In the heart of North Carolina, the Research Triangle has carved out a name for itself as a burgeoning epicenter of biotech innovation, securing the fourth spot in the U.S. biotech industry rankings. This prestigious position trails only behind the well-established hubs of Boston, San Francisco, and San Diego. The Triangle’s prominence is bolstered by the presence of pharmaceutical giants such as Novo Nordisk, Purdue Pharma, GSK, Merck, Amgen, Biogen, and Pfizer. It’s also recognized for having the densest concentration of Contract Research Organizations (CROs) worldwide. Yet, it’s worth noting that the Triangle’s ranking might be more indicative of the limited availability of lab-ready real estate rather than the overall market magnitude.

The Raleigh-Durham market is unique in its offering of R&D lab space, totaling around 10.6 million square feet, yet with minimal vacancies. The esteemed research institutions—Duke University, the University of North Carolina at Chapel Hill, and North Carolina State University—lend the Triangle its name and are instrumental in nurturing a thriving life science ecosystem. The startups emerging from these universities significantly contribute to the low availability of lab space, both in sublease and direct markets. The life science sector here remains largely unaffected by the shift to remote work, a trend that has not spared other major life science markets, where a glut of lab facilities, record funding, and preemptive space acquisition have led to an unprecedented availability of lab space.

Edwin Yarbrough, Executive Vice President of Hughes Marino, who spearheaded the establishment of the firm’s Raleigh-Durham office, remarks that the Triangle’s biotech scene, while significant, doesn’t quite scale up to the likes of Boston or San Diego. According to a sublease report by Hughes Marino, the Triangle’s market is gradually seeing an increase in available space, but it’s nowhere near the levels observed in the larger biotech markets.

Anticipating the Arrival of New Spaces

In the Triangle, almost every single-story flex building is earmarked as potential “R&D/Lab” space. This includes properties that have been transformed by experienced life science landlords, speculative R&D spaces by those eager to capitalize on the booming sector, and everything in between. For biotech and life science companies looking to renew or secure leases, expand, downsize, or renegotiate in the Triangle, the guidance of an experienced advisor is indispensable. Such expertise is crucial for navigating the offerings and acting swiftly when the right space becomes available.

The demand for spaces with modern amenities and GMP-compliant lab facilities is high, and the expertise of a knowledgeable advisor is essential to navigate the offerings and leverage the available options.

Despite a softening in demand, new R&D spaces continue to emerge, predominantly along the RTP/I-40 corridor. The Triangle’s first high-rise lab building, Via Labs, will be a part of the ambitious HUB RTP, a central hub designed to be a dense, multi-use urban area offering housing, retail, and dining, in addition to lab and workspace.

Yarbrough emphasizes the importance of having a well-informed advisor to help companies understand the changing real estate landscape, identify off-market opportunities, and ensure negotiations are favorable for tenants in an environment that is becoming increasingly tenant-friendly.

North Carolina’s Emerging Biotech Beacon

Downtown Durham has undergone a transformation, becoming a coveted “mini Cambridge,” bustling with companies and startups at the forefront of science and technology. This evolution is complemented by a lively arts scene, nightlife, walkable streets, and exceptional dining options.

The upcoming Heritage Square development, a $500 million endeavor, will introduce a mix of luxury housing, top-tier office and lab space, retail, and dining establishments. This project is just the beginning of a larger development plan that will further enhance Durham’s appeal.

The city is also making strides in pedestrian-friendly infrastructure, with projects like the Durham Rails Trail, which will be part of the larger East Coast Greenway.

Durham’s development and improvements are creating a magnetic pull for startups and biotech companies eager to be part of this exciting growth.

Yarbrough advises companies to engage with the right real estate partner and allow ample time for a thorough process to secure the best spaces and terms, thus fostering a culture that attracts and retains top talent.

Starting real estate projects well in advance is crucial, he notes, recommending a two-year lead time to ensure the best outcomes.

In Raleigh, the life science sector is witnessing a historic low in lab and R&D space vacancies at 4.9%, with lease prices seeing a 7.5% increase from March to September 2021 across the top life science markets, as per CBRE’s latest findings.

The Raleigh-Durham area, featured in CBRE’s top 12 life science markets, is experiencing sustained high demand. This demand is fueling both new constructions and the refurbishment of existing properties for life science applications, with 1.2 million square feet of space currently being developed or under construction.

Life science firms are actively seeking nearly 23.8 million square feet of new lab space in these markets, outstripping the available construction space by 2.8 million square feet. The Triangle, in particular, is a hotbed for this demand, especially from cell gene therapy companies looking to expand.

The Triangle’s life sciences inventory is set to exceed 6 million square feet, with some of the most competitive lease rates at an average of $29.11 per square foot NNN—the second-lowest among the surveyed metropolitan areas.

Ann-Stewart Patterson, First Vice President at CBRE|Raleigh, notes the significant interest from life sciences companies and investors in the market. Life Science Logistics, headquartered in Dallas, Texas, plans to occupy 132,000 square feet near Raleigh-Durham Airport in a $15 million project, potentially creating 50 to 100 jobs by April 2022.

