‘A wild 15 months’: Pandemic spurs conversion of places of work to labs

Written by Debra Kamin
The pandemic dealt a intestine punch to landlords of workplace buildings. Aware that work can go on with staff logging in from dwelling, companies throughout the nation shrank their areas or eradicated them fully, making a cascade of decreased building and plummeting workplace rents.
The collateral injury of this distant work revolution has been tens of millions of sq. ft of vacant workplace area. The emptiness fee for downtown workplace buildings throughout the nation has risen to 16.4% over the previous 12 months, in keeping with Cushman & Wakefield.
But there may be hope for anxious landlords: The life sciences business, flush with money from a report $70 billion of personal and public capital investments in North America final 12 months, is swooping in to assert that vacant area.
Across the six largest US life sciences markets, greater than 20% of the laboratory areas being constructed are conversions from places of work. In San Francisco, Chicago, Boston and Raleigh, North Carolina, asking rents for lab area have elevated greater than 60% for the reason that starting of 2016, whereas workplace rents have crept up solely 15 to 30%.
One of the labs that Affinia Therapeutics lately transformed from an workplace constructing in Waltham, Massachusetts, on July 23, 2021. (David Degner/The New York Times)
As it has throughout various industries, the pandemic accelerated a pattern that was already in movement.
“It’s been a wild 15 months,” mentioned Austin Barrett, head of the life sciences division for the advisory agency Savills. “The office market and the lab market are a tale of two cities right now.”
The numbers mirror a basic case of provide versus demand: Fueled by record-breaking funding and a pandemic-driven deal with biotechnology, life sciences hit a report excessive of greater than 1.9 million staff in April, in keeping with CBRE, a industrial actual property providers agency. And in contrast to most workplace staff, laboratory scientists can not full their duties by way of Zoom.
Across all main markets, the business’s breakneck development is creating a necessity for 34% extra laboratory area than a 12 months in the past, in keeping with a report from Newmark, a industrial actual property advisory agency.
“The pandemic shone a brighter light upon the industry, and the global community is now looking at life sciences and health care in a different way,” mentioned Liz Berthelette, Newmark’s director of analysis and a co-author of the report.
But changing an workplace constructing isn’t essentially less expensive than constructing lab area from the bottom up. Life sciences tenants usually require extra electrical energy and water, the next floor-to-floor berth, particular delivery and loading zones, and even enhanced structural capability for gear masses.
Developers should contemplate quite a few potential complications, together with altering or upgrading constructing codes; putting in devoted service elevators; upgrading methods for energy, exhaust and fireplace safety; and overhauling electrical methods — which might require the cooperation of native energy grids and utility providers. They additionally should contemplate putting in specialised air flow, significantly in biology and chemistry labs that require all air to be exhausted quite than recirculated.
Still, when calculating building prices, builders should contemplate different elements, mentioned Berthelette. Time is cash, too.
“Ground-up development, particularly in markets like Boston and the Bay Area, can take a lot longer,” she mentioned. “They might take a couple of years, whereas a conversion project can take only 18 months.”
Many life sciences corporations are turning to industrial actual property advisers to assist them navigate the scrum.
Barrett has labored with corporations together with Outset Medical, Senti Bio and Affinia Therapeutics. In the frenzy to capitalize on inflated rents for the life sciences, he mentioned, many landlords are shopping for workplace buildings for conversion with out contemplating the extremely specialised wants of their potential tenants.
Affinia, which closed a $110 million Series B funding spherical in May, lately transformed a constructing in Waltham, Massachusetts, that when belonged to protection contractor Raytheon. Barrett helped the house owners decipher the development nitty-gritty, corresponding to Affinia’s heating, ventilating and air con necessities.
“There is a battle for space, and the landlords are taking advantage of it,” Barrett mentioned. “None of these buildings are created equal. You’ve got a lot of brokers creating hype, but an office building may not be suitable for a gene therapy or a cell therapy company.”
Specialized wants have pressured 10x Genomics, a biotechnology firm in Pleasanton, California, with 1,000 staff — 45% of them employed throughout the pandemic — to renovate one workplace constructing whereas constructing one other campus from the bottom up.
The firm introduced an enlargement to the 2 new properties in March. The workplace constructing is in the identical advanced as its headquarters. Previously utilized by Workday, the cloud software program firm, the positioning will now be a website for 10x Genomics’ analysis and improvement staff. At the identical time, the corporate is constructing a customized website for its manufacturing staff on the positioning of a former retail advanced.
“As a company like 10x grows, very quickly, and the complexities of their labs change, you start to need something more,” mentioned Michele Hodge, 10x Genomics’ senior director of actual property and amenities. “And not every building can work.”
For its analysis and improvement website, a conversion made monetary sense. But for manufacturing, executives couldn’t discover a property with the correct parameters, together with enough area on the roof for electrical gear, excessive sufficient ceilings and piping that may deal with processed gases.
“A lot of analysis has to go into it, and a lot of due diligence, because there are things you need when you’re doing labs that office buildings don’t always provide,” Hodge mentioned.

Boston, San Francisco and San Diego, three biotechnology hubs for a number of years, are main the pack in office-to-lab conversions, however Seattle, Philadelphia, New York and Chicago are additionally seeing a flurry of tasks. Thirty % of the lab stock in Boston — equal to 7.8 million sq. ft — is present or deliberate workplace conversions, whereas New York, which has seen a major soar in life science actual property for the reason that pandemic, has about 2 million sq. ft of conversion tasks, in keeping with Newmark.

And in San Diego, dwelling to about 16% of California’s biotech corporations, lab area is now priced on common at $44 to $58 per sq. foot. Office area, alternatively, goes for a median of $36.36 per sq. foot.
One of the important thing elements driving up these prices is the oldest actual property adage within the e book: Location, location, location.
“This is one area that really grows in clusters, not just in specific cities but also specific locations within cities,” mentioned Tara Mulrooney, a accomplice on the regulation agency Zetlin & De Chiara, which focuses on building regulation. “Proximity to talent is vital.”