Limited Supply, Increased Demand Push NJ Life Sciences Real Estate Costs

EAST RUTHERFORD, NJ—Increased investment and employment in the life sciences sector has driven life sciences-related real estate costs to new heights, according to Cushman & Wakefield’s new report, Life Science: Great Promise & Rapid Growth. The research provides a big-picture overview of the life sciences sector and its impact on commercial real estate as well as more granular insights into 13 top life sciences markets in the US and Canada—including New Jersey.

“New Jersey historically has been a life science hub, and the industry continues to play a major role in the state’s economy,” says Jason Price, director, Cushman & Wakefield’s Tri-State Suburbs Research. “The Garden State is in an ideal location for many life science companies due to its proximity to New York City and central location in the heart of the nation’s Northeast Corridor, connecting Boston and Washington, DC, via I-95.” He added that many mid- and large-sized pharmaceutical firms occupy office space in New Jersey as either global headquarters or regional offices.

While currently home to 13 of the top 20 biopharma companies, New Jersey has experienced a slight decline in the number of big-pharma companies since the recession, due to both mergers and acquisitions and some firms migrating out of the state. However, since 2014, the number of life science operations has risen to over 3,280. New lab projects announced in 2018 include Quest Laboratories’ 250,000-square-foot development at Prism Capital Partners’ ON3 in Clifton, and Celgene’s 107,710-square-foot expansion at Powderhorn Associates’ 7 Powder Horn Road in Warren.

Thanks to an influx of venture capital as well as billions of dollars in funding from the National Institutes of Health, the life sciences sector has grown nearly five times as fast as the economy nationwide since 2000, adding 85,000 jobs, with roughly 70% of that job growth (61,000) in the past eight years. This is primarily a response to an aging population with increased longevity. By 2030, there will be 73 million Americans aged 65 or older, equating to 20.6% of the population, compared with 40.5 million Americans in this cohort in 2010.

“Life sciences has been, and will continue to be, a major growth driver for the US economy for decades,” says Greg Bisconti, Cushman & Wakefield executive director and leader of the firm’s Life Sciences Advisory Group. “Essentially the tech area of healthcare, the life sciences sector has become a broad and growing collection of everything from diagnostics, genetic reading and writing and personalized medicine to medical device technology, pharmaceutical research and development, and much more.

“Those forces, in turn, drive increased demand for lab space in both gateway and secondary markets across North America,” Bisconti says.

Over the past decade, basically two sets of forces have been driving the acceleration of growth in this sector—demand for health services soars as the population ages and the technology enabling life science leads to greater supply of new products, which in turn has led to historically high investment in this sector.

For its life sciences report, Cushman & Wakefield surveyed approximately 125 million square feet of lab space in 11 key US markets with life sciences clusters. (The firm also follows the lab-space market in numerous secondary and tertiary lab markets.) Lab space vacancy is 8.4% in these 11 US markets, well below the 11.6% vacancy rate for all office space and the national office vacancy rate of 13.3%.

Currently, Northern and Central New Jersey lab inventory totals 15.2 million square feet, 64.3% of which lies in Morris and Somerset Counties and the Greater Princeton area. After lab vacancy peaked in 2014, vacancy has declined by 790 basis points at the close of 2017. However, the rate again swelled in 2018, to 13.6%, due to Bristol-Myers Squibb’s 1.15 million square-foot R&D campus being vacated in Hopewell.

Across the sector in the US, average lab space rent has increased 33.2% in the past decade, compared with a 17% increase for US office space. In New Jersey, asking rents are $18.26 per square foot, down marginally (by 2.5 percent) over the past 10 years.

Other top life sciences markets’ current per-square-foot, triple-net rents (and percentage increase over the past decade) include: Boston/Cambridge, $88 (70.4%); East Bay, $34.83 (72.8% growth); Research Triangle, NC, $25.07, (61.4% growth); San Francisco and Peninsula, $60.09 (67.5% growth); DC Metro/Suburban Maryland $28.64 (46.9% growth); San Diego, $48.60 (33.7% growth); New York, $79 (26% growth); Baltimore, $25.44 (8.7% growth); Philadelphia, $23.71 (3.5% growth); and Seattle/Puget Sound, $26.42 (-9.1% growth).

“Life science companies have been an important driver of economic growth and commercial real estate development, and space serving this sector is in high demand,” says Ken McCarthy, Cushman & Wakefield principal economist and Americas head of applied research. “These companies require specialized lab space for research along with office space. Life sciences’ rapid growth has generally outpaced lab-space supply despite a 10% increase in inventory over the past five year and kept lab market vacancy rates tighter than overall office markets.”