WILMINGTON — In the fiercely competitive biotechnology sector, nationally renowned developers and data experts are pushing Delaware leaders to think ahead to corner the market for lab space. Thor Equities Senior Vice President Bill Hunter ...
WILMINGTON — In the fiercely competitive biotechnology sector, nationally renowned developers and data experts are pushing Delaware leaders to think ahead to corner the market for lab space.
Thor Equities Senior Vice President Bill Hunter and PROTECS President Chris DiPaolo stressed that for rising biotech companies the biggest and most immediate need is room to grow their lab space. The problem is lack of inventory in the broader Philadelphia metropolitan market, real estate strategist Lauren Gilchrist added.
But Delaware brokers could break that cycle with existing empty shell buildings with the right infrastructure in place for the right company.
“It’s almost like a retail space, when you start with a warm vanilla shell and you fit that space out,” Hunter said during the Delaware BioScience Association lab roundtable held Tuesday. “It’s the evolution of the space where you can design it from a lab-ready perspective.”
The biotech industry is thriving, with the more than 200 companies on the Nasdaq Biotechnology Index up over 7% in value year to date. Pharmaceutical sales are predicted to reach $1.18 billion by 2024 and a record-setting number of novel drugs were approved by the Federal Drug Administration in 2018.
When it comes to available space for that burgeoning market in the greater Philadelphia region, there’s little room, according to Gilchrist, senior vice president and senior research director of the Philadelphia office of Jones Lang LaSalle.
The Philadelphia region falls high in terms of talent, with 5,645 life sciences graduates within a 60-mile radius. It also falls in the middle of the pack in costs. While the Philadelphia region falls at $28 per square foot in lab space, prime competitors in New York City and San Francisco are charging $65 and $49 per square foot, respectively.
However, Gilchrist pointed out that while there’s 4.5 million square feet in lab space in Philadelphia, only 5.6% of that property is vacant.
“The good news for Delaware is maybe bad news for the region overall. There’s really no space around the region at all,” Gilchrist said. “People that needed space needed it two years ago, but they didn't have the funding. ... so now we’re in this vortex.”
The industry experts aren’t alone in their recognition of opportunity for biotech space, as Gov. John Carney has included a $10 million incentive fund in his Fiscal Year 2021 budget proposal for the development of lab space in the state.
“We have scientists who are working on their ideas and figuring out ways to commercialize them, but there’s not space in Delaware for them to graduate into,” he said in January in detailing his budget proposal. “This money incentivizes colleges, universities, and the private sector to develop that kind of space so that startup companies that are in our innovation lab space at the STAR Campus or the Experimental Station don’t graduate to space in Pennsylvania. We want them to start in Delaware, stay in Delaware and grow in Delaware.”
Delaware has significant investments for incubation and start-up space, but little in terms for companies looking to “graduate” to the next level in operations. What that “graduation” lab space could look like is somewhere between 2,500 and 25,000 square feet with dedicated lab and office space, but with unlimited growth potential.
That includes buildings with a 28-foot minimum clear height, so there’s potential to add more floors and strong foundations and floor slabs.
Biotech companies are also looking for key infrastructure like large electrical service (between 25 to 50 amps of power), large volume of natural gas supply, sewer and water mains, central chillers and boilers.
Lab renovation costs widely range depending on the company needs. Hunter put high renovation estimates for some bio-manufacturing between $600 and $900 per square feet in improvements. But for space that’s one-third office use and two-thirds lab, DiPaolo estimated renovations at $200 per square foot.
Some of that cost could be headed off with finding a location with existing infrastructure in place.
“We did a fit-out for a client that was looking at a $2.2 million fit-out and they invested at $500,000 in our location because we had a chemical weathering lab with an outside air system,” DiPaolo said.
Hunter did caution Delaware brokers to do their homework on the company — and their funding — and where they are in the technology development before finding a location.
Amenities that cross over to office space, like a lobby, bathrooms, breakrooms and conference space also lifts some of the renovation financial burden, so companies can focus on customizing the equipment and furniture.
“I highly recommend tenants do some master planning so you can compress that deal and make it more efficient,” DiPaolo said. “An important approach is having some cost structure because these tenants want to know what they’re budgeted at per month on a lease.”
By Katie Tabelingktabeling@delawarebusinesstimes.com