and the UK, and has extensive experience in delivering diverse and complex large-scale projects across a broad spectrum of sectors, with a particular focus on the life sciences, commercial, mission critical data center and retail sectors over the last few years. Alan has specific expertise in the areas of due diligence, site selection, detailed estimating and benchmarking, and the implementation of innovations with regards to improved efficiency and sustainability. Based on the East Coast of the U.S., he has a keen interest in the reshaping and reimagination of real estate post-COVID.