Twice as much life science-related space was leased in New York City last year than the year before, according to a new CBRE report.
Now with more lab space on the way and more companies looking for leases, life sciences has been identified as one of the industries that could help bring New York back from the economic impacts of the Covid-19 pandemic.
Jonathan Schifrin and Joe DeRosa have been watching New York’s life sciences sector take shape firsthand. Schifrin and DeRosa are brokers at CBRE (NYSE: CBRE) who focus on the life sciences sector as part of a large Boston-based team.
Schifrin handles the landlord business in New York. DeRosa leads the tenant business here. They recently shared what they’re watching.
This conversation has been edited and condensed.
What makes life sciences a bright spot in the city’s commercial real estate market?
Joe DeRosa: It’s always been, for the most part, pre-pandemic, a popular destination for companies. It’s a gateway city, obviously unbelievable labor and talent coming out of all the academic institutions in New York City, which is the key driver, and a lot of the venture capital and private equity money that flows into the earlier stage companies is based in the city.
Jonathan Schifrin: Just to compare the industries, from office to life science, it tends to be a much more recession-proof business. A lot of the companies that we’re working with are pre-revenue companies on the genomics-based, R&D side. The swings in the economy don’t necessarily hit us the way that they might other industries.
Between that and the fact that a lot of the work that gets done has to get done in a lab environment. It’s not the kind of use that could just go away in a work-from-home scenario.
The Boston area is a powerhouse in the life sciences space. How is New York City stacking up against that region?
DeRosa: It’s apples and oranges right now. We’re in the earlier innings. We’re in a similar point in time in New York City like Cambridge was 15, 20 years ago. We’re seeing a lot of that growth get created by a lot of the technology coming out of the academic institutions in New York City. We’ve got this technology that VCs will come in and say, we’ll invest this amount of money. And we’ll create this company. We’ll create that company. We’ll create another.
Schifrin: From the landlord side, Boston is a mature market. You have so many millions of square feet of space, by different counts, 35, 40 million square feet, in that market. There’s a tremendous amount of second-generation and even third-generation lab space that’s available to support the growing ecosystem. So there’s something for every company as they evolve and grow.
In New York, we really have not had that supply. It’s been a space problem. If you look across the country, that’s a common thread that runs throughout most of the emerging life science markets that people talk about.
The single biggest limiting factor in the growth of any of these markets is the supply of graduation space or step-out space for these early companies that raise some funding or have a scientific milestone.
New York for too long has not had that kind of space. We’re just now delivering it into the market, which is one of the reasons why there’s this renewed focus on New York and an increase in activity here. We’ll get there eventually to Boston. Are we going to be as large? No, but we certainly think that our market can support even 10 million square feet.
The type of lab space that’s completely ready to occupy has a 0% availability rate, according to CBRE’s latest report. With that in mind, are more developers looking to get into this sector?
Schifrin: We spend a tremendous amount of time talking to landlords that want us to look at an individual buildings, look at portfolios, try and figure out kind of the best strategy for them to convert.
The large institutional landlords that are maybe better capitalized have the ability to go and put the kind of money into a space to actually build it out. There’s some that don’t want to go all the way in just because of the costs. Going from an office building to a fully built lab type of installation, it could be anywhere from $500 a square foot and up. So that’s an expensive proposition.
Of the tenants you work with, how many are companies looking to move into the city versus startups that are already here?
DeRosa: It’s a mixed bag. The incubators have done great things for New York City’s ecosystem — lots of requirements coming out of the incubators here.
The ones that are coming from out of market, we’re seeing more of them coming from overseas, Europe, planting their flag on the East Coast, because it’s too far of a trek and too difficult of a time difference for them to go all the way over to the Bay Area, to San Francisco and San Diego. Then they look at the East Coast and say, “OK, Cambridge, hotspot, but New York, also up and coming and very exciting with a ton of talent and everything for the right ecosystem to be built.” And they decide eventually that Cambridge is saturated.
I’d say seven out of 10 of them are deciding on New York City.