The coronavirus pandemic, which has paid more attention to health care and sparked a heated race for a Covid-19 vaccine, has also sparked interest in life science real estate in New York.
The city had already tried to keep up with other life science powerhouses like Boston, San Diego, and San Francisco. Real estate companies, with government support, had built commercial laboratories for medical researchers, incubator rooms for biotech start-ups, and offices for pharmaceutical companies ready to bring new drugs to market.
Funds from investors are now pouring into such projects at a time when the city's office market is plagued by lockdowns and work from home orders. Office availability in Manhattan increased from 11.8 percent in the same period last year to 14.1 percent in the third quarter, while the average rent fell about 1 percent, according to Newmark, a commercial real estate consultancy.
Developers jump on the life science train, which has turned out to be a ray of hope in an uncertain picture for commercial real estate. According to a report from CBRE, a real estate services company, the average rent for laboratories in Manhattan is around $ 105 per square foot.
Experts warn it may be too early to celebrate a turnaround, but developers are storming forward.
The latest move comes from Taconic Investment Partners, which just announced plans to convert a former car dealership on the West Side of Manhattan into a life science center. The building was constructed for Chrysler in 1929, but ABC has lived in it for decades. When the Walt Disney Company, which owns the television network, heads downtown in January, Taconic will begin an overhaul of the building in partnership with Nuveen Real Estate, said Matthew Weir, senior vice president at Taconic.
"We think this is a game changer in New York," he added.
The city has long had essential ingredients for life sciences to thrive. It has leading universities and academic medical centers – the places where scientific breakthroughs and life science companies are often born. And it's teeming with chemists, biomedical engineers, and other life science professionals.
Funding for research facilities in the city from the National Institutes of Health, the federal government's biomedical research agency, has increased every year since 2016, totaling $ 2.2 billion last year, second only to the Boston area.
However, New York lacked laboratories and other areas where entrepreneurs would have to set up their businesses and use drugs for clinical trials and eventually commercial production.
As a result, young biotech companies tended to go elsewhere. For example, Regeneron Pharmaceuticals, which emerged from research by Columbia University, moved 30 miles north to Tarrytown, NY. The company, which had sales of more than $ 7.8 billion in 2019, is recently conducting trials for a Covid-19 antibody treatment given by President Trump.
Things began to change in 2010 when Alexandria, a California-based life science complex developer, opened a gleaming tower known as the Alexandria Center for Life Sciences in New York City on the East Side of Manhattan on the hospital corridor known as Bedpan Alley. The location reflects the belief that developments in the life sciences must be close to research facilities in order to form “clusters”. In 2014, Alexandria completed the second of three planned towers on its campus.
Government initiatives have been launched to encourage such efforts that promise high-paying jobs and tax revenues. In 2016, New York launched a $ 500 million life science initiative led by the city's Economic Development Corporation. In 2017, New York State unveiled its own $ 620 million plan.
Deerfield Management Company, a healthcare investment firm, is a beneficiary of the city program. It will receive nearly $ 100 million in tax credits for converting a 12-story building in the Flatiron neighborhood into a vertical campus with lab space, lecture halls, and offices for nonprofit groups and academic institutions.
Retrofitting a building for life sciences can be a huge undertaking. According to some estimates, while the cost is cheaper and faster than building from scratch, it can be four times the cost of converting a building for office use.
Not every building is suitable for conversion, said Peter Schubert, partner at Ennead Architects who has worked on life science projects. The best candidates have large floor slabs, are structurally tough to avoid vibration that can be catastrophic in laboratory work, and have high ceilings that can accommodate the extensive plumbing required for improved ventilation. Electrical systems have to meet an increased demand for electricity. For example, loading docks may need to separate the safe arrival of tissue samples and the removal of chemical waste. Although earlier production facilities often fit into the bill, "it really builds from building to building," said Schubert.
The challenges haven't discouraged developers.
Taconic's upcoming project will be part of an emerging life science cluster on the West Side of Manhattan. The developer, who works with Silverstein Properties, has already renamed a nearby former film production studio the Hudson Research Center and leased rental space to tenants such as the New York Stem Cell Foundation.
The plans for the new project were drawn up by Perkins & Will, an architecture firm, and call for the brick and concrete facade to be replaced with glass and shiny aluminum. A helical car ramp, a holdover from the days of the building's showroom, becomes the focal point of the reborn interior. The renovation is expected to be completed in early 2023, Weir said.
Other projects are ongoing in a growing life science cluster in West Harlem near Columbia University, where Janus Property Company is retrofitting old brick factory buildings for tenants, including Harlem Biospace, an incubator that provides collaborative laboratory space. Janus is also building the 350,000 square meter Taystee Lab Building on the site of a former bread bakery.
A flood of private venture capital for the companies that would avail such projects has only piqued interest.
"Every week a developer buys a building to convert to life sciences," said Joshua King, executive managing director of Cushman & Wakefield, a commercial real estate company. He said he and his colleagues were constantly taking calls from landlords to consider moving from office to lab.
But the life science boom is a boomlet at best.
Of the nearly 500 million square feet of office space in New York, less than two million square feet are being redeveloped for laboratories or marketed solely for the life sciences, with more in the pipeline. (For comparison, Boston is roughly 30 million square feet.)
Life Science "is by no means going to be an office saver in New York," said William Hartman, executive managing director at Cushman & Wakefield. "It won't solve the problem of large office space."
"We may experience a premature exuberance," he added.
The availability for buildings marketed for laboratories is 30.5 percent according to the CBRE report, although the availability for prefabricated space is only 2.3 percent.
"The reality is that demand is limited," said John H. Cunningham, executive vice president, Alexandria. "There are a handful of companies in the market that are kicking tires."
However, Lindsay Greene, chief strategy officer at Economic Development Corporation, predicted that demand would catch up with supply as companies at the seed stage secure funding and move from incubators to their own premises. "There is a catch-up effect," she said. "We have to allow time for it to play out."
Some existing life science rooms have served pandemic-related endeavors. The city has set up its Pandemic Response Lab at the Alexandria Center to run coronavirus testing.
Still, the future of the sector will depend on tenants who will survive the pandemic. It takes about 25 years for a life science sector to mature.
"Our goal is not to overtake another city," said Ms. Greene, "but to be in a peer group with them."