Building Pharma and Lab Spaces in New Jersey 2021–Adapting to Changing Needs

Paul Newman

The pharmaceutical industry has been a pillar of the New Jersey economy for many decades, and remains so today despite a variety of changes and challenges. Mergers and acquisitions, as well as relocations, have left massive campuses empty, which can be both a challenge and an opportunity for property investors. At the same time, the consolidation trend has contributed to a wave of new demand for space from spinoffs and startups, and corporate pharma giants continue to tweak and modernize their campuses to accommodate employee needs, update operations, and incorporate new technology. In addition, New Jersey has the opportunity to regain leadership in offering modern lab spaces for biotech and other lab-based growth companies. In this article we offer a modified template for meeting that challenge.

New pharma office needs–lightning speed buildouts, new facility needs, reimagining vacant campuses

Through our recent experience working on over 400,000 square feet of pharma buildouts and refits of all sizes for companies ranging from startups to the largest public companies, plus large campus redevelopment assignments through our Development Advisory practice, a few common themes have emerged.

William Kimmerle

1. Spinoffs and startups–hyper-speed needs. Our smaller pharma clients need big-time speed. Spinoffs and startups are looking for a turbocharged design and buildout process, often completed within a few months. And they want furniture and branding baked into the process from day 1. These growth companies are also in need of advice on intelligent planning for future growth. Their needs can change quickly and unexpectedly. Demand in this area is significant, Kimmerle has about a dozen of these projects recently completed or currently in progress.
2. Big Pharma–new spaces required. We have seen demand for the design and buildout of specialty operational spaces. One recent example was a Central Monitoring Center that included fire, security, and building systems monitoring. The build required analysis of options for relocating and expanding the monitoring center, and coordination of engineering requirements for the upgrade as well as discussions with security consultants and staff. Another Big Pharma client enlisted us to create a Global Security Command Center in New Jersey for oversight of locations worldwide.
3. Vacant campuses–repositioning opportunity. Developers have been acquiring and repositioning former pharma campuses for many years now, and the trend continues as the market absorbs these large, complex properties. Many vacant pharma office campuses are extremely well-located, but outdated and in need of considerable investment to create modern office and/or lab space. In the real estate world, there is rarely a replacement tenant that can move into an enormous custom location and make it their own. Pharma campuses frequently consist of multi-connected buildings with unique uses that are difficult to reposition. But developers who think long-term have been able to purchase these complexes for low costs and apply new thinking to them. Conversion to a multi-use center can work when new ideas such as office, lab, residential, and warehouse conversions are on the table. A big part of a successful campus conversion is to create a campus live/work/eat/play environment. Advance did this with the Sanofi complex in Bridgewater, Prism is doing the same at a former Hoffman LaRoche site in Nutley, Lincoln Properties recently acquired the former Bristol Myers headquarters site in the Princeton market with plans to reposition it, and the Celgene headquarters site in Summit is in motion for new ownership as well. Kimmerle has advised on several such projects through our Development Advisory practice, and we believe it is one of the most exciting opportunities that New Jersey has to offer investors, developers, and tenants. This is happening in the context of a massive realignment of urban and suburban development trends. New Jersey development spread out to the suburbs in the 1950s-1970s, followed by a back-to-the-city movement in the 1990s and 2000s.Today the pendulum has swung again–sort of.On one hand, the suburbs are not “dead” at all; rather, there is demand for the excitement of a more urban-esque lifestyle that old campuses can fulfill after repositioning; on the other the pharma employee base has still tended to move to more urban counties. The bottom line is that at the right basis, obsolete campuses can be remade for modern tastes and uses, and the development community is tackling the challenge.

The pharmaceutical industry goes through cycles in New Jersey. Today’s demand for our work reflects the industry’s changing needs. We see venture-backed growth companies moving at high speed to get up and running, existing pharma firms establishing new specialty spaces to update their locations, and developers acquiring and repositioning excess pharma corporate real estate.

