Q&A: Cushman & Wakefield’s Dan Hackett on Life Sciences Trends
Hackett discusses the explosion of life sciences demand in the D.C. region
The life sciences sector is hot, and that’s led to a rising interest among building owners in converting assets to lab, research and biotech space.
For instance, Rock Creek Property Group transformed 13.1 acres of what was originally zoned for up to 175 townhomes and 400,000 square feet of office space at 700 Quince Orchard Road in Gaithersburg, Md., into a Class A, life sciences project suitable for manufacturing, lab and office space.
Then, there’s the 2002-built, 120,000-square-foot office building at 9713 to 9717 Key West Avenue in Rockville, Md., which was transformed into a life sciences space last year.
Commercial Observer spoke with Dan Hackett, Cushman & Wakefield’s East region life sciences lead, about the demand for life sciences space and how to know if a building can convert to the segment.
Commercial Observer: How would you characterize the national life sciences sector today?
Dan Hackett: With the strong underlying fundamentals, it looks like the life sciences era is here. Over the past decade, there has been an explosion of new technologies, processes and innovations in life sciences, setting the stage for strong growth for lab space for the foreseeable future. Will there be cyclical swings? Yes, most likely. But the life sciences industry is better able to weather the inevitable ups and downs of the economy compared to other sectors.
Several engines make up the life sciences sector — biotechnology, pharmaceuticals, biomedical devices, genetics and genomics, and R&D, among others — and, as each of these engines are fired up, they boost demand for lab space in key markets across the U.S. and Canada. The explosion in demand for life sciences space has also been driven in part by technological innovations that have increased consumer and market demand. At the forefront of these innovations are genetic-related developments.
How has this sector evolved?
With rising investment in the life sciences industry comes rapid growth in the number of jobs in the sector. From 1990 to 2010, employment in life sciences alone grew only slightly faster than in the U.S. as a whole, rising 1 percent per year. However, since the end of 2013, employment in the biotechnology research and development industry has exploded, increasing by more than 70,000 jobs. Over the next decade, demand for lab space is expected to rise as employment in this industry surges.
What are you seeing in the D.C. region? How does it fare compared to other markets?
The Washington, D.C., Metro region is home to one of the most vibrant, life sciences clusters in the country. Demand is booming along the I-270 Corridor and into Frederick County, which keeps vacancy rates low. Suburban Maryland is a unique submarket in particular, due to its close proximity to relevant federal agencies, education/research institutions, and a talented labor force.
Due to these drivers, Montgomery and Frederick counties continue to make their way up the list of top-tier life sciences hubs. Additionally, Maryland has been coined the “BioHealth Capital Region,” striving to be a top-three life sciences hub by 2023. Large companies experiencing growth continue to invest in Maryland, or have expanded operations along the I-270/Corridor. Operation Warp Speed has also put more attention on this region with increased government funding to local Maryland companies working on COVID vaccines.
Why is there such a strong demand for life science space from tenants and landlords?
The demand for health care is booming as the U.S. population continues to age. In 2005, the median age in the U.S. was 36.2 years; by 2018, it had risen to 38.2. By 2030, the median age is projected to top 40 for the first time, making more than half of the U.S. population over age 40.
Other reasons include a potential for greater profit for landlords in this space, vacancy rates are near zero in many markets, reduced office demand, and a strong workforce coupled with venture capital and government funding.
How did the pandemic drive this demand?
First, and foremost, the pandemic exposed our vulnerability. It showcased a lot of pain points in the health care industry as well as the increased need for medical space, during a time where medical professionals were working overtime to mitigate the onset and side effects of the pandemic. Second, there were new space requirements for lab space in order to develop and test vaccines. We saw this especially in the manufacturing space.
What are the steps a building owner needs to take to convert a property into a life science space?
There are a number of things building owners should consider when looking to convert a property into a life science space, including community acceptance; ensuring zoning requirements are/can be met; building infrastructure; and proximity to an existing cluster.
How prevalent is that, both in the country and in the D.C. region?
Conversions are very prevalent in both the D.C. Metro region, as well as the U.S., and we will continue to see more of them take place. A few recent examples include 700 Quince Orchard Road, 9713 to 9717 Key West Avenue, 704 Quince Orchard, and 20400 Century Boulevard.
Why is this being done more and more? What are the pros?
Supply and demand. As demand ticks up and biotech companies continue to experience explosive growth, landlords are working to accommodate space by converting existing office buildings with favorable base building conditions. For example, Rock Creek Property Group broke ground in September on Bio at 700 QO, a 121,000-square-foot, best-in-class, R&D/manufacturing facility that delivered in May 2020 and was backfilled by Novavax. The Matan Companies have made Progress Labs to cater to large life sciences tenants looking for speed to market. Given these market conditions, rents are rising, and more conversions and build-to-suit opportunities are forthcoming. Developers are also seeing higher returns on investments.
How would you forecast the life sciences sector going forward? What will we see in the next five years?
We will continue to see rapid evolution with little-to-no limitations on what we can do, including greater integration of cell and gene therapy into academic centers, accelerated funding for R&D from the government, and further integration of AI.