With more than 20 pharmaceutical and medical technology companies and over 300 biotechnology companies calling New Jersey home, it is no secret why the state has earned its name as the “Medicine Chest of the World.”
Beyond its numerous global scientific contributions, the life sciences sector is also an invaluable economic contributor to New Jersey with an estimated annual contribution of $47.5 billion to the economy and employment for 430,000 people. In addition, students at the state’s 31 top-ranked public and private four-year universities enjoy unmatched access to internships and jobs with many of the world’s top biotechnology, pharmaceutical and healthcare companies.
New Jersey’s robust life sciences sector has created the ideal underlying foundation for what has become one of the nation’s most competitive life sciences real estate markets. In the year ahead, overall commercial real estate fundamentals and macroeconomic forces have the asset class poised for continued strength.
A Challenging Market
New Jersey’s nation-leading population density, high per-capita income, deep talent pool of master’s degrees and PhDs and proximity to two of the country’s largest cities continue to make it one of the most attractive commercial real estate markets in the United States. While the state’s underlying fundamentals are strong, the same conditions that create such a favorable investment market also make it one of the most crowded and competitive markets in the nation.
According to data from New Jersey Future, as of 2015, 86.3 percent of the state’s land was either already developed or environmentally protected leaving just 13.7 percent of the state’s land suitable for development. Fast forward to today and with rapid development across the state over the last seven years, that number has surely decreased. With the decrease in New Jersey’s available land and the state’s rigorous, time-consuming entitlements process, development of new space grows more difficult by the day. In addition, rising land costs are being paired with rising construction costs to make ground-up development for any asset class difficult.
For life sciences companies who have highly specific needs and requirements for space, today’s supply-constrained market can often make the real estate process seem like finding a very expensive needle in a haystack. As the life sciences sector only grows in the years to come, the search for suitable space will only grow more competitive and expensive by the day.
Clearly, the pharmaceutical and biotechnology industries will continue to see robust growth in the Garden State. And that growth will require appropriate and specialized facilities for research, development, manufacturing and testing. In addition to traditional laboratory space, these necessary facilities can include manufacturing clean rooms, biocontainment and biohazard provisions, pilot plants – you name it. But with the dearth of developable land, the industry must look for other solutions to meet this growing need.
One solution is adaptive reuse. It’s no secret that the commercial real estate market had changed dramatically as a result of the COVID-19 pandemic. Many large suburban office buildings that once teemed with nine-to-five workers are now barely used, as the white-collar workforce has transitioned to remote or hybrid working environments. Consequently, owners of these buildings are feeling the squeeze as tenants re-negotiate leases and downsize their space due to work from Home.
Many owners are now investigating converting these buildings for other uses – I’ve recently seen office buildings converted to apartments and self-storage facilities and potential does exist for conversion to life sciences usages.
Looking to the Future
New discoveries are being made every day by companies specializing in targeted therapies, genetics, microbiology, immunotherapy, and biochemistry, to name only a few of the growing sub-specialties. Unquestionably, the corresponding need for additional biotechnology, research and pharmaceutical space will continue to see the market throughout New Jersey – and in particular, in New Jersey’s “Research Corridor” in central New Jersey remain highly competitive.
This popularity is highlighted by recent entrances and expansion in the marketplace. In just the last year, we have seen NJ Bio taking the entire 78,000-square-foot former Bristol Myers Squib research facility in Princeton where Opdivo was discovered; Gennao Bio, a China-based pharmaceutical company purchasing 45 acres and a 60,000-square-foot drug manufacturing building in Hopewell; PTC Therapeutics leasing 150,000 square feet combined in Hopewell and Princeton and Kyowa Kirin, a Japanese-based pharmaceutical company, expanding to 79,000 square feet at Carnegie Center in Princeton.
But smart, forward-thinking companies and investors can still find opportunities for growth, prosperity and profit in “Medicine Chest of the World.” By working with an experienced commercial real estate team, life sciences companies of all sizes can successfully navigate one of the nation’s most competitive markets and find spaces ideally suited to their needs.
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