Thursday, November 25, 2010

Loads of surplus lab space hitting the market

"More than 1 million square feet of laboratory and research space is hitting the real estate market as two major pharmaceutical companies shift their operations and other smaller life science companies lose funding and fold up.

Sanofi-Aventis will move out of 350,000 square feet of office and lab space in the Great Valley Corporate Center in Malvern and Centocor Ortho Biotech Inc. will vacate 300,000 square feet in Radnor, of which more than half is research space.

And Pfizer Inc. is looking to lease out 480,453 square feet of lab space in Collegeville, where it took over the former Wyeth campus and decided to close the research and development facilities.

The abundance of space coming available highlights how the region is flush with large pharmaceutical and life science companies but that strength can make it vulnerable when firms within the industry merge, downsize or reorganize operations.

“We’re looking at a vacancy rate in this type of space that is still relatively speaking pretty low, but we have been bombarded by a spate of mergers that has freed up a lot of capacity all at once."

It’s not just the mergers that have edged up the amount of life science space coming on the market. Several factors are at work. Some young companies have found it difficult to get additional rounds of funding to stay afloat and have decided to wind down. Many companies have started to work on more of a virtual model, curtailing the need for additional lab space.

“The biggest thing we see as far as trends is you have companies willing to collaborate together, and moving forward we will see a lot more collaboration.”

In the case of Sanofi-Aventis, the company decided to close its Great Valley R&D headquarters by next July as it shifts employees and other functions to its main corporate offices in Bridgewater, N.J. At one point, the drug company had 750 scientists and researchers working from Malvern. Now there’s 400 or so.

Sanofi-Aventis leases 400,000 square feet in Malvern from Liberty Property Trust. Of that space, about 100,000 square feet is for labs. The company will keep a small presence in Great Valley, signing a long-term lease on 50,000 square feet. The lease on the bulk of the space expires at the end of next year. Liberty has already begun actively marketing the space.

Down the road in Radnor, Centocor is vacating in phases the 300,000 square feet at 145 King of Prussia Road and relocating those operations to buildings it owns in Spring House, Montgomery County, said Brian Kenney. The current building Centocor leases in Radnor has 183,110 square feet of research space and 115,325 square feet of office space. It is owned by BioMed Realty Trust.

Just last year, BioMed Realty sought and received township approval to construct a new building totaling 81,636 square feet to accommodate an expanding Centocor but that project never happened.

Centocor is also departing from 160,000 square feet of office space it leases at 955 and 965 Chesterbrook Blvd. in Wayne. Those employees are also heading to Spring House; between its Radnor and Wayne locations, more than 1,000 employees will be making the move.

“We see these moves as a way to leverage space that we own while enhancing collaboration across our research and development scientists so that we can maintain a long-term footprint and continued scientific innovation in the Pennsylvania area,” Kenney said in the e-mail.

After Pfizer completed its acquisition of Wyeth, the pharmaceutical company decided it no longer needed the nearly 500,000 square feet of research space, which includes 315 science labs, in Collegeville at Routes 422 and 29.

“There are doing a lot of startup work and spin-offs. That’s what we see in a down market.”

When pharmaceutical or bio companies lay off employees and even those at the executive level, it leads some jobless workers to seek out venture capital funding and establish their own companies.

For example, a 21,000-square-foot building owned by Alexandria Real Estate Equities Inc. that Genaera Pharmaceuticals Inc. had occupied in Plymouth Meeting is under contract by a life science user who is also looking at the building as an investment. Since May a 40,000-square-foot building off Electronic Drive in Horsham has been on the market for lease . A life science tenant is seriously considering leasing 15,000 square feet of it.

These types of companies also see a benefit in being near each other, making the space in Malvern attractive for prospective tenants. Even though Sanofi-Aventis is leaving, Centocor, Orthovita and Fujirebio Diagnostics Inc. remain in Great Valley.

The bigger blocks, such as the Pfizer lab space in Collegeville, will likely be filled by multiple tenants rather than one big one and companies who want to move out of older space into more modern lab space, Brown said. He also envisions space, such as the Centocor site in Radnor, as an opportunity for a landlord to create a suburban version of the Science Center, where fledgling bio companies land and grow. The site sits on two rail lines, at a major crossroads and in a desirable community that would help attract talent.

“I’d love to see a collective effort by the region to create a couple of centers outside of the center. That’s the way some of these larger chunks are going to get filled.”

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