In 2016, Seattle found itself among the leaders for the strongest life sciences market in the United States, according to a Life Sciences Outlook report from JLL. Only outperformed by Boston, San Francisco, Raleigh-Durham and San Diego, Seattle’s life sciences market thrives on small to mid-sized companies that are rapidly growing.
Last year, Washington’s life sciences accounted for more than $12.5 billion of the state’s gross domestic product (GDP). Among some of the largest life sciences companies in the state include the Allen Institute for Brain Science, Fred Hutchinson Cancer Research Center, Seattle Biomedical Research Institute, the Institute for Systems Biology, Juno Therapeutics and PhaseRX.
The Seattle-Bellevue region’s 959 life sciences organizations employ 24,320 people. Most of those employees, 51 percent, are in lab-based research and development while a quarter of employment is in the non-lab using electromedical instrument manufacturing. Following those two fields, pharma and medicine manufacturing, medical equipment and supplies manufacturing, medical diagnostic laboratories and testing labs employ the most employees.
“Generally, the Seattle life science market is healthy and continues to be an exciting hub for many R&D organizations,” said Chris Moe, senior vice president and managing partner at Kidder Mathews.
“Research and development companies comprise the majority of life sciences institutions in the area. Available lab space has been virtually non-existent in the region,” according to the report. While new inventory provides some space relief, it doesn’t come cheap. “Although the delivery of the new facility helped push vacancy up to 2.6 percent in the last 12 months, the new space comes with a hefty price tag,” according to the report.
BioMed Realty’s Vue Research Center, a 140,000 square foot lab and office building was delivered at a time when available space in Lake Union was nearly impossible to find, according to the report. When it opened, it was one of the largest life sciences hubs in the neighborhood. The space was 67 percent preleased at delivery and was quickly leased by NanoString Technologies, Novo Nordisk, Presage Biosciences and Blaze Biosciences after delivery. Moe also said that BioMed Realty has two floors in shell condition at Vue.
“The presence of the life sciences community plays a large role in Lake Union being the most expensive submarket in the region, as evidenced by the Vue Research Center achieving rents in excess of $60 per square foot,” states the report. The average cost per square foot is $43.87.
BioMed Realty has purchased a number of properties in the region, including a full city block in South Lake Union for $16.2 million in January of this year. The group also sold off one of its life sciences buildings in Bothell in December of last year for $18.15 million.
In terms of supply, Lake Union has 2.1 million square feet of rentable lab stock with direct vacancy rates at 2.6 percent. The submarket doesn’t have a single large block over 50,000 square feet available.
Part of the problem, Moe said, is the lack of space for these companies. “The greatest challenge for life science companies in the region is the lack of quality laboratory inventory,” he said. “The time it takes to design, permit and build laboratory space after identifying a suitable location is extensive (10-15 months). If an existing building with sufficient infrastructure is not available that time frame can be an additional 18-24 months,” he added.
Outside of Lake Union, Capitol Hill is making a name for itself in the industry as it’s home to Harborview Medical Center, Swedish Medical Center, Benaroya Research Institute, Theraclone Sciences, CellNetix and PharmaIN. The neighborhood is 100 percent occupied, with no existing lab product being marketed and it’s likely to remain space-constrained, as there’s nothing in the pipeline. Capitol Hill had half a million square feet of rentable stock and had comparable average asking rents to South Lake Union at $40.20 per square foot.
A couple other submarkets, Bothell and Redmond are performing well. The Bothell submarket offers tenants a much more affordable option. As of 2016, Bothell had 1.5 million square feet of rentable lab stock while Redmond offered about half a million square feet. But the price drop per square foot is significant compared to South Lake Union submarket in Seattle. Average asking rents in Redmond is only $14.05 per square foot while Bothell is just a tad more at $20.92 per square foot.
While asking rent prices are cheaper than in South Lake Union, the rentable options are far from many. “There are very few affordable options for laboratory users,” said Moe. “The cost associated with laboratory infrastructure and finishes is significantly higher than Class A office space, which makes it challenging for those landlords who specialize in that product type to provide an affordable alternative.”
For those looking for a cheaper option, Moe said Bothell offers the broadest opportunities. “The most affordable alternative is to focus on the Bothell market as opposed to South Lake Union where triple net lease rates are starting in the high teens – low $20’s per square foot. However, the improvement allowance offered at these rates is insufficient to build lab space. Typically, tenants in this market are funding significant projects with their own capital,” said Moe.
“While Bothell has some dynamic life science companies like Seattle Genetics and Alder Biopharmaceuticals, the core of the life science community is still in South Lake Union,” said Moe.