Litt: Remote Work is Affecting Life Sciences Valuations Too

The work-from-home “hurricane,” as Land & Buildings describes it, is blowing through more than traditional office space.

Jonathan Litt, chief investment officer, Land & Buildings, an activist investor, said the lab sciences sector is also suffering to a comparable degree with traditional office space in a recent interview on CNBC regarding his report.

He said many are saying that office is dead, but some felt that lab office buildings were an anomaly, a haven for investors, insulated from work-from-home.

Land & Buildings looked at data based on cellphone location data from Placer.ai and found that time spent by workers in their offices was also way down, at roughly 50 percent compared to pre-pandemic.

This is on par with traditional office buildings. In Boston, it’s down by as much as 56%. And time spent in the office when workers did show up was oftentimes fleeting, maybe a few hours, not a 9-to-5 shift.

“Workers went in, did some things, then finished up their research at home,” he said.

He said this lack of time in office affects real estate stocks such as the 435-building portfolio of Alexandria Real Estate and Blackstone Bio Med. He said both are potentially overvalued at their current share prices, particularly Alexandria.

When these leases come up for companies like Pfizer, Eli Lilly, Sanofi, and Bristol-Myers Squibb, which offer generous work-from-home policies, for example, they won’t renew at this amount of square footage, he said.

“They just don’t need it,” he said.

GlobeSt.com last month reported that the pandemic-era surge in the Bay Area life science market has finally come back down to Earth, with net absorption registering negative 501,000 SF in Q1 2023 as near-record new supply pushed vacancies up 190 basis points to end the first quarter at 8.2%.

Roughly 20% of these leases will come due in the next couple of years, Litt said, and companies are shrinking their footprints by 20% to 30%.

He said Alexandria, for example, is getting $52 per square foot in base rents when lab space should be more like $100 per. He said that a 20% increase in new development for lab space isn’t helping matters, either.