RE Conference: Life science sector hot, getting hotter

BOULDER — Life science developments typically follow tech in markets around the country. With Google, Apple and other tech giants already omnipresent in Boulder, it shouldn’t surprise anyone that life sciences are now the rage.

Two major life sciences developments — the Flatiron Park development in east Boulder and the Lincoln Property Co.-developed life sciences park in the Interlocken area of Broomfield — are propelling the growth in an attempt to get ahead of the demand curve.

Representatives from Lincoln, BioMed Realty LLC and commercial real estate firm CBRE presented information about the bioscience sector of the commercial real estate market during a session of the annual Boulder Valley Real Estate Conference today. Elyse Blazevich, president and CEO of the Colorado Bioscience Association, moderated the discussion.

Erik Abrahamson, a subject-matter expert with CBRE, said talent in the region is part of the dynamic fueling the industry. Other CBRE offices around the country say that “life science follows tech. We’ve got the tech,” Abrahamson said.

He said the University of Colorado is producing the “best in the world” graduates in bioscience. Smaller companies have been swallowed up by larger players. And in the case of Amgen, which left the market, its workers did not leave and ended up starting even more companies.

“Homegrown companies that came out of the human capital of Amgen helped grow the market. 

The Bloomberg Brain Index lists Boulder as number one in its evaluation of college degrees and expertise. Boulder outperforms many markets. We’re anticipating more big pharma coming in to purchase the smaller, nimble companies that can get things done,” he said. 

Mike Ruhl, vice president of leasing for BioMed Realty, said his company chose to buy a million square foot portfolio in Flatirons Park for $625 million — the largest real estate deal in Colorado history — because it represented an opportunity that will pay dividends as the market expands.

 “We’ve been in major markets, and Boulder looks very familiar to what Seattle was 10-15 years ago. We look for highly educated markets, an influx of venture capital, and places with tech already here. We play 100% in life sciences, but we do do technology deals. Those things are crossing over more and more. We’re about a year out from our significant deliveries of spec space…We’re doing plug and play: We create the space ready to move in. Companies that don’t make it open up space that we can re-lease,” he said.

Scott Caldwell with Lincoln Property, a Dallas-based company, said Lincoln likes Colorado. “Colorado is clearly one we want to be in. We considered the region and where we want to be. We focused on Boulder and the Northwest corridor. In Boulder, it’s difficult to find and entitle sites. We found a lot of people were commuting in, so we started looking at the [U.S. Highway 36] corridor for property to develop ground up.”

Caldwell said the company will build a three-building campus — called Colorado Research Exchange — in Interlocken. “Interlocken has a long history of corporate headquarters moving there. We’re drawn to that. Labor is a real important part of this sector. How do we get labor to come here? The ability to stay and work here in this sector will be if we can build out this density.” 

And density is the key to expansion of the life science sector, the panelists said.

“There is clearly demand for companies wanting to be here,” said Caldwell. “The labor is an important part of this. Someone who owns a house in Boston and is looking at going to a startup in Colorado may not want the risk [in case the company fails.] The market has to build, and that requires more space so more companies can locate here to provide that environment for workers to move from company to company. The 10-year horizon looks good.”

Ruhl agreed: “It’s coming. There’s a cost to all of this. Venture money is telling them [the bioscience companies] that ‘we gave you money for three years, make it last for five.’ Boulder is building an infrastructure that is well received [that will enable companies to establish with resources they have.]” Ruhl said.

“Next year will be a transition year. As you get into 2024, 2025 and 2026, you’ll see a well-established life science market that is growing. You have to get enough critical mass in the market to start rolling the growth. There’s nothing but upside going forward,” he said.

The two companies are approaching the market differently. While Lincoln is building from the ground up, BioMed is converting existing buildings to bioscience uses, in addition to building new space.

Costs are accelerating, Ruhl said, with it sometimes costing $400 per square foot to finish an existing property. 

Life sciences buildings require expanded mechanical and electrical services over what a typical office would require, Ruhl said. Instead of three air exchanges per hour in a typical office, a lab might require nine exchanges per hour. Some spaces require provisions to handle higher loads depending on equipment that will be placed there, he said. Most require generators in order to keep freezers and coolers operating during power outages. And life science buildings need to plan for how to dispose of lab wastes, he said.

Caldwell said some of those specialty needs can be better accommodated when building from the ground up, which is why Lincoln chose to go that route in Interlocken. 

Both agreed that companies moving into their facilities demand more amenities such as workout spaces, places to ride and store bikes, lounge space, training space and balconies.

The demand is diverse, said Abrahamson. He said the state as a whole needs another incubator to help startups get underway. The demand for cGMP — current Good Manufacturing Practices — certified lab space that meets Food and Drug Administration standards is also large in the area, he said.

The companies are finding it difficult to stay ahead of supply chain issues. A generator may take 18 months to receive — which would be OK for a ground-up project but not for existing buildings that would be completed long before 18 months, they said. A 1,000 amp electrical panel, which is fairly standard, takes 52 weeks to produce, Caldwell said.

While costs are high, Lincoln, BioMed and CBRE all said that companies from outside the market looking to expand in Boulder are already paying more and aren’t shocked by the prices. 

“The cost of living here is lower than some of these other markets. Lease rates, in tier one markets, might be $120 per square foot triple net. We’re affordable at the rates we have in this market,” Abrahamson said.

The other side, however, can be shocking. 

Local companies were accustomed to standard industrial rates. That worked 18 months ago, but that doesn’t work today, so there’s sticker shock,” he said. Local bioscience space may lease for $50 or more per square foot.

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