Life science expansion in the United States has been a major development in the country’s health care and scientific industries. This growth has been driven by advances in technology, increased investment in research and development, and a growing demand for innovative medical treatments.
As the industry has expanded, it’s driven demand for the specialized commercial real estate necessary to do the work. Hughes Marino, a global real estate advisory company headquartered in the San Diego life science hotbed, has been a part of that expansion from day one.
“The Hughes Marino team has been representing life science tenants for over 30 years,” David Marino, senior executive vice president and co-founder of Hughes Marino, said. “As we have grown, we know life science is a vital part of the regional economy and a cornerstone of our practice. It’s a very specialized knowledge base as well. We know the market for lab space and the technical specifications that industry requires.”
Why Now?
Industry verticals “pop” for various reasons, and the recent ascent of the life science sector into a powerful economic force can be tied back to a few factors coming together — technology, linked with capital and expanding market demand, has created the perfect triangulation.
One of the key drivers of this growth has been the rapid pace of technological advancements in life science. Advances in fields such as genomics, proteomics, and bioinformatics have enabled scientists to better understand the fundamental processes of life and develop new treatments for diseases. This has opened up new avenues for research and led to the development of a range of innovative medical therapies, from gene therapies to personalized medicine.
Another factor that has contributed to the expansion of the life science vertical in the United States is the increasing level of investment in research and development. The U.S. government, through agencies such as the National Institutes of Health, has provided significant funding for scientific research, which has helped support the development of new technologies and treatments. In addition, private companies have increased their investment in research and development as they seek to capitalize on the growing demand for new medical therapies.
Add an aging population with many chronic ailments such as obesity and diabetes, and you have a perfect storm for expansive growth.
The Markets
David Marino has been in the real estate game for a long time. As he worked to grow and expand Hughes Marino, it made sense to link some of that growth to cover the entire life science arena.
San Diego, for example, is one of roughly five markets within the United States that has the necessary infrastructure, educational system, and talent to support the booming life science industry. It also happens to be the home base of Hughes Marino.
“There are a few life science markets in the U.S., and fortunately we are in all of them,” Marino said. “Having just opened up in Raleigh-Durham, North Carolina, and our Boston office, we have rounded out our national life science footprint. We’ve also now had years of tremendous strength in San Francisco and Seattle, which are the other primary West Coast markets.”
It’s generally held that San Diego, the San Francisco Bay Area, the greater Boston area, the Research Triangle in North Carolina, and Seattle are the primary markets for life science work, although there are pockets of activity in other regions of the country. While life science continues to grow as an industry, the expansion has been concentrated within those markets for the most part, due to the highly specialized needs of those working in the industry.
Marino doesn’t see that changing anytime soon. In fact, he believes it is less advantageous, both financially as well as from a talent attraction perspective, that the industry “fragment” into numerous smaller markets.
“It’s not like you go to law school and then show up and work in a lab,” Marino said. “These scientists and researchers come out of the local universities and then tend to stay in that community once they are done with their education. If you go back 50 years in San Diego, for example, you have UCSD, Salk Institute and all of the other research institutes in Torrey Pines that have been there for 40 or 50 years. They have attracted more Ph.D.s and more Nobel prize winners than you could ever imagine. The science has spun out of those institutions and biotech companies have been built all around that in San Diego.”
Marino points out that “this is an industry that likes to collaborate and cluster. Concentrating research and intellectual property into key geographic areas creates tremendous scientific and capital efficiency.”
Those hubs that do exist, including San Diego and the San Francisco Bay Area in California, have been booming. A report by Biocom California, an association representing life science companies and research institutions, estimates that 435,693 jobs generating $376 billion in total economic output come out of the life science industry in California alone.
In addition to needing the appropriate talent pool and the educational institutions that serve it, the life science sector also requires specialized facilities.
“As these markets have grown, all the biggest developers tend to cluster their development and capital in the same local markets. They don’t say, ‘Hey, I’m going to be pioneering and go build a lab building in Phoenix.’ It’d be economically disastrous for the developers to do such a thing because if a tenant were to be acquired or default, landlords are always needing a deep enough market to replace the existing tenant. Plus, at the end of the 10-year lease term, the last thing the landlord wants to do is tear out the existing lab infrastructure and improvements to turn it into office space or industrial space, and they all rely on having a large and deep market of tenants to ultimately backfill the real estate over the course of time,” said Marino.
