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NJ can regain leadership in pharma by offering modern lab spaces for biotech and other lab-based growth companies.
The pharmaceutical industry has been a pillar of the New Jersey economy for many decades, and remains so today despite a variety of changes and challenges. Mergers and acquisitions, as well as relocations, have left massive campuses empty, which can be both a challenge and an opportunity for property investors. At the same time, the consolidation trend has contributed to a wave of new demand for space from spinoffs and startups, and corporate pharma giants continue to tweak and modernize their campuses to accommodate employee needs, update operations, and incorporate new technology. In addition, New Jersey has the opportunity to regain leadership in offering modern lab spaces for biotech and other lab-based growth companies. In this article we offer a modified template for meeting that challenge.
Through our recent experience working on over 400,000 square feet of pharma buildouts and refits of all sizes for companies ranging from startups to the largest public companies, plus large campus redevelopment assignments through our Development Advisory practice, a few common themes have emerged.
The pharmaceutical industry goes through cycles in New Jersey. Today’s demand for our work reflects the industry’s changing needs. We see venture-backed growth companies moving at high speed to get up and running, existing pharma firms establishing new specialty spaces to update their locations, and developers acquiring and repositioning excess pharma corporate real estate.
New Jersey remains a leader in broader pharmaceutical industry, but some of our edge within the life science sector has been taken away by the concerted efforts of other states, like Massachusetts, to capture biotech growth companies through incentives and other special programs. Cambridge in particular has become a magnet for R&D, due in part to the intelligently designed support for both biotech investors and biotech firms. Boston-Cambridge, San Francisco’s Bay Area, and San Diego are currently recognized as the top 3 areas for life science clusters, while New Jersey is ranked as the 10th best life science market and Pittsburgh, Houston, and Austin are competing as strong emerging markets. At the same time, New York City is seeing considerable speculative development aimed at bio-pharma firms in need of lab space as builders try to take advantage of New York's density and educated workforce.
For New Jersey to reclaim the crown as the undisputed leader in both pharma and biotech, we believe that several pieces must come together: workforce, incentives, and office spaces with a significant modern lab component. The good news is that we still have a massive workforce of employees experienced in the sciences. New Jersey has always been able to provide the industry with top talent for recruitment and retainment. That is an excellent starting point and we have to preserve and grow it. But we'll need a new set of incentives that are effective at attracting companies while being efficient with taxpayer money. And we'll need to rethink how and what we build to accommodate a new generation of lab-based businesses.
That last piece is where our real estate and architecture industries must do their parts and rise to this challenge. The race to develop COVID-19 tests, therapeutics, and vaccines–and other non-emergency innovations–forces rapid adaptations in both activity and working environments. Productivity will be tied to companies’ ability to create next-generation spaces with their partners in real estate, planning, design, and engineering. Studies have shown that life science businesses will increase productivity through their real estate with bifurcated locations or remote work for administrative purposes, improved technology and computational labs, and reshoring their supply chains for faster profitability. All of these improvements and adaptations will require companies to institute ongoing, consistent capital improvement programs as it applies to their real estate.
In our experience, creating spaces for growing biotech businesses need not be an enormously heavy lift. Most growth firms in biotech fit out their spaces as 10%-15% lab space, with the remainder as office or other uses. We believe that New Jersey can become a leader in biotech by developing pre-built spaces–but not necessarily the pre-built spaces that the real estate industry has delivered so far in trying to cater to biotech.
The positive trend is that as we have seen in New York City, we see some percentage of purpose-built biotech lab facilities for prospective tenants being considered in Hudson and Somerset Counties. These purpose-built spaces can serve firms who will be venture-capital funded, and who will require occupancy immediately after their funding is established.
However, while the concept of pre-builts for biotech is good, the market’s current understanding of lab and biotech requirements are relatively out-of-sync with reality. Here is an example of a simple miscue: the community of firms marketing spaces to biotech users anticipates that for peak marketability, a space must be able to support live loads at or in excess of 100 pounds per foot. The notion that a building must offer 100 pounds per foot live-load across full floor plates represents a significant burden and high cost of entry into this market for landlords.
In reality, based on our experience, that heavy structure requirement relates only to a small to moderate portion of fit outs for biotech firms, and can generally be address by siting lab and heavy equipment loads at the ground floor or with selective supplemental steel, just as medical users have traditionally sited imaging suites and other heavy floor uses at the lower levels of a building.
Moreover, users often assume that high-live load designs implicitly solve for vibrations in laboratories–but increased live loads do not automatically provide for a space that can support instruments like high-magnification optical microscopes. Our team employs specialized vibration analysis tools to compute the right solution in new and existing structures, rather than relying on the false assurance that heavier loading will solve for all lab requirements. Other issues include ventilation, clean room requirements and acid resistant plumbing lines–all of which can be addressed on a case by case basis.
The net result of this revised determination is that more landlords have the potential to market to these firms than the industry appears to presently appreciate. This development paradigm–investing significant capital in building infrastructure (heavy load bearing structure, exhaust systems, generators, piping, etc.)–is well-intentioned but may be more expensive than required to capture the biotech real estate market.
As New Jersey developers increasingly focus on the biotech market, we encourage a more realistic set of assumptions regarding biotech users, which we believe will be considerably more cost-efficient in meeting the market demand. This applies regardless of whether the building is newly constructed or part of repositioning older lab space in one of New Jersey’s many “Big Pharma” campuses.
Paul Newman, Vice President & Partner, Kimmerle Newman Architects, and William Kimmerle, Principal, Kimmerle Group