Mar 16, 2023
By Johanna Morse

Consider These Real Estate Trends as Your Biotech Scales

Corporate Real Estate is often a company’s second largest expense after labor, and in “hot” industries, like life sciences, companies spend upwards of $600 per square foot for their spaces. As biotech organizations scale in size and achieve clinical milestones, it is important to consider how space needs will evolve to determine the right real estate strategy in support of the business.

Early on, biotech companies often consist of a handful of people researching and developing their new therapy or medical device in a shared or small space. As they grow, more space is required to accommodate additional research, clinical trials, commercialization, and production, which becomes more complicated than just seeking out traditional office space. For example, one part of a building may need to be designed to meet the needs of a lab, while another may need more flexible options for the corporate functions of the business. Without a data-driven real estate strategy in place, determining where to invest becomes difficult.

Here are a few things you should consider when evaluating your portfolio and making future decisions.

Location, Location, Location

Choosing the right location to invest in is essential to accessing key markets, talent, and resources. But costs, utilization, and occupancy metrics can motivate companies to re-evaluate their investments even in the “best” locations. Ideal life sciences markets, like Boston, San Diego, or North Carolina’s Research Triangle, may entice top talent, but post-pandemic, those spaces may not be used optimally. It’s important to look at your portfolio from both a macro- and micro-utilization perspective. For example:

  • Macro: How many people occupy a building?
  • Micro: What % of time is being used in different spaces in the building?

This becomes crucial to understand the actual vs. expected cost for each part of the portfolio to help companies make more informed decisions. If one location has a high monthly lease and maintenance costs but is only occupied 30% of the time, the real estate team can decide to divest the building or find another use for it to increase the occupancy rate. This will help the organization eliminate the opportunity cost of the building not being effectively used.

Inspirational Workplaces

Hiring and retaining top talent is crucial for the success of any business – particularly in biotech – and enticing employees to return to the office has become more difficult. The average person spends 8 hours a day working, and they have come to expect certain amenities to make their workplace experiences more enjoyable in the post-pandemic world. While some positions within life sciences companies have the flexibility of “working from anywhere” that does not mean all employees have—or want—this option full-time. Employees that are required to go into the lab or manufacturing plant have continued to go into the facilities and more and more employees are expected to go into the office at least part time. A Bloomberg article based on a Harvard research study states that “one to two days in the office is the ‘sweet spot’ for hybrid employees.” The hybrid work environment means less space could be needed, and therefore, is pushing companies to track their space utilization more precisely and leverage the data that is gathered to make strategic decisions.

Those that are returning (or never left) the workplace are looking for progressive and forward-thinking workplaces. In a JLL Workplace Preferences Report, “quality of life and health and wellbeing has become the top priorities for office workers, above a good salary.” With the right real estate strategy, life sciences companies can create multi-use facilities to promote collaboration, reduce costs, and create positive work experiences.

Adaptation to Market Conditions

Companies must aim to have a flexible outlook with the vastly changing market conditions, ranging from increased mergers and acquisitions to economic volatility. Fortunately, with there being multiple space options, such as shorter lease contracts, space-sharing, and floor rentals, organizations can consider what terms will best fit their needs.

There is an urgency across the industry to race for intellectual property to be at the forefront of groundbreaking innovations resulting in an influx of mergers and acquisitions in the market. This does not necessarily translate to an uptick in the purchasing of new real estate, but rather the possibility of absorbing existing footprints and improving them. Both parties or the buying party will need to consider the details of each lease agreement’s terms to determine if it is worth the fee to break leases, continue to uphold leases, or consolidate real estate with moves.

The volatile economy has caused some hesitation from big venture capital firms which has led to the high rate of “partnerships” merging big pharma and biotech companies as of late. Instead of getting funding from a VC firm, these smaller startups are continuing to look for funding from other life sciences companies to keep their current leases in agreement. This adds a massive strategic value for both parties to keep the existing drug pipeline in development and utilize real estate more effectively.

Impact of Inflation and Interest Rates

The current state of the economy is something that no organization can ignore, especially when it comes to rising interest rates and uncertainty of construction costs. While inflation is still fairly high in the first quarter of the year, experts at CBRE predict that by the fourth quarter, inflation will drop to a more stable level. The projected higher cost of capital will also cause some property and asset values to continue to decrease in the first half of the year. Companies can utilize tools like Nuvolo to plan their real estate decisions to coincide with larger market trends.

For example, with interest and inflations rates expected to go down by the end of the year, your organization can and should negotiate terms to extend into a month-month lease or short-term lease in the fourth quarter, giving your company better space opportunities to weigh other options that come on the market.

Navigating Your Real Estate Journey with Nuvolo

Planning and executing a real estate journey throughout the life sciences industry can be a big challenge for growing organizations. Nuvolo’s Real Estate suite has been purpose built to help companies in the life sciences space to navigate the ups and downs of this process.

In order to have a sound real estate strategy, it is important to consider key metrics, such as space utilization, cost, location, company growth plans, and more. In many cases, these are saved in different systems, and it becomes difficult to integrate the information to make strategic decisions. We have created one centralized platform to manage all leases and owned property contracts to help you keep track of critical dates, create property lifecycle workflows, optimize the performance of your portfolio, and comply with accounting standards.

Although future real estate trends can change, Nuvolo can help mitigate some of that unpredictability by tracking all your actionable real estate, space, and facility data in one place. The Connected Workplace makes it possible to set short and long-term goals for your portfolio strategy while providing the key metrics and reports to empower you to make the best decisions for your business needs.