Unique aspects of CRE for life science tenants - by Wan Leung

October 19, 2021 - Design / Build

With the emergence of greater demand for advances in medicine and healthcare, the top innovation clusters of Boston-Cambridge, San Francisco, New York City, New Jersey, and Philadelphia have experienced increased funding levels from diverse sectors in recent years. This increase in funding is likely to continue into the near- and long-term future. The blending of technology and life science has broadened investment and emboldened entrepreneurs and developers. This rapid influx of new tenants into commercial real estate markets has brought with it a need for understanding the challenges of life science occupancies in CRE.

What makes life science real estate uniquely different from traditional commercial offices?

Certain aspects of the life sciences business make its real estate requirements more challenging than typical office transactions.

  1. Life sciences entities often start out with one or just a handful of employees, but as they achieve or fail to meet key milestones, they may need to grow or contract very quickly. Their spatial solutions must be able to adapt quickly to these possibilities.
  2. Unlike generic office space, which is usually in abundant supply and can be brought on-line relatively quickly and inexpensively, many life science companies require laboratory space which may not already exist in the desired location, is expensive to build out and requires a long lead time.
  3. In the early stages of a life science company, funds are a precious resource that must be spent as judiciously as possible. Leasing too much space in anticipation of rapid growth will unnecessarily accelerate a company’s cash burn rate. However, leasing too little space can hamstring a company if it is unable to accommodate additional hires or ramp up its research or production capabilities when necessary.
  4. Whereas most businesses can operate effectively in any submarket or office building, many life sciences companies are dependent on unique ecosystems that require specialized talent and resources and, therefore, need to be near universities, healthcare systems and concentrations of similar businesses.
  5. The innovation hub must have three primary pillars for success: research talent, willing entrepreneurs, and access to funding sources (i.e., venture capitalists).

Life Science Building Requirements: What to Look For

Options for space can range from new, purpose-built laboratory facilities to re-positioned buildings whose original purpose may have been for an office, manufacturing/industrial facility or even big box retail or department stores. While retrofits of existing buildings can save significant time and money vis-à-vis new construction, these conversions are not without their risks and challenges.

Life sciences buildings can generally be broken down into three different categories. It is critical that potential tenants understand the true level of preparedness of each building it is considering, as it will have a major impact on both the project schedule and budget.

1. Minimal Readiness (Research and Development Friendly):

  • While the building’s “bones” are generally sound and satisfactory or can accommodate many of the essential building requirements for research and development, the required infrastructure (utilities and services) and actual R&D space need to be designed and constructed.

2. Moderate Readiness (R&D Readys):

  • The building’s central utilities and infrastructure are already in place, but the individual tenant R&D suite/space needs to be designed and constructed to the tenant’s speci?c requirements. In other words, everything outside the tenant’s suite is complete and ready to go.

3. Maximal Readiness (Plug and Play):

  • The individual tenant suites (typically generic lab and office) are fully built out and furnished, ready for the tenant to occupy and use immediately. These often are attractive to the incubator and accelerator.

With demand for laboratory space across the country at an all-time high, developers and owners are building lab space speculatively to fill the increased funding investment from venture capital and medical institutions. Many of these research companies do not have the luxury of waiting for their lab to be built. Before considering a new or re-positioned building, tenants should make sure that the building’s bones and infrastructure can truly accommodate its needs. Here are some of the key elements to look for:

Structure:

  • Ideal bay space is based on a 10ft. - 11ft. laboratory module.
  • Ideal floor slab-to-ceiling is 14’ 6” or taller.
  • Tighter allowable floor levelness (FL) and floor flatness (FF) criteria are desirable.
  • Laboratories require increased stiffness and/or mass to eliminate or minimize vibration.
  • Labs using sensitive 400X magnification scopes may require a structural frame with vibrations at or less than 2,000 MIPS.

Core and Shafts:

  • New buildings can be planned for optimal location of mechanical and plumbing shafts. In existing buildings, it is important to find appropriate locations for shaft ways based on the existing structural frame. Excess elevator shafts abandoned dumbwaiter shafts or excess telecom shafts. can often be converted to accommodate these lab-related shafting requirements.
  • In multi-tenant buildings, it is important to distinguish between base-building infrastructure pathways (i.e., that travel exclusively through common areas controlled by the landlord) and proposed pathways that travel through or interfere with other tenant spaces (and, therefore, require their cooperation). Ideally the required shaft and access thereto can be achieved through spaces controlled entirely by the tenant.

MEP:

  • Laboratories use significant amounts of power, water, and HVAC. Providing proper mechanical areas throughout and on top of the building will create a healthy lab building. This can be a challenge when repurposing high-rise office buildings that lack large, flat roof surfaces.
  • Typically, tenants are allocated 10W per s/f of electrical capacity for power use. Most life science tenants require increased primary electrical service, power conditioning, and emergency power.
  • A mechanical penthouse or place for additional rooftop equipment including stand-by generators may be necessary for a tenant’s specific needs.
  • Exhaust plumes must be carefully understood and planned to not adversely affect occupants and neighboring areas.
  • Some laboratory uses require increased water supply and sewer capacity, particularly if there are any manufacturing/production activities within the premises.

Envelope:

  • High-performance window systems and building envelopes are often required for laboratory uses due to stringent air and environmental control requirements. For example, some laboratory experiments and testing can be affected by daylight.
  • Security must also be addressed as many tenants are concerned with access and visibility.

Circulation and Flow:

Access and movement are key to a successful life sciences facility in several ways:

  • Plan for movement of materials, equipment, product, and dedicated personnel.
  • A loading dock and freight elevator are necessary.
  • Multiple tenants require separation and controlled security access.
  • Regulated spaces for hazardous materials handling, animal facilities, or clean room manufacturing impact building flow.
  • Provide access to parking or public transportation.

Construction Costs: How Much Will It Cost to Build Out the Laboratory?

If the decision is to take up space requiring construction fit-out over pre-built laboratories (R&D Plug and Play), a lot of emphasis is given to the rent being paid under the lease, the construction of the laboratory will represent a material investment for the tenant and should not be ignored. The primary cost drivers for the construction project include:

  1. The amount of space being constructed
  2. The type of labor used (union, prevailing wage or non-union)
  3. The level of building readiness
  4. Whether there are any unique laboratory or equipment requirements
  5. The relative portion of the space dedicated to laboratory or specialty use as opposed to basic office use

Depending on the foregoing factors, a 10,000 s/f laboratory with a mix of 40% office and 60% labs can cost anywhere between $375 per s/f to $1,500 per s/f or more (based on the current local New York City Construction market). The low end represents a generic wet bench environment while the high end would also include specialized labs for containment, clean or specialized microscopy/imaging or Vivarium. The relative cost breakdown for a typical lab is reflected in the following graph:

Build Out Timeline

When planning the transition into new space, life science companies need to factor in the lead time necessary to design and construct such space. This timing will be dictated by the level of improvements that need to be made to the base building, the size of the premises and by the intended use and nature of improvements to the premises itself (i.e., ratio of laboratory, type of laboratory and any specialty uses). By way of example, to design and build out a 10,000 s/f wet lab suite in a moderate or lab ready building may take between 6-9 months, and in a minimal or lab-friendly building may take between 9-12 months.

Given the specialized nature of laboratory space, certain components will require significant lead time when ordering. These lead times need to be built into the construction schedule so that work can progress smoothly and project completion is not delayed. By way of example, air handling equipment and fume hood exhaust fans can require up to six months from order to delivery, and laboratory casework can take between three to four months from fabrication documents to delivery.

Wan Leung, AIA, is principal of FCA, New York, N.Y

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