Raleigh-Durham’s appeal lies in its lower business costs, strong talent pool from local universities, and a robust pipeline of new products, fostering a thriving life sciences hub expected to grow further.

The Triangle’s life science and biotechnology job market is expanding at record speeds, with 34,000 industry workers in 2020 and job growth at 5% overall, and 6.7% in R&D roles.

The report anticipates more industry jobs as the demand for life science space persists. Over 50 buildings near Research Triangle Park have been sold for lab conversions in the last two years, including The Stitch and a 109-acre property owned by Trinity Capital, soon to be known as Spark LS.

Significant investments from Amgen, Tempus, Grail, and FUJIFILM Diosynth Biotechnologies, which plans to hire more employees and expand its facilities by 89,000 square feet in Morrisville, are bolstering the industry. Iqvia is also set to add hundreds of workers to a new 160,000 square foot facility.

After selling its Durham facility to National Resilience, Inc. for $110 million, bluebird bio retained about 100 employees post-transaction. Joel S. Marcus of Alexandria Real Estate Equities predicts a bright future for the Research Triangle’s life science demand, despite pandemic-related economic disruptions.

With venture-capital funding for U.S. life sciences exceeding $30 billion—a record high—over the past year, and $586 million invested in Triangle companies, the region’s life science industry is poised for continued growth and innovation.

In the last ten years, the biotech landscape of the Triangle has undergone a dramatic transformation, doubling its laboratory footprint and attracting a significant influx of new professionals, thereby elevating its status among investors and industry peers.

The Overview:

Renowned biotech strongholds such as Boston now acknowledge the Triangle as a major competitor, a sentiment echoed in a widely circulated Boston Globe article. The Triangle’s competitive edge lies in its skilled labor force and cost-effective business environment, offering lower expenses for land, construction, utilities, lab leases, and residential living.

Significance:

Biotechnology has been a cornerstone of the Triangle’s economic ascent, turning Research Triangle Park into a household name nationwide. The region is abundant with lucrative job opportunities for individuals with diverse educational backgrounds, from PhD scientists to pharmaceutical manufacturing technicians with community college diplomas.

Growth Metrics:

The life sciences workforce in the Triangle has swelled to about 40,000 as of 2022, a marked increase from the previous decade, per CBRE’s research. The area’s lab and R&D spaces have expanded from 4.4 million to 9.3 million square feet between 2016 and 2023. Furthermore, since 2018, nearly 30 life sciences entities, such as Fujifilm Diosynth and Eli Lilly, have infused $8.9 billion into the region, with commitments to generate approximately 7,000 new jobs.

Focal Point:

The epicenter of this biotech boom is Research Triangle Park, which is currently experiencing a $1.5 billion development surge. The park’s influence has permeated the entire region, with downtown Durham becoming a hub for startups and new pharmaceutical manufacturing facilities emerging from southern Wake County to Sanford. Both Chapel Hill and Raleigh are witnessing a boom in lab construction.

Key Developments:

• Spark Life Science in Morrisville, set to encompass 1.5 million square feet of lab and manufacturing space.

• Pathway Triangle, a 1 million square foot manufacturing campus by King Street Properties.

• Via Labs, Hub RTP’s future lab skyscraper.

• Fujifilm Diosynth’s $2 billion campus in Holly Springs, slated for completion in 2025.

Underpinning Factors:

The trio of premier research universities in the region has been instrumental in driving this growth, securing $1.9 billion in NIH funding in 2023 alone.

Challenges Ahead:

Despite the sector’s robust expansion, there are concerns about rising vacancy rates and the potential deceleration of funding, which could impede the industry’s progress.

Nonetheless:

JLL has lauded the Triangle as the top biomanufacturing market in the country, noting its construction pipeline’s strong foundation compared to other markets like Boston or the Bay Area.

Looking Forward:

Novo Nordisk, the Danish pharmaceutical giant known for the weight-loss medication Ozempic, appears to be gearing up for an expansion in the Triangle, with new land acquisitions and permit applications for its facilities in the region.

Research Triangle Park (RTP) in North Carolina has emerged as the fourth foremost biotech hub in the United States, according to Fierce Biotech, a digital publication specializing in the biotech and pharmaceutical industries. This distinction places RTP just behind the biotech powerhouses of Boston, San Francisco, and San Diego.

CBRE Research, a firm with expertise in real estate market analysis, has noted a significant increase in the demand for lab space and ongoing construction of lab facilities in RTP. This trend underscores the region’s growing prominence in the biotech sector.

RTP may not match the sheer scale or reputation of the top three hubs, but it has carved out a niche as a research and development sanctuary situated between Raleigh and Durham. Annalee Armstrong, the author of the Fierce Biotech article, emphasizes RTP’s unique contribution to the national biotech landscape.