Marino added that the investment landlords need to make in those biotech facilities increases the risks of failure and requires them to be more diligent when venturing into creating the lucrative lab space life science companies require.
Marino indicated that the tenant improvements needed for a standard office space can range from $70 to $100 per square foot, where investment for a biotech company is literally triple that amount, ranging from $250 to $300 per square foot. He explained, “The risks are just too high for these life science developers to invest their money in the wrong buildings or the wrong market.”
The last thing a landlord wants to do, Marino said, is to make the necessary alterations to a space to accommodate a life science client, who will pay more for the space, and then be forced to convert it back into standard office space, essentially writing off the changes and then slipping a lower-paying client into the space. It’s easier, he said, to make those sorts of capital investments in places where they know there is already a mature and growing market, versus taking risk in smaller communities.
“So the biotech wet lab space that’s available to support the industry is also clustered, because that is where all the investors decided to place their bets over the last three decades — they have all followed the science and scientific talent over time. Even more fundamentally, life science real estate developers have tracked where all of the biotech venture capital investment has flowed and linked their development to those capital activities. In fact, some of the big landlords like Alexandria Realty have become venture capital investors themselves.”
In markets like Hughes Marino’s own San Diego, there is certainly demand as the life science market branches up more than out.
“That vertical growth has happened in San Diego, for certain,” Marino said. “In the last three years, for example, there have been 5 million square feet of life science leases signed in the area. The market was in a situation where they could not build fast enough. They are literally tearing down single- and two-story office buildings to build six-story lab buildings.”
A recent industry report found that even with the higher capital cost of building out lab space for life science purposes, investors have been flocking to the opportunity. However, as the capital markets have cooled in the second half of 2022, demand for biotech wet lab space is cooling as well. Marino shared that as funding for the biotech industry slows, those companies will, accordingly, slow down their hiring and expansion and that will result in a market adjustment in 2023, where supply of wet labs exceeds demand. Marino further shared that biotech wet lab sublease space has become common throughout all of the major lab markets around the United States, which could be the leading edge indicator of a changing tide in the market where the market becomes more favorable to tenants.
Hughes Marino Brings On the Right People
David Marino said the firm’s expansion over a decade ago from a San Diego-based organization to one that operates globally was in part dictated by not just the desire to expand into all of the life science markets, but getting the right people to lead those offices.
Marino said every office now has a life science team that “really understands the market opportunities and the way the biotech industry uses space.
“It’s been a big focus of ours as we’ve expanded into San Francisco and then Seattle, for example, that our teams there have extensive life science experience in the local market,” Marino continued. “We’re onboarding the top industry professionals who know what research, manufacturing, and supply chain companies require and also what corporate headquarters and traditional office tenants require.”
Marino said the firm’s attention to hiring the right people in the right markets for life science has led to a situation where the firm isn’t just pursuing talent, but that talent is pursuing Hughes Marino.
“We have a very strong culture and a very strong sense of right and wrong, and only hire good people who align with our values, integrity, and trust-based team orientation,” Marino said. “Using that as our guiding light, we go into these markets and see if we can find those people, and then onboard them with robust mentoring and training. Our company works as one organism where we share best practices in real-time across the entire team, versus our industry convention where every professional keeps their methods and secrets to themselves. As we’ve grown, we’re attracting more and more people like that, because we’re now seen as a legitimate national player, and success brings more success.”
He said that wasn’t always the case. Over 10 years ago, when the firm was looking to expand outside of San Diego into Orange County, it struggled to develop market legitimacy, and Marino understood why. At the time, the firm didn’t have the name recognition, and people were skittish about joining a smaller real estate firm with aspirations of national expansion.
But Hughes Marino did find the right people in Orange County. And then in Los Angeles. And then San Francisco, Seattle, Denver, Boston, Raleigh, and beyond.
“Now, we’re truly a national company,” Marino said. “We have a national footprint with nine offices in five states and more to come. I’m excited about where this goes, because it’s just going to be more of that growth and positivity in an environment where our industry is going to be shrinking. We’re going to have more talented people in more wonderful communities around North America working together to serve only one customer set — the corporate space user and tenant.”
