Repositioning Properties For Life Sciences Tenants Comes With Long-Term Considerations

Real Estate

The life sciences market is blazing hot, with record-setting venture capital investments flooding into the sector—$17 billion in the first half of 2021 alone.

It’s no wonder investors are optimistic, with new innovations spurring the development of life-saving treatments. But with growth comes increased demand for real estate, from office space to research facilities and beyond. Existing lab space is already in short supply, especially in top life sciences markets like Boston, San Diego, San Francisco and Raleigh-Durham where talent tends to concentrate, presenting an opportunity for building owners who have underutilized properties.

Weighing the merits of repositioning

Life sciences properties are not only hot, but they’re also collecting more than traditional office leases, with rents growing at twice the pace of office properties since 2016. Unlike other knowledge work, which has adapted to a hybrid or fully remote workplace, life sciences is an on-site operation that is inherently tied to the physical environment where work is done. From individual labs to world-class buildings and proximity to research institutions and skilled industry partners, life sciences tenants tend to stick around once they’ve found a location that meets their unique needs.

Repositioning existing properties to accommodate labs is not always straightforward and may have long-term implications for other building occupants. For office space especially, inviting in life sciences tenants can result in major building upgrades, including the need for higher ceilings, greater floor support for heavy machinery, and more sophisticated systems to handle increased air flow and water usage. Many owners may simply opt out of the repositioning once they realize the associated costs of upgrading their building to meet these requirements. Yet office conversions account for roughly 20% of new labs in the top 6 life sciences markets, meaning there is a way to make these challenges work for building owners who are committed to the space.

To move forward, owners must weigh the cost of accommodating new life science tenants—by installing dedicated service elevators or diverting existing HVAC, for example—with the needs of more traditional tenants. In one office property, welcoming a life science company would have meant diverting the upgraded, direct-vent HVAC previously used by one of only two restaurant spaces to accommodate the lab’s needs. The building owners had to determine if the long-term revenue loss from the restaurant and the limited food options for other tenants would be offset by an immediate life science lease.

Lab space, with its greater energy output, may also weigh heavily on a building’s sustainability goals. Most of the energy usage of a lab comes from required air change rates, but there is also a need to heat and cool the building (and lab machinery). Luckily, life sciences tenants and landlords can align on shared sustainability goals in much the same way office tenants have started to find common ground with building owners, though creative concepts can help shape both the lab and shared building space to meet sustainability and profitability objectives.

Life sciences leads the way in workplace hospitality thinking

One area where office workers and life science professionals are aligned is a desire for world-class amenities, particularly those that directly address health and wellbeing. Regardless of industry, today’s workplaces are now in the hospitality business. Life science companies were an early leader in this mindset shift, aiming to attract the best and brightest talent to their teams by investing in innovative workplaces. Providing thoughtful amenities to accelerate productivity and boost morale is one way to do that—and this approach is now making its way to a greater number of office environments.

Walkable neighborhoods, outdoor space and ample, healthy food options are all critical to keeping employees engaged. Novel experiences like food trucks and pop-up public art deliver unexpected experiences—a draw that continues to gain popularity in the office sector as more companies hope to bring employees back to the workplace.

Amenities that focus on health and wellbeing are also critical. Beyond fitness centers and showers, life science buildings are known for thoughtful extras like kayak and bike storage, leisure spaces like yoga studios and meditation rooms, and outdoor sports courts and walking paths to give workers a chance to engage in physical activity in between bouts of focused work. These next-level amenities are high on the wish list of many employees from all industries who want to extract greater value from the workplace.

For building owners looking to reposition part or all of their property for life science tenants, it’s crucial to think about the specific needs of the life sciences industry and how their building can best meet them. While lab space is important, offering a building environment that allows all tenants to focus on what they do best—innovating across industries—is essential to long-term success.

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