Labs of the future: Building modern homes for biotech growth firms in NJ

New Jersey remains a leader in broader pharmaceutical industry, but some of our edge within the life science sector has been taken away by the concerted efforts of other states, like Massachusetts, to capture biotech growth companies through incentives and other special programs. Cambridge in particular has become a magnet for R&D, due in part to the intelligently designed support for both biotech investors and biotech firms. Boston-Cambridge, San Francisco’s Bay Area, and San Diego are currently recognized as the top 3 areas for life science clusters, while New Jersey is ranked as the 10th best life science market and Pittsburgh, Houston, and Austin are competing as strong emerging markets. At the same time, New York City is seeing considerable speculative development aimed at bio-pharma firms in need of lab space as builders try to take advantage of New York's density and educated workforce.

For New Jersey to reclaim the crown as the undisputed leader in both pharma and biotech, we believe that several pieces must come together: workforce, incentives, and office spaces with a significant modern lab component. The good news is that we still have a massive workforce of employees experienced in the sciences. New Jersey has always been able to provide the industry with top talent for recruitment and retainment. That is an excellent starting point and we have to preserve and grow it. But we'll need a new set of incentives that are effective at attracting companies while being efficient with taxpayer money. And we'll need to rethink how and what we build to accommodate a new generation of lab-based businesses.

That last piece is where our real estate and architecture industries must do their parts and rise to this challenge. The race to develop COVID-19 tests, therapeutics, and vaccines–and other non-emergency innovations–forces rapid adaptations in both activity and working environments. Productivity will be tied to companies’ ability to create next-generation spaces with their partners in real estate, planning, design, and engineering. Studies have shown that life science businesses will increase productivity through their real estate with bifurcated locations or remote work for administrative purposes, improved technology and computational labs, and reshoring their supply chains for faster profitability. All of these improvements and adaptations will require companies to institute ongoing, consistent capital improvement programs as it applies to their real estate.

In our experience, creating spaces for growing biotech businesses need not be an enormously heavy lift. Most growth firms in biotech fit out their spaces as 10%-15% lab space, with the remainder as office or other uses. We believe that New Jersey can become a leader in biotech by developing pre-built spaces–but not necessarily the pre-built spaces that the real estate industry has delivered so far in trying to cater to biotech.

The positive trend is that as we have seen in New York City, we see some percentage of purpose-built biotech lab facilities for prospective tenants being considered in Hudson and Somerset Counties. These purpose-built spaces can serve firms who will be venture-capital funded, and who will require occupancy immediately after their funding is established.

However, while the concept of pre-builts for biotech is good, the market’s current understanding of lab and biotech requirements are relatively out-of-sync with reality. Here is an example of a simple miscue: the community of firms marketing spaces to biotech users anticipates that for peak marketability, a space must be able to support live loads at or in excess of 100 pounds per foot. The notion that a building must offer 100 pounds per foot live-load across full floor plates represents a significant burden and high cost of entry into this market for landlords.

In reality, based on our experience, that heavy structure requirement relates only to a small to moderate portion of fit outs for biotech firms, and can generally be address by siting lab and heavy equipment loads at the ground floor or with selective supplemental steel, just as medical users have traditionally sited imaging suites and other heavy floor uses at the lower levels of a building.

Moreover, users often assume that high-live load designs implicitly solve for vibrations in laboratories–but increased live loads do not automatically provide for a space that can support instruments like high-magnification optical microscopes. Our team employs specialized vibration analysis tools to compute the right solution in new and existing structures, rather than relying on the false assurance that heavier loading will solve for all lab requirements. Other issues include ventilation, clean room requirements and acid resistant plumbing lines–all of which can be addressed on a case by case basis.

The net result of this revised determination is that more landlords have the potential to market to these firms than the industry appears to presently appreciate. This development paradigm–investing significant capital in building infrastructure (heavy load bearing structure, exhaust systems, generators, piping, etc.)–is well-intentioned but may be more expensive than required to capture the biotech real estate market.

As New Jersey developers increasingly focus on the biotech market, we encourage a more realistic set of assumptions regarding biotech users, which we believe will be considerably more cost-efficient in meeting the market demand. This applies regardless of whether the building is newly constructed or part of repositioning older lab space in one of New Jersey’s many “Big Pharma” campuses.

Paul Newman, Vice President & Partner, Kimmerle Newman Architects, and William Kimmerle, Principal, Kimmerle Group