Seems pretty positive despite some of the negative headlines out there. And I think it's true...you have to have the space ready for the next boom, if you wait to put shovels in the ground you'll miss it, this industry moves fast.
https://www.bizjournals.com/philadel...d-leasing.html
'We're missing a unicorn': Local real estate developers ready for another life sciences success story
For Philadelphia’s life sciences market to resume its once explosive growth, local real estate developers say the city could really use a new Spark.
Local gene therapy company Spark Therapeutics provided the blueprint for how a single firm’s success can quickly drive real estate development. The Children’s Hospital of Philadelphia spinout was scooped up by Swiss pharmaceutical giant Roche for $4.8 billion in 2019, grew to more than 800 employees and now has real estate projects in the works that will expand its local footprint to almost 1 million square feet of office, lab and manufacturing space.
A lengthy stretch of depressed venture capital investing has prevented other life sciences startups from following Spark’s lead, reducing demand for new space and slowing life sciences developments that are either underway or on the drawing board.
“We’re missing a unicorn at this point,” said Jeff DeVuono, executive vice president of Brandywine Realty Trust’s life sciences division. “We had Spark Therapeutics, we had the Roche situation, we need a couple more compelling stories.”
Several Philadelphia life sciences projects have been built or are being built with significant chunks of space available. But as funding for life sciences companies has slowed over the last two years, they’ve hesitated to expand their real estate, local developers said during the Philadelphia Business Journal’s recent “The Future of Life Sciences” event at City Winery.
That means some new life sciences buildings are sitting largely empty.
University Place Associates’ 250,000-square-foot University Place 3.0 at 4101 Market St. in University City has seven floors of space available.
The team of Ensemble Real Estate Investments, Mosaic Development Partners and Oxford Properties still have more than three-quarters of their 137,000-square-foot Navy Yard building 1201 Normandy Place available after leasing 32,000 square feet to French biotechnology company bioMérieux.
“It all comes down to capital,” said Pete Cramer, vice president and market executive for developer Wexford Science & Technology. “These companies are in capital preservation mode. I think I’ve heard that term 100 times in the last six months. The money they do have, they’re focused on their science and proving out their science. So real estate is secondary.”
Wexford built One uCity Square, a project that was more than 90% leased by June 2023 less than six months after it opened. The building at 25 N. 38th St. in University City has 400,000 square feet across 13 floors. Now, Wexford is waiting for tenant demand to pick back up before building its next project, a 200,000-square-foot life sciences building at 3838 Market St.
Brandywine is building a 400,000-square-foot life sciences building at 3151 Market St., another development set to be completed later this year. DeVuono said prospective tenants in the market were looking for a total of around 2 million square feet of space in January 2021. That number has steadily dropped over the past few years to 820,000 square feet at the end of March.
“If you were doing that math today, half of those people in that 820,000 thought they were in the market, but they have no money,” DeVuono said. “So they’re optimistic, but they’re raising money. That’s a pretty significant drop.”
The glut of space that’s now available came as a result of developers evaluating tenant demand in 2021 and 2022, according to Nelson Way, director of leasing and development for Ensemble.
While developers already have plans for future life sciences projects, most of those are on hold until the existing supply gets leased up. Way said managing the inventory strategically has positioned Philadelphia well for the long-term.
“The market will absorb deals over the next two years that will fill up all the inventory that exists today and that’s currently under construction,” Way said. “I don’t think any of us here got out over our skis. I think we’re really smart about what we’ve developed and how we develop it and pulled back on stuff that we had sketched up already.”
The existing inventory could also be a positive for the life sciences industry, developers said. While they’d like their space to be leased, life sciences companies typically can’t wait for two years for a new building to be built. They often need space faster.
After companies make a discovery and raise money to expand, they can’t tell investors they need two years before moving into a larger space to accommodate the growth, DeVuono said.
“If we would have had more space available in 2020, we would have captured so many more companies that would have ultimately become unicorns,” DeVuono said.
Anthony Maher, president of University Place Associates, recalled a few years ago when life sciences companies said there needed to be more lab space developed in Philadelphia. Now it’s happening.
Maher said he’s spoken recently with two prospective tenants that could fill up the entirety of University Place 3.0 if they both sign leases.
He described Philadelphia’s life sciences market as hitting puberty because it’s going through the some growing pains as it matures. Long-term, Maher said University Place Associates is optimistic.
So are Brandywine, Ensemble/Mosaic and Wexford. All four firms have plans for future lab buildings and are just waiting for market conditions to ease up and existing life sciences space to lease up.
“Philadelphia has a very, very promising opportunity,” DeVuono said. “But it’s not a layup.”
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