The park is at the forefront of pharmaceutical innovation, with Novartis recently obtaining authorization to start production of Zolgensma, a pioneering gene therapy for spinal muscular atrophy, at their 170,000-square-foot facility.

The commercial vigor extends beyond RTP’s boundaries, with Morrisville hosting new manufacturing sites for Enzyvant, a leader in regenerative medicine, and Kriya Therapeutics, a gene therapy innovator.

The broader Research Triangle area, encompassing Raleigh, Durham, and Chapel Hill, boasts approximately 10.6 million square feet of commercial bioscience lab space. It holds the third rank in research funding from the National Institutes of Health and is a key player in biologics manufacturing.

North Carolina’s robust life sciences community, comprising 790 life sciences companies and 2,500 related service providers, stands as a global powerhouse.

Industry giants like Biogen, Novartis, Pfizer, and others maintain a presence in RTP, and the area is a hotbed for emerging biotech firms bearing the NC ZIP code.

Laura Rowley, Ph.D., Vice President of Life Science Economic Development at the North Carolina Biotechnology Center, notes the comprehensive scientific expertise and innovation across the Triangle. This ecosystem provides a competitive edge for companies at various development stages.

RTP’s supportive environment fosters company growth from inception to commercialization. The recognition by Fierce Biotech and the findings of CBRE Research affirm RTP’s status as one of the premier biotech hubs in the nation.

Across the nation, many cities are grappling with a shortage of laboratory space, which is crucial for life science companies’ research and development activities. In North Carolina, this issue is particularly acute. Reports indicate that lab space vacancy rates in the Bay Area and San Diego hover around 3 percent, while in Raleigh, they are similarly low. This scarcity of space poses significant challenges for the life science industry, especially for startups seeking to establish themselves. To gain insights into this issue, we conducted a three-part Q&A series with experts in life science spaces and commercial real estate. The final installment focuses on Raleigh, featuring insights from Daniel J. Ryan, Co-Chief Investment Officer and Regional Market Director, Raleigh, at Alexandria Real Estate Equities Inc.

A recent headline claimed that finding lab space in Raleigh is ‘almost impossible’ right now. What is your opinion on that?

The market is currently experiencing a significant slowdown. With the IPO markets closed and the public biotech stock market index having halved, many companies are unable to raise funds at lower stock prices and are forced to make do with existing resources. Consequently, there’s little movement in the market as companies adopt a wait-and-see approach, hoping to survive the current conditions and potentially raise funds in the coming years if the situation improves.

Demand has decreased, and company growth has stalled. While we still observe some activity among high-quality companies securing funding, the formation of early-stage companies has notably diminished. Public companies, in particular, are conserving resources. The outlook for 2022 suggests minimal activity for the remainder of the year, with a slight possibility of increased activity and availability emerging.

Should we be worried about this?

This pattern is not new and can be considered generally healthy for the market. An overabundance of capital can lead to the funding of suboptimal ideas or teams, which ultimately harms the industry. The current market reset, while painful, is a necessary adjustment of market and capital expectations. As a result, leasing activity is minimal at present.

Alexandria’s leasing efforts, which account for approximately half the market, are focused on completing legacy projects that have been in progress for nine months. The company is currently processing significant leases secured earlier in the year, including a 427,000-square-foot lease with Bristol Myers Squibb, among others. Although busy, the company is primarily managing existing commitments and development projects.

Does the current lab space situation pose the risk that companies will relocate outside of Raleigh, or even the state?

While Alexandria has faced challenges, we haven’t seen a mass exodus of tenants from the city. Those who do move tend to opt for secondary or tertiary landlords.

Lab space is available, and accommodations can be made. With new developments expected in ’23 and ’24, there is potential for the market to tighten again if demand surges unexpectedly early in ’23. However, the current pause is viewed as beneficial, allowing for a recalibration of excesses in capital investment and development, and providing an opportunity to catch up with entitlements and construction.

The more pressing concern is housing. As the industry grows, the question of how to create sufficient, rational housing becomes increasingly important.

Is there a factor that makes development in Raleigh uniquely challenging? Are there other parts of the county outside the biotech cluster in Research Triangle Park that are perhaps underutilized and could be considered for lab space?

Research Triangle Park is nearly at capacity, but other areas like Raleigh’s downtown and peripheral regions have not yet reached their full potential.

Development in Research Triangle Park is limited due to various restrictions, but there is significant potential for growth in other parts of Raleigh. Alexandria has several promising projects in the pipeline, including substantial developments that will contribute to the city’s lab space offerings.

What advice do you have for an upcoming startup that wants to find lab space in Raleigh or find their headquarters here?

Alexandria offers a proprietary product, Alexandria GradLabs, designed to meet the needs of startups requiring small, prebuilt, and pre-equipped spaces. While currently full, this exemplifies the type of facility sought after by emerging companies.

Raleigh provides ample resources for startups, including mentorship and early-stage funding opportunities. Organizations such as Connect and the EDC offer support, reflecting Raleigh’s robust ecosystem that fosters the growth of startups.