By Erin Kiernan, CPA
“Life Sciences” refers to the booming industry made up of biotechnology, pharmaceuticals, biomedical devices, genetics and genomics and research and development (R&D).
Most are aware that New York City has a deep, rich culture rooted in health sciences, boasting well-established medical universities and world-renowned hospitals across each of its boroughs.
New York City also houses 100 research foundations and nine academic medical centers, making it home to one of the largest concentrations of academic life sciences research in the world.
Still, despite the city’s impressive focus on medicine and research, and a commercial real estate market that has shown marked growth for decades, challenges such as the shortage of commercial laboratory space have made it previously hard to retain high-growth life science companies including those focused on lab work, biotech and pharmaceutical development.
While efforts over the last decade have primed the city to welcome more life sciences companies, the onset of the COVID-19 pandemic may be speeding up a shift that is bringing more life sciences companies to New York City and could help the city become a global leader in this sector.
A Decade of Increased Focus
To understand why the life sciences industry is currently flourishing in New York City, it is important to note that the city has long desired to increase its presence in this sector.
Approximately 10 years ago, the first commercial life sciences campus — the Alexandria Center for Life Science — was built in New York City. This 728,000 s/f property containing two Class A office/laboratory buildings was designed to encourage collaborations between academic and medical institutions, top scientific talent and investment capital; tenants include multinational pharmaceutical companies as well as early-stage development companies.
As the interest in attracting life sciences companies continued to grow, Mayor de Blasio announced “LifeSci NYC” in December 2016. This 10-year, $500 million commitment to establish New York City as a leader in life sciences R&D and innovation hopes to drive an estimated 16,000 quality jobs in the city and addresses the need for up to three million square feet of new space for life sciences companies and researchers.
In October 2018, an agreement was reached to expand the Alexandria Center for Life Science campus with another 550,00 sq. ft. facility, for a total of 1.3 million s/f. This expansion affirms the city’s efforts to establish itself as a global leader in life sciences research and innovation.
The New York City Economic Development Corporation (NYCEDC) has also made substantial efforts to spark the growth of the life sciences industry in New York City by creating a $300 million discretionary tax abatement incentive program and modernizing the city’s land use policy to accelerate life sciences real estate development.
As part of LifeSci NYC, the city has awarded a $5 million grant to fund approximately 50,000 s/f new incubator lab space, approved a $10 million fund to help New York City companies grow and launched an internship program to train the next generation of life sciences talent. LifeSci NYC also includes $50 million to expand the amount of R&D facilities in the city.
Life Sciences in Real Estate
Before the pandemic, the city’s focus on attracting and retaining life science companies was driven by the understanding that the demand for health care innovation is growing and new treatments, drugs and equipment will continue to be necessary as the population ages.
Fast forward to March 2020, when COVID-19 stopped New York City in its tracks, and the importance of health care innovation was thrust into the global spotlight.
The COVID-19 virus has shed light on the importance of companies that can perform the research and testing to deploy treatments that can counteract this and future pandemic scenarios.
During the last six months, the real estate needs for many commercial office tenants, as well as hospitality and retail giants, have ground to a halt. However, the construction, leasing and funding of life sciences has remained steady in New York City.
This is primarily because lab work necessitates appropriate space and cannot be performed at home, and as such, the demand for life sciences real estate remains high. Additionally, growth-stage life sciences companies are typically planning for the next two-three years, and thus tend to take on more space than they currently need.
The growth in this industry greatly benefits New York City, as life sciences companies tend to offer high-paying jobs that enable their employees to live in New York City.
Since March 20, when the city shut down, there has been a continued high level of interest in leasing at major life sciences properties in the city, such as 345 Park Ave. South, owned by Deerfield Management; the Taystee Lab Building, owned by Janus Property Co.; and Hudson Research Center, owned by Silverstein and Taconic.
345 Park Avenue South is a 12-story, 300,000 s/f building in Midtown. The building was previously office and retail—Deerfield is investing $635 million to convert the building to a life sciences campus. In addition to the $635 million, Deerfield intends to commit more than $2 billion in research and funding by 2030 to develop much-needed new and innovative medicines and treatments.
Life sciences companies have very specific needs, and as evidenced by the commitment of real estate management companies like Deerfield, retrofitting existing properties can be expensive. Concerns for safe air handling of biotoxins, proper lab space for research and facilities that can accommodate pharmaceutical manufacturing can be very technical and building guidelines must be stringently adhered to.
However, the high demand for these spaces presents an opportunity for New York City’s real estate market to rebound from the COVID-19 crisis and contribute to improved global health.
The flurry of activity in the life sciences sector during the pandemic has been a silver lining in an otherwise bleak landscape for real estate owners. Building owners should consider updating their properties to make them attractive to life sciences tenants as a vacancy strategy, and investors should consider New York City’s commitment to life sciences when revamping strategies in today’s environment.
The real estate market may be experiencing a dramatic shift, but the outcome could see New York City emerge as a global leader in life sciences.
*Erin Kiernan is a Senior Manager in the Real Estate Group at Marks Paneth LLP.