By Meghan Hall
Seattle has emerged as one of the nation’s top locations for life sciences employment, and NIH and venture capital funding have continued to attract and nurture new companies in the region. The life science market’s continued growth has increased demand for life sciences and research and development office and lab space around the region.
The Registry spoke with BioMed Realty’s vice president of leasing, Mike Ruhl, about how the life sciences real estate market fared in 2018, and what’s in store for the future. Ruhl works in BioMed’s Seattle office and is working to develop the Dexter Yard life science and tech building in South Lake Union.
How would you describe the dynamics of the life sciences real estate market in 2018? Were market drivers, the pace of leasing and the strength of the market what you anticipated for the year? Why or why not?
For BioMed Realty, 2018 exceeded our expectations, highlighted by Omeros leasing an additional 26,000 square feet at our 201 Elliott Ave. W campus. Chief among the strengths in the market last year were greater need for lab space among start-ups and increased institutional demand. In terms of the unexpected, we were pleasantly surprised by the level of venture capital funding that flowed into the market, as well as spin-outs from Juno Therapeutics that ultimately impacted market demand and our projects.
Projecting into 2019, how do you see the market evolving further? What worries you? What excites you?
I am optimistic for 2019, and the following two to three years, as well, simply because we see a lot of positive research, development and commercialization growth in the life science community, which has historically resulted in more demand for space. The combination of low vacancies and strong institutional growth — Seattle Children’s Hospital, University of Washington and Fred Hutchinson Cancer Research Center come to mind — will result in more pressure on private, non-institutional players to find and optimize space. While this continued strength is exciting, life science real estate companies like BioMed Realty need to be prudent about overestimating the long-range demand in Seattle in order to avoid reversing the gains over the past several years by overbuilding.
How do you believe the Puget Sound life sciences market compares to other regional markets throughout the United States?
I think of Seattle as a smaller, more incubator-centric market, especially when compared to other global life science markets like Boston, San Francisco and San Diego. Here, we tend to see early stage life science companies that get absorbed by larger pharmaceutical players, like Juno, which has long been the history of biotechnology in our city. That said, I believe we are at an inflection point as the result of Seattle becoming a much more mature market, which is both challenging and exciting.
What are some of the market trends that BioMed Realty has seen develop over the course of the past few years?
The market continues to be dominated by demand from tech, with an increasing number of San Francisco-based companies expanding to the city. Several highly concentrated areas — South Lake Union, Redmond and Bellevue, for instance — have been major factors in Seattle becoming a tech and life science hub. Other demand drivers are predominantly institutional, such as the large, internationally-renowned University of Washington. Premier research institutions like Fred Hutch and the Bill & Melinda Gates Foundation have also been major drivers of our market’s growth. Not only can scientists find work here, but their significant others can, too.
What are some projects that the company has completed recently of which you’re proud? Was there anything that surprised you about those that gave you some unexpected insight into the industry?
Any discussion about our activity in the Seattle life science market starts with Dexter Yard in South Lake Union. The planned project will include 515,000 square feet of tech-office and life science laboratory and office space, in addition to 25,000 square feet of ground-floor retail. In 2018, we began an extensive environmental clean-up of the site, and we’re moving forward as planned for our Master Use Permit. In addition to the Omeros expansion at 201 Elliott, we executed another significant lease in 2018 with Lyell Immunopharma at our Vue Research Center, also in South Lake Union, which brings our Seattle portfolio to 98 percent leased. Our 2018 leasing success, combined with the sustained growth in market fundamentals, gave us the additional confidence to go forward with Dexter Yard as a spec development in 2019.
As a developer, you must be concerned about the growing costs of construction in the industry. Is this an overarching concern across the board, and how has your company been able to mitigate some of those challenges?
The biggest challenge is concentration of demand in South Lake Union, where it is becoming increasingly difficult to build, for a variety of reasons. The city places an increasing amount of emphasis on certain building requirements, such as infrastructure benefits and low-income tax breaks, making it more costly and time-consuming to develop in that neighborhood. Most of our demand wants to be in South Lake Union. But, as we’ve seen recently, this concentration of demand can be a double-edged sword as more space and workers cause congestion, which creates traffic problems, puts pressure on infrastructure and generates other outcomes such as rising land and construction costs. To mitigate increasing costs of construction, we have worked hard recently to provide cost-effective solutions for tenants, primarily by assembling construction teams — general contractors and subcontractors — to lock in costs as early as possible in the development process. In so doing, we are able to minimize our exposure to these rising costs.
What predictions does BioMed Realty have for the Puget Sound life sciences market in the coming year? Where do you expect market fundamentals to land in the coming year and why?
We are very bullish on the local and national life science real estate market, because short and long term demand drivers continue to be extraordinarily strong. As a result, I expect that supply will continue to tighten in Seattle for another 16 to 18 months, and that costs will continue to rise steadily as the construction boom marches on. Until the demand for construction starts to slow down, congestion will be a reality that we all have to deal with. For BioMed Realty, our costs are substantially set for the next 24 months because of our strategy of assembling core construction teams early in the development process.
Is there anything you’d like to add that The Registry did not mention?
We’re excited to deliver a great product — Dexter Yard — that will be a one-of-a-kind environment in Seattle. We’re confident that Dexter Yard will be much more than another glass box with retail space — it will be a project that will stand the test of time. When the market sees what we are building on Dexter Ave., I am confident that companies are going to be very eager to put down roots. This confidence is based on extensive research we conducted among life science and tech users, with the ultimate goal of building a project that is more than just a workspace. Rather, Dexter Yard will provide tenants with an environment that will attract, sustain and retain a workforce dominated by millennials. We asked ourselves, “what would an employee want in the base of their building,” and went from there. We can barely wait to bring Dexter Yard to market.