Life Sciences Space Continues To Be In High Demand, With Low Vacancies And Rising Rents

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Expansion in medical research around DNA is driving growth in the biotech sector and boosting demand for life science space.

Advances in technology over the last decade changed the way medical scientists work, first modeling their theories or ideas on computers before taking them to the bench, according to Steve Purpura, vice chairman of the Boston consulting practice and lead/director of the life sciences practice group with real estate services firm CBRE. As a result, the allocation of lab space in research facilities decreased from a 50:50 office to lab ratio a few years ago to 60:40 today, he notes.

This trend is likely to continue, according to Roger Humphrey, executive managing director and leader of the life sciences group with real estate services firm JLL. Commenting on JLL’s “Journey to the Next Gen Lab,” a report citing a trend toward greater agility in research space design, he noted that wet lab space in research facilities is shrinking, while flex and office space for computational science is growing as scientists spend more time analyzing data. The report shows that flexibility in lab space design and location is required to allow sudden shifts in research priorities and access to talent.

But aggregated demand for highly sophisticated lab space and cutting-edge pharmaceutical production facilities has exploded with expansion of the industry into personalized medicine and increased capital flowing to life science research and development. According to the most recent CBRE life science report, venture capital investments in life science are up 53 percent compared to 10 years ago.

The advent of personalized medicine has spawned a subset of life science industry incubators and early-stage companies focused on developing and manufacturing “small batch” pharmaceuticals, adding pressure to the demand for lab space within or nearby life science clusters, according to Frank Petz, managing director of JLL’s Boston-based capital markets group.

As a result, core life science markets—Boston-Cambridge, San Francisco, San Diego, the Raleigh-Durham Research Triangle and Seattle—are enjoying construction booms and growth in rents, which have escalated more than 50 percent over the last three years, according to the CBRE report.

The boom in funding has also increased competition and furthered the talent war between life science companies.

“The cost of rent is low on the list of their concerns,” says Petz. “It’s all about talent.”

Therefore, locations with premiere research universities and teaching hospitals outside core life science markets are also seeing construction of new research facilities, as life science firms seek STEM talent to fill the growing number of job vacancies.

According to the CBRE report, life science employment soared 23.5 percent to nearly 1.7 million workers between 2001 and 2016, compared to 10.2 percent for overall U.S. employment. Additionally, the rapid pace of technological advancement in the life science sector generated a 26 percent surge in biotech jobs between 2013 and 2016.

Urban markets with premiere universities and teaching hospitals, such as Philadelphia and New York City, have growing life science clusters because they offer the largest STEM talent pools, according to Purpura. While developers are replacing obsolete buildings in these markets with 10-story research facilities, office and industrial buildings in suburban markets, specifically San Diego and Raleigh-Durham, are being converted to lab space.

Humphrey also stresses the need to build flexibility into research space, so scientists can easily reconfigure workspaces to accommodate different types of research and facilitate collaboration with colleagues.

Mobile benches and unassigned workspaces, for example, allow for fast changes in personnel and type of work performed, he notes. In addition, hanging retractable electrical cords from the ceiling, so users aren’t limited to placing equipment against walls, and hiding technical infrastructure behind facades can allow easy movement of people and equipment.

 

Source: NREI

Why Medical Office Could Be The Safest Asset Class During A Recession

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The potential of a looming economic downturn has investors looking for safe places to put their money, and one top investment manager says medical office could be the best bet.

LaSalle Investment Management Head of U.S. Healthcare Real Estate Steve Bolen, speaking at Bisnow’s National Healthcare Mid-Atlantic event last week at the Washington Marriott Georgetown, said the two safest asset classes in commercial real estate are multifamily and medical office.

“Apartment owners are able to maintain occupancy during a downturn by lowering rents, and they have the flexibility to bring them back up with the economy improves,” Bolen said.

Medical office space has the benefit of being occupied by an industry, healthcare, that typically does not suffer the same job loss as other sectors during a downturn. During the Great Recession, Bolen said the overall U.S. employment base was shrinking by more than 6%, but the healthcare employment base was still able to grow by more than 2%.

