Anybody play in the Life Science space?
Anyone with insight into the life science space? I know it's a fairly niche space focused on certain markets but the PSF #'s on some of the sales are quite high. Looking for some opinions if there's room to run or if the first to market groups have already extracted the best value.
Hey, so I have worked for one of the major players in the space for a couple of years now... any more specific questions? Undoubtedly, pricing has gone through the roof with a lot more institutional capital interested. And, the pandemic has caused a lot of office owners to evaluate converting space to life science (or, engage brokers to market their asset as a conversion play...). Fundamentals are strong and venture capital continues to get pumped into the space at record amounts, so there's definitely opportunity. However, I wouldn't undervalue experience with the asset class and the role facilities & property management teams have given the specialized nature...
Obviously tough to really tell but with all the money pouring in, do you feel like the space is getting hotter or on the backburner? How have you liked the job? Anything you wish you knew (market/task-related not company-related) before you started? I know there's been some big names spec building on the east coast. Is that normal for the sector or just normal if you have enough $? Also, with the VC's is this a Real Estate play still or a bit of a mix of a couple industries?
I think it's getting hotter for sure, especially with the ongoing pandemic. Can't exactly perform laboratory research remotely, so 99-100% of our portfolio is open and occupied currently. I think the job is really interesting (I work on the acquisitions team) - high profile deals with extremely innovative tenants that are literally changing the world through their research and products. Assuming you'd be coming in at a more junior level, it's not too hard to get up-to-speed, so not really anything you'd need to know before starting. Spec building is more common when there is a large supply demand imbalance and firms have confidence in leasing during or soon after construction - plus, a few large pre-leasing deals especially on the east coast have been signed recently. VC funding > biotech growth > demand for space. Basically, growing firms need more space to perform research and more top tier talent to hire (hence the desire to be in Cambridge, SF, San Diego, etc.). A few firms have venture arms as well...
PSF numbers may be high, but it’s also a function of rents and the amount of capital that needs to be invested in Life Science assets. Looking at it from that perspective, yes the PSF is high, but it may not be as ‘high’ as it seems.
That makes sense. I think you're at a pretty well-backed firm, how do you guys look at the sector?
Sounds like a very interesting industry, but I’ve heard it’s extremely niche - as in you really have to know your tenant base and their space needs. It is very risky / entrepreneurial and by providing space to a company it’s almost like you’re investing in their success. Like how office developers evaluate the credit of their tenants, but to the extreme.
Sounds like a few specialized players dominate the space. It would probably be hard for a generalized developer to dip their toe in the space without prior experience.
The ULI leading voices in real estate episode featuring someone from IQHQ is a great listen if you’re looking to learn more.
Good shout. I've downloaded and will listen on the commute to the office tomorrow.
I second listening to this podcast. It is with the founder of IQHQ who also founded Alexandria and BioMed.
Have worked in the space for the better part of the last decade. Having a terrible time organizing my thoughts this evening, but happy to answer any specific questions.
I think the answers to your questions are yes and yes. Will you be able to snatch up real estate in Cambridge or Torrey Pines on the cheap? No - space is pretty concentrated and the top landlords have created dominant positions in these submarkets. But that doesn't mean that there aren't a lot of players making good money in the market right now. Prices are being driven by a number of factors, but as you mentioned it is ultimately a pretty "niche" asset class with a limited supply of good product, and with institutional capital looking to make an allocation now that the industry has received the stamp of approval, pricing for core deals is going to continue to run.
Appreciate that. Had a recruiter reach out about a company in the space so just trying to do some DD before I get back to them. Given that you said there's a lack of good product, do you think there's a good runway for developers to create more then? Would you caution a younger professional from getting into the product? I'm guessing the future of the asset class really depends on where these companies want to be?
Definitely a good runway for development and office to lab conversion. A lot of competition for high quality sites, but a number of groups have raised a ton of money to deploy so there will be good activity. It is a "hot" space right now, so some less qualified groups are working on getting exposure, so my only caution would be to stay away from speculators. Otherwise you are going to get a lot more reps than you would with an office or retail owner/developer today and I think that is what's important earlier in your career.
Definitely highly geographically concentrated industry. Some developers have had good success in the 2nd tier clusters, but I think there is going to be the highest level of competition in the big 3 clusters (SF, Boston, SD). These markets have the most developed ecosystems (talent + capital) and geographic constraints have (and I think will continue to) drive rent growth. As companies raise larger rounds of capital, and the competition for talent grows, demand for well located, high quality space is going to continue to increase.
Any thoughts on some of the smaller markets, Raleigh/Durham in particular? Lot of chatter out there in the triangle right now, but I don't see a ton of activity to back up the enthusiasm.
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