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Life science real estate acquisition slowed in New York for the second quarter of 2023, a new report shows.
The report, published by real estate firm CBRE last week, illustrates that the city now has about 2.9 million square feet of laboratory and research and development inventory, compared to 2.5 million square feet for the second quarter of 2022. The city only has more inventory than Houston and Chicago.
Funding for the quarter dipped to just over $1 billion from nearly $1.5 billion for the same period last year. Vacancy rates, meanwhile, are at 37.5% for the quarter, lower than a record high rate at the beginning of this year but still significantly higher than the second quarter of 2022.
Asking rates averaged about $101 per square foot for the city overall and $110 per square foot in Manhattan.
These trends are reflective of a national cooldown, according to CBRE: vacancy rates rose nationally to 9%, monthly growth rates flattened and the sector’s employment numbers leveled out across the United States. However, national venture capital increased slightly.
John Isaacs, an executive vice president at CBRE and head of its New York life science practice, said the industry’s growth is now in check because higher interest rates have made it harder to raise money. Additionally, city landlords are more educated on life science real estate, where many companies need to move into buildings quickly and set up research right away. With their new knowledge, landlords are no longer spending extraneous sums to attract tenants, he said.
However, he continued, these negative trends can be deceiving. They bely an uptick in New York institutional research being commercialized–he mentioned NYU, Mount Sinai and Columbia–and more life science startups partnering with big pharmaceutical companies.
“The market is clearly not as soft as the office market, not at all,” Isaacs said.
According to the report, New York University took 15,000 more square feet of space in Long Island City, the second-largest transaction of the quarter behind Graviton Biosciences, which became the first tenant of West End Labs on the Upper West Side.
Additionally, New York remains near the top of the market with Boston for fiscal 2023 National Institutes of Health funding, at $1.7 billion for the quarter. Columbia University Health Sciences has the largest share–$362 million–with NYU, Mount Sinai, Cornell and Memorial Sloan Kettering following suit. Another recent CBRE report shows that New York’s life science research workforce is strong, with more students entering the commercialization space and choosing to stay in New York over other cities than in the past.
Furthermore, Isaacs added, less competition among companies compared to larger cities gives New York firms a clearer pathway for commercializing and spinning out of research institutions, which contributes to the health of the ecosystem.
Experts have long said New York’s academic environment buoys its life science industry, and going forward will be no exception, Isaacs said. While the city “will never be a 30 or 40 million square feet market like Boston,” its combination of intellectual capital and venture capital have set New York up for continued growth.
Additionally, he said, the city is at the midpoint of the “25 years it takes to build a cluster.” The city’s ecosystem is made up of mostly early-stage companies that have sought pre-built out lab space to move into, he said. As more firms look to go commercial, they will continue to search for “speculative” space, or buildings that include both lab and office space that can support their work, he added. The vacancy rate for pre-built out labs was only 11% this quarter, the report said, signaling higher demand.
“It’s essential that these lab buildings have exactly what office buildings they need. Great amenities, they need great infrastructure, they need landlords that understand the business,” Isaacs added. “Five years ago, we didn’t have these sophisticated landlords.”
There is about 459,000 square feet of lab and research and development space for three projects under construction in the city, with none pre-leased, that will be available for firms in the future. —Jacqueline Neber
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