“There is no better sector of our U.S. economy in terms of job growth during downturns in the economy than healthcare,” Bolen said. “Astute institutional investors have come over to medical office and view medical office as a key component of a well-diversified commercial real estate portfolio.”

Another benefit of medical office, Bolen said, is tenant retention. LaSalle has made about $2.5B of medical office investments, he said, and the overall retention rate for its medical office tenants is in the mid-80% range. In standard commercial office space, he said, retention is in the 60% to 70% range.

“So you’ve got excellent employment growth during downturns in the economy and very sticky tenants,” Bolen said. “Medical office has a lot of attributes investors view very favorably when investing for defense.”

The main challenge in investing in medical office today, Bolen said, is that so many investors are looking to put money into the asset class that there is not enough supply to satisfy the demand. The solution for this, he said, is to look in secondary and tertiary markets that investors might overlook. Medical office investors do not need to stick to the top 25 largest metropolitan areas as investors of commercial office do, he said, and they can instead find quality hospitals that create demand for medical office space in smaller markets.

“There’s just not enough to buy that’s good quality for the amount of capital that is seeking a home in this space,” Bolen said. “So you have to go where the deals are. You have to align yourselves with hospital systems in secondary and tertiary markets.”

Demand for medical office space is booming in part because health systems are moving many services away from traditional hospital campuses and into outpatient facilities. Over the last two years, the revenues that leading hospital systems make outside of the hospital have begun to equal the money they’re making inside the hospital, said Dr. Sunil Budhrani, CEO of Innovation Health, a partnership between Inova and Aetna.

“The world outside the walls of the hospital has become very important to us,” Budhrani said. “In some markets, you’ll see a reshaping toward ambulatory, outpatient [facilities] … We’re going to reshape how we’re delivering healthcare and how the hospital plays into that space.”

 

Source: Bisnow

CBRE Completes Sale Of A 23-Medical Building Portfolio Totaling $90M Across Four States

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CBRE just announced  the closing of 23 medical buildings through three separate transactions totaling approximately $90 million.

The deals, sold to separate buyers over the last week, totaled over 300,000 square feet across four states. Properties include the Greenleaf Center Medical Portfolio in the Chicago Metropolitan Area, the Dermatology Solutions Group Portfolio in multiple markets in Florida and Alabama, and 2061 Peachtree located in Atlanta, Georgia. The seller’s exclusive advisors for these deals were Lee Asher, Chris Bodnar, Sabrina Solomiany, Shane Seitz, and Ryan Lindsley of CBRE U.S. Healthcare Capital Markets.

The Greenleaf Center Portfolio consists of 13 medical office buildings clustered around a high traffic intersection within the Chicago Metropolitan area. The buildings total 197,385 rentable square feet and were 93% leased at the time of sale, with 44% of the rentable space leased to investment grade-credit and health system tenants.

The Dermatology Solutions Group Portfolio consists of eight dermatology facilities totaling 51,505 rentable square feet located in Florida and Alabama. The properties were 100% leased to Dermatology Solutions Group with a new 10-year lease which was signed by the physician practice at closing.

2061 Peachtree is a five-story class A medical office building located in the highly affluent South Buckhead area of Atlanta, Georgia. The 47,936 rentable square foot building was built in 2013 and is adjacent to Piedmont Atlanta Hospital. At the time of sale, the property was 100% leased to a diverse set of tenants, including Georgia Hand, Shoulder & Elbow (GHSE), the largest hand and upper extremity practice in Georgia.

“We continue to see very strong interest in the market for healthcare real estate assets, and investors have allocated a substantial amount of capital to the sector this year. Consistent with previous years, pricing and demand for healthcare investment properties continues to be strong with steady cap rates year-over-year,” said Lee Asher, Vice Chairman at CBRE.

CBRE Healthcare Capital Markets (HCM) is a national practice of seasoned professionals dispersed throughout the United States with access to the deepest sources of capital dedicated to healthcare investments. The group specializes in providing healthcare real estate investors with acquisition, disposition and debt & equity recapitalization strategies across the continuum of care, including medical office buildings, skilled nursing facilities, long-term care facilities, and other post-acute care operations.

 

Source: HREI