Friday, Nov. 16, 2007

Bioparks and beyond

Brokers compete to land tenants in swollen market

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High vacancy rates, emerging research bioparks and the long-awaited maturation of the state’s biotech industry are heating up competition among real estate brokers looking to land life science companies in new spaces.

‘‘Competition picking up? Absolutely,” said broker Frank Graybeal of CB Richard Ellis Inc. With vacancies in life science real estate pushing 20 percent, ‘‘it is a maturing market that needs to be paid attention to.”

Graybeal, a 20-year veteran with CBRE’s Bethesda office, represents biotech and medical science facilities under construction throughout Baltimore at Johns Hopkins University, the University of Maryland, Baltimore, and other locations.

For more than a decade, the state’s life sciences sector was largely handled by Scheer Partners Inc. of Rockville, said Graybeal and others. Now, however, with Scheer expanding its life sciences specialty to other states, the sector is open to more competition, Graybeal said.

‘‘Right now, it’s a combination of smaller [life science] companies being able to grow their own financing vehicles and the maturity of the business,” he said. ‘‘And there is certainly more business being generated out of intellectual talent from the universities. The vacancy rates contribute to a more favorable tenant market.”

Vacancies are running at about 13 percent ‘‘if you distinguish actual lab space” from the office and other space occupied by life sciences companies, said Matt Brady, a senior associate with Scheer.

In September, global commercial real estate giant Cushman & Wakefield Inc. hired Craig W. Laferty Jr. to step up its presence in the region’s life sciences sector. Cushman & Wakefield operates nearly 100 owned and allied offices in the United States with access to more than 12,000 employees globally.

The company is ‘‘keeping our ear on the ground,” said Laferty, who is pursuing deals with Johnson & Johnson, Roche and AstraZeneca in the region. ‘‘We have a global capacity, but we also tee up tenants and landlords in local markets.”

Based on what Laferty heard at last month’s annual mid-Atlantic BIO investment conference in North Bethesda, Cushman & Wakefield anticipates more opportunities with Gaithersburg’s MedImmune Inc. and other partnerships that its new parent, AstraZeneca of London, might form.

The recent changes at Scheer — first, expanding into conventional office space deals, then refocusing on life science space this year — also offer others a chance in Montgomery County, Laferty said.

‘‘That hurt [Scheer’s] M.O. That’s why some of the competitors like us have seen there is a golden opportunity in Montgomery County with over 200 life sciences companies within a 30-mile radius. It is ripe for competition now ... Everybody else is trying to jump in. But Scheer clearly still has the lion’s share,” Laferty said.

A drasticallydifferent market

From 1985 to 2000, the vacancy rate was below 1 percent for life science labs, said Robert Scheer, founder of Scheer Partners. ‘‘Almost anytime we did a project for a company that wanted to expand, we were working with new real estate.”

He once had a list of companies waiting for labs when other companies went out of business. ‘‘There were no vacancies,” he said. ‘‘Nothing ever really hit the market. You either took somebody else’s lab, or new growth was created by taking a flex building and creating a laboratory out of it.”

The opposite is true today, said Scheer and Brady, who expect the vacancy rate to fall next year. It is high now, they said, because of growing companies moving into larger quarters, leaving their former space empty.

‘‘More companies are getting larger and out-growing their space,” Brady said. ‘‘We are seeing second- and third-generation lab space.”

Also, the high supply of available lab space is not always class A property, such as the new Rockville home of malaria vaccine developer Sanaria Inc. Brady calls the Alexandria Real Estate Equities property, previously owned by Human Genome Sciences Inc., the ‘‘Mercedes” of life science buildings. It’s Sanaria’s third home.

Jim Richardson, president of Alexandria, sees no slowdown in Maryland’s life sciences sector. ‘‘Things have been in steady growth for some time and there are plenty of new opportunities,” he said.

Alexandria is the giant national real estate investment trust of life science wet lab space, which has copyrighted the phrase: ‘‘Landlord and Developer of Choice to the Life Science Industry.” It develops and operates about 7 million square feet of offices and laboratories for biotechnology and pharmaceutical companies, companies, research institutions, government agencies and other tenants, and more than 11 million square feet in ‘‘high-tech hotbed areas,” Richardson said, including North Carolina’s Research Triangle area; San Diego; San Francisco; Seattle; and Washington, D.C.

An Alexandria executive, Lawrence J. Diamond, senior vice president for the mid-Atlantic region, is a member of Maryland’s new Life Sciences Advisory Board, one of whose priorities is drafting a list for potential, new bioscience facilities in the state.

Scheer, CBRE, Alexandria, Cushman & Wakefield and other brokers are competing to put companies into the developing University of Maryland BioPark in west Baltimore and the Science and Technology Park next to Johns Hopkins Hospital in east Baltimore.

Graybeal, at CBRE, said he has three clients interested in the east Baltimore park. He said a new business consciousness at Hopkins is helping the park reach out and foster business on a global basis for both biotech and general business.

‘Pie’ big enough for all?

Although companies dealing in life science space don’t share listings, as do residential brokers, the pie is big enough to keep competition friendly and open, Laferty said.

‘‘Basically, if we do our job right we will be able to partner with them, bring tenants to their [Alexandria] buildings and in turn get assignments from them, to represent them on the landlord side,” he said. ‘‘We all compete, but we do work with each other, so we need to play nicely.”

Despite the current surplus, however, rents generally haven’t fallen because of the ‘‘high niche worth of the infrastructure,” said Brady, at Scheer.

While office space runs about $35 per square foot annually in Bethesda — a tight market — wet lab space in the state still runs even higher, about $39 to $45, Brady said.

That gap may close over time, Graybeal suggested.

‘‘In the future, I see [life science] companies having more choices and having the ability to leverage locations and economic considerations for their business,” he said.