New York Becoming Biomedical R&D HUB

Drugmaker Pfizer Inc.'s plans to relocate its headquarters to New York's Hudson Yards neighborhood in coming years is clearing space near Grand Central Station for a fast-growing yet little-noticed sector of New York real estate: laboratory space for medical and biotechnology research.

A lack of available, well-located lab space outside of a limited number of buildings has led to pent-up demand from the life sciences industry in the largest U.S. city, according to Jonathan Schiffrin.

"New York City has all of the demand drivers to create a vibrant life sciences cluster including a highly-educated workforce, government support, existing buildings with permissive zoning and lab conversion potential, and life science venture capital firms," Schiffrin said. "As Boston’s lab market, specifically Cambridge, is at capacity for both wet lab space and highly-skilled talent, landlords and tenants have had no choice but to look to other cities in order to expand."

Life science companies are making moves in a still tiny but surging sector of demand for Manhattan commercial real estate that analysts say has been under the radar.

These tenants currently occupy about 303,483 square feet of space in Manhattan, according to CoStar research, with nearly 40 percent, or 119,807 square feet, of those leases signed since 2015. By comparison, Manhattan has almost 564.8 million square feet of total office space and more than 298.4 million square feet of retail space, a disparity that analysts say indicates huge untapped potential space for the life sciences industry in coming years.

The small amount of research space can't keep up with demand from New York City’s well-known biomedical institutions and research centers: Cornell Weill Medicine; Rockefeller University; Memorial Sloan Kettering; and New York University, said William Hartman, executive managing director at real estate services firm Cushman & Wakefield. "It is a very different environment compared to five years ago," he noted.

Hartman added that for life-sciences, "At the moment there is nowhere for them to go, so everyone is trying to answer that. In New York City, we are in the second inning of a nine-inning game. We expect it will lead to internal growth for the city."

That demand can be seen in Pfizer's relocation to the Hudson Yards neighborhood. The biopharmaceutical giant sold both sets of buildings that comprise its global headquarters, at 219 and 235 E. 42nd St. in the Grand Central submarket, for $365 million, according to CoStar data.
Following Pfizer’s exit from 219 E. 42nd St., the building will be transformed into a life-sciences center, said John H. Cunningham, executive vice president and New York City regional market director at Alexandria Real Estate Equities Inc.

Cunningham said the REIT has been working "to attract entities from all over the world to New York City and to provide these companies with affordable, high-quality laboratory and office space."

Specializing in life-sciences and technology campuses, the REIT is responsible for the Alexandria Center for Life Science in Manhattan, an office park comprising two towers at 430 and 450 E. 29th St.

Hartman said that a decade ago, then-Mayor Michael Bloomberg kicked off efforts to lure more labs by issuing a request for proposals for development of the site on East 29th Street that Alexandria won.

"People thought they were crazy at the time, because life-sciences tenants had been going to Boston and San Francisco because those cities had the infrastructure and talent to support development of the sector," he explained.

Now the buildings, which span about 738,000 square feet, are fully-leased to research and development, manufacturing and pharmaceutical tenants, according to CoStar data. The New York University Proteomics Laboratory, Eli Lilly & Co. and Kadmon Pharmaceuticals are among the center’s largest tenants.

Since The Alexandria Center opened, major Manhattan developers have targeted science and technology tenants with projects in the works, brokers say. These tenants need a particular class of space, with large, column-free floorplates, that is difficult to find in Manhattan and in most cases needs to be repositioned or built new.

Developers Taconic and Silverstein Properties are teaming to reposition a 10-story office building at 619 W. 54th St. into the Hudson Research Center, which will result in 150,000 square feet of office space for research laboratories.
And developers Related and Vornado are reportedly considering a life sciences project for the Farley Station project called the Moynihan Research Center. Janus Property Co. is building a 300,000-square-foot, LEED-certified office building focused on innovative businesses at the site of the Taystee bread factory in West Harlem.

"In New York City, it is still early on because this space is expensive to build and hard to build," said Hartman. "The ceiling heights are very high and require heavier floorplate loads, plus the HVAC and electricity have to be upgraded. Most office buildings in New York City have 12-foot ceilings but a modern lab building has ceiling heights of 14 feet-plus."

Building out this class of space is capital intensive, but landlords have become comfortable with this use because of other advantages to labs and research space, said Schiffrin. Rents and concessions are higher to offset increased infrastructure costs and, "Not only do life science installations have high residual value, but corresponding tenants tend to be 'sticky' in their spaces because of the high installation costs," he said.

Recently opened life science incubators such as Johnson & Johnson’s JLabs, Biolabs and Alexandria’s LaunchLabs, comprising about 100,000 rentable square feet of incubation space, will begin to cultivate maturing companies that will soon need space in New York City, added Schiffrin.

Meanwhile, Cornell is building a 12-acre Tech Campus on Roosevelt Island for graduate students in the fields of research, technology and computer science, as well as the Tata Innovation Center – a 240,000-square foot office property catering to both startups and established science and technology tenants. And a 126-room hotel is even in the works to accommodate business and university travel.

On July 19, New York Gov. Andrew Cuomo said IndiBio, a San Francisco-based life sciences accelerator, would open in New York City in 2019 with both state and city funding. And New York State’s fiscal 2018 budget includes a $620 million initiative to spur the growth of "a world-class life science research cluster in New York."

Funding by the National Institutes of Health (NIH) to medical and research institutions in Manhattan’s congressional districts 12 and 13 has totaled more than $1 billion annually since 2013, and is increasing. New York State has seven of the top 50 U.S. biomedical research institutions.

NIH funding can indirectly increase demand for space, said Hartman. Recent examples in the city include leases and expansions in New York City by medical institutions including the Hospital for Special Surgery, Mount Sinai and New York Presbyterian.

Venture capital firms have also been willing to invest in life-science businesses, Hartman noted. "It is an exciting time to be in the business because it is growing, with the emergence of new technologies and treatments in oncology, neuroscience, medicine, for instance," he said.
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