Echoing a common theme heard throughout sessions during NAIOP’s Officecast virtual series, closing session speaker Robert Griffin, U.S. Head, Capital Markets, Newmark, reiterated that commercial real estate is in an unprecedented time. Griffin walked attendees through opportunities for bioscience development, particularly in his hometown of Boston – one of the nation’s hottest markets for life sciences.
With an expected V-shape economic recovery in mind, where product is selling better than at pre-COVID pricing, Griffin identified the top five hottest asset types across the country:
- Industrial, in even higher demand since the pandemic began.
- Life sciences, seeing more investment than ever before.
- Suburban residential, particularly in red states.
- Medical office, in synergy with life sciences.
- Single tenant tech, particularly in the West.
Life science buildings have common characteristics that are driving demand today, said Griffin, led by strong tenant demand and big rent growth. There’s enhanced value in key clusters, like Boston and San Francisco. These facilities are often open 24/7, 365 – tenants with lab facilities obviously can’t work from home, so most aim for three 8-hour shifts that keep the buildings active around the clock.
“There’s not enough supply, and we’re seeing a conversion mania” said Griffin. Traditional office spaces are being converted to lab science properties across the country, and increasing in value up to three times of what they were as office properties. More than 17 million square feet of lab space is in the development pipeline throughout greater Boston and will deliver by 2024. In the interim, said Griffin, he’s seen conversions of everything from former shopping malls to standalone 7-11 convenience stores.
Adjacency matters, noted Griffin, talking about Kendall Square and Mid-Cambridge, two of the biggest markets in Boston with high rents and low vacancy. Ancillary markets that are close by like Alewife, Watertown and Lexington, are seeing significant interest simply because of their proximity to those key developments.
Griffin recommends monitoring clusters where the National Institute of Health (NIH) is deploying the highest amounts of funding. Griffin said in 2019 there was $23.8 billion of funding available for research. Boston received the second-highest amount of NIH funding at $6.72 billion and had transactions of $2.4 billion. By contrast, the greater San Francisco Bay Area market received $7.1 billion from NIH. Other well-funded markets include New York ($4.1 billion), San Diego ($2.4 billion), Seattle ($1.7 billion) and Raleigh ($1.9 billion).
Venture capital (VC) plays a role too. Year-to-date VC funding reached $6 billion last year – 22% of overall VC funding for all industries.
Griffin noted that for tenants, owning their own biomanufacturing space is important because they are highly focused on quality control.
What should a developer or owner know when considering a life sciences tenant? “Because of such tight supply and demand, it’s the CEOs of these companies themselves who are looking for the right spaces,” said Griffin. “The number one question CEOs have about landlords is whether the landlords know anything about life science. They are looking for experience. Second, they want to know if [the developer] can deliver on time. Do they have a reputation of delivering? And third, they want to know if they have the capital to get the job completed.”
This post is brought to you by Marcus & Millichap, sponsor of NAIOP’s Officecast 2020. Learn more about Marcus & Millichap at www.marcusmillichap.com.
Kathryn Hamilton, CAE, is Vice President for Marketing and Communications at NAIOP Corporate.