Lendlease Talks About Life Sciences Development Heading into 2024

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Lendlease has completed more than 1,000 life sciences facilities in the United States, from the Bristol-Myers Squibb campus in New Jersey, to large lab and office space for Merck & Co. at West Point, to a pharmaceutical manufacturing site for Pfizer Plasmid DNA.

But, when Lendlease and Ivanhoé Cambridge created a joint venture almost two years ago to develop life sciences labs, offices and manufacturing space in major hubs across the country, the market was immeasurably different. After a historic rise in demand and investment in the wake of the COVID-19 pandemic, the market is now defined by declining activity in line with the larger commercial real estate market and concerns over weakening growth.

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Lendlease is overseeing the construction side of new life sciences projects with Ivanhoé Cambridge, including the new lab and office in the Allston-Brighton neighborhood of Boston. Philip Lamere, portfolio manager at Lendlease, checked in with Commercial Observer on the firm’s life sciences portfolio and its latest development in the top market for lab space. 

The following has been edited for length and clarity.

Commercial Observer: How would you summarize the past 12-18 months for Lendlease’s life sciences focus? Expanding, maintaining, or receding? 

Philip Lamere: The last 12-18 months have been challenging. While we have underwritten some new opportunities, higher debt costs and slower leasing velocity have impacted us as they have the rest of the market. There is a repricing underway, as the market acknowledges the reality of more expensive financing and higher equity return requirements.

Right now, the focus for us is on delivering the best outcome at our Forum project in Boston. At Forum, we are developing a nine-story, 355,000-square-foot life sciences facility in the Boston Landing mixed-use district of Allston-Brighton. As that project moves toward completion, we are simultaneously watching for attractive investment and development opportunities that reflect a changing market.

On the construction side of our business, the majority of Lendlease’s work in this sector has been delivering build-to-suit space for life sciences companies. To date, we’ve completed more than 1,000 life sciences facilities in the U.S., comprising approximately 18 million square feet. We have a solid pipeline of work, largely with established customers in healthcare and life sciences.

What’s the status of the $545 million Forum project?
Construction at Forum is progressing on schedule. We broke ground on the project in fall 2022 and topped out the structure in September. The façade panels are being installed at the site now, and we’re on track to complete in late 2024. 

As we approach delivery, we have ramped up our marketing efforts and are focused on distinguishing ourselves from competitors by refining our product offering and tapping into the existing community. With Boston Landing, New Balance has created an incredible mixed-use district with unmatched amenities. For Forum, our strategy focuses on adding to the energy that has already been created through the employees we will bring to the district along with the vibrant public realm our project will deliver on the building’s ground floor, including an open lobby with an exciting retail café, art gallery and adjacent outdoor plaza.

What are the latest trends in ground-up development and construction and retrofitting of existing facilities?
Given the role Lendlease plays as an investor, developer and builder, we have the benefit of seeing trends emerge within each of those specialties and the ability to bring that knowledge to bear in everything we accomplish. 

Within our development business, we are seeing increased demand for ready-made spaces. This could mean second-generation or subleased spaces, but it also includes spaces developed and fully built-out by landlords on a speculative basis or with a tenant improvement budget that allows for a turnkey delivery. The key to this strategy is an accurate understanding of a tenant’s physical needs and building with adaptability in mind, as space needs will evolve.

Within our construction business, we are seeing a growing need for facilities that offer flexibility to adapt as life sciences enterprises grow and scale. These ‘multimodal’ facilities support the initial stages of R&D in the development of a new product and later transition to manufacturing, assembly and distribution as the enterprise needs to scale up production. In this economic climate, construction costs also remain a concern, so life sciences companies are looking to contractors to effectively manage the development cycle to mitigate the impact of rising costs, as well as offer alternative solutions, such as retrofits or using modular components where appropriate.  

Across all of our businesses, there is also a growing emphasis on sustainability, placemaking and community integration. Sustainability remains a top priority for users who care about their environmental impact, as well as for investors seeking resilient real estate assets with long-term value. Forum, which is targeting LEED Platinum certification, will be a 97 percent electric building with net zero carbon operations upon completion, offering key differentiation in the market. As a firm, we have committed to absolute zero carbon by 2040 for Scope 1, 2 and 3 emissions.  

How would you describe how the overall life sciences market has evolved over the past 12 months? Have you seen a decline in demand due to lower property values and lower VC funding?
While demand has dropped from the record highs experienced during the pandemic, life sciences remains an important asset class with good long-term tailwinds. In many markets, demand is near its long-term averages, particularly in the established clusters where we are focused. However, by and large, tenants are taking longer to make leasing decisions in the current economic environment and have some hesitancy about committing to new space.

The majority of leasing activity is occurring at either end of the size spectrum, with startups and smaller firms seeking 25,000 square feet or less, and larger, more established firms planning for the future by committing to larger leases. Right now, we’re not seeing a lot of activity in the middle.  

Life sciences tenant demand continues to focus on modern, adaptable lab and manufacturing space in high-growth specialties, such as cell and gene therapies and other emerging therapies. Our larger pharmaceutical clients, particularly on the construction side, are still looking for new life sciences spaces with cleanrooms, high-bay labs, enhanced ventilation and utility infrastructure, and other specialty features that are unique to these projects.

Established cluster markets like Boston, have tremendous strength and will always attract new investment due to the high concentration of knowledge-based resources already established in the city. 

What do you anticipate for Lendlease’s life sciences arm over the next 12-18 months?
Looking ahead, we are excited about the long-term potential for our business and the sector as a whole. We believe the current supply of life sciences space will be absorbed, which will lead to strong competition for new purpose-built facilities because there is very little new product starting in the construction pipeline.  

Life sciences enterprises value collaboration, both within the workplace and across the industry, so they will continue to cluster in already-established hubs, where there is a high concentration of knowledge-based companies, highly regarded academic institutions and cutting-edge facilities.

Gregory Cornfield can be reached at gcornfield@commercialobserver.com.