In the dynamic landscape of biotechnology, the Research Triangle—encompassing Raleigh, Durham, and Chapel Hill in North Carolina—has emerged as a formidable contender in the U.S. biotech arena, ranking fourth after industry giants like Boston, San Francisco, and San Diego. This region is a beacon for pharmaceutical titans such as Novo Nordisk, Purdue Pharma, GSK, Merck, Amgen, Biogen, and Pfizer, and is renowned for hosting the largest aggregation of Contract Research Organizations (CROs) globally. However, its position in the biotech hierarchy may be more reflective of the scarcity of lab-ready real estate rather than the sheer market size.

The Raleigh-Durham area, distinct from other biotech capitals, offers approximately 10.6 million square feet of R&D lab space with limited availability. The trio of research universities—Duke University, the University of North Carolina at Chapel Hill, and North Carolina State University—form the cornerstone of the “Triangle,” propelling the life science ecosystem forward. The spin-off companies from these academic powerhouses significantly contribute to the low availability of both sublease and direct lab space. Unlike other sectors, the rise of remote work has not impacted the demand for physical lab spaces here. In contrast, other major life science markets are experiencing a surplus due to overdevelopment, unprecedented funding levels, and preemptive space acquisition for anticipated growth, leading to increased availability through subleases or defaults. This trend has not yet manifested in the Triangle.

Edwin Yarbrough, Executive Vice President of Hughes Marino, who established the firm’s Raleigh-Durham office, observes that while Raleigh-Durham is a key biotech hub, it does not match the scale of markets like Boston and San Diego. A recent sublease report by Hughes Marino revealed that, unlike other cities with millions of square feet available, the Triangle had only a handful of subleases and speculative suites, a number that is gradually rising but still pales in comparison to its larger counterparts.

Preparing for New Developments

The Triangle’s real estate market is unique, with nearly every single-story flex building designated as “R&D/Lab” space. These range from properties converted by seasoned life science landlords to speculative R&D spaces by those eager to join the sector. Biotech and life science companies in the Triangle, seeking to renew or secure new leases, expand, downsize, or renegotiate existing agreements, require the expertise of seasoned advisors to sift through the options and seize opportunities promptly.

Options are scarce, especially for entities in search of modern spaces featuring amenities like coffee bars, food services, breweries, rooftop decks, fitness centers, or even GMP-compliant lab spaces equipped with the necessary HVAC, plumbing, ceiling height, and electrical infrastructure. Expert guidance is crucial for understanding the landscape, the offerings, and the landlords that tenants will depend on for operating these sophisticated facilities.

Despite a dip in demand, the RTP/I-40 corridor continues to see the development of new R&D spaces. The region’s inaugural high-rise lab building, Via Labs, will be a centerpiece of the vibrant HUB RTP, standing eight stories tall and offering 265,000 square feet of amenity-rich R&D space.

Longfellow Real Estate Partners, the developer, is on the lookout for a lead tenant to kickstart construction on the $1.5 billion project, which envisions RTP as a densely populated, multi-use urban district complete with housing, retail, and dining options, alongside extensive lab and workspace.

Yarbrough emphasizes the necessity for companies to engage knowledgeable advisors who can navigate the evolving real estate landscape, understand the nuances of public offerings versus actual transaction outcomes, and provide objective, conflict-free counsel. He advocates for a proactive approach, leveraging off-market opportunities and ensuring negotiations are tenant-favorable in a rapidly changing environment.

North Carolina’s Mini Cambridge

Over recent years, downtown Durham has transformed into a “mini Cambridge,” bustling with companies and startups at the nexus of science and technology, complemented by a vibrant arts scene, nightlife, pedestrian-friendly streets, and top-tier dining options.

The upcoming Heritage Square development, a $500 million project spanning 10 acres, promises to introduce luxury housing, premier office and lab space, retail, and dining venues. This is just the beginning of a multi-phase development initiative. Longfellow is also poised to commence construction on a new 200,000 square foot lab building as part of their Durham ID master plan.

According to the 2023 State of Downtown Durham report, 21 new developments will add over 2,300 housing units to the city’s core. Moreover, Durham is enhancing its pedestrian infrastructure with projects like the Durham Rails Trail, a segment of the expansive 3,000-mile East Coast Greenway stretching from Maine to Florida.

While Durham has not yet reached the stature of Cambridge, the city is experiencing a surge of interest and development, making it an attractive hub for startups and biotech firms eager to join the burgeoning scene.

Yarbrough advises that with the right real estate partner and sufficient time to execute a thorough process, companies can secure exceptional spaces and terms, fostering a culture that attracts and retains top-tier talent.

He recommends initiating real estate projects well in advance—ideally two years before lease expiration—to avoid rushed decisions and ensure optimal outcomes.

In the bustling life science sector, a remarkable trend is emerging across the United States. The availability of specialized lab and R&D spaces is dwindling, hitting an unprecedented low vacancy rate of just 4.9%. This tightening market is reflected in the surge of lease prices, which have seen a significant increase of 7.5% in just six months, from March to September 2021, in the nation’s leading life science hubs, as reported by CBRE.

The Raleigh-Durham area, a notable player in this sector, is featured on CBRE’s prestigious list of top life science markets. The region’s appetite for such spaces remains robust, fueling a wave of new developments and renovations of existing structures to meet the specific needs of life science operations. Currently, the area boasts 1.2 million square feet of space either under construction or in the development phase.

The demand for new lab space is soaring, with life science companies in the top 12 markets collectively seeking nearly 23.8 million square feet in the third quarter of this year alone. This figure surpasses the available space under construction by a substantial margin of 2.8 million square feet.

The Triangle area, in particular, is a hotbed for life science activity, with a strong presence and growth of cell gene therapy companies. The market pipeline is impressive, with over 6 million square feet of new life sciences inventory. Remarkably, the Triangle offers the second-lowest average asking rates among the top markets, with recent figures indicating a rate of $29.11 per square foot NNN.

Ann-Stewart Patterson, First Vice President at CBRE|Raleigh, highlights the significant traction the market has gained from life sciences companies and investors over recent years.

A testament to the region’s allure is the announcement by Life Science Logistics, headquartered in Dallas, Texas, to take up 132,000 square feet of space near the Raleigh-Durham Airport. This $15 million venture is expected to generate 50 to 100 new jobs by April 2022. John Blackington, the company’s director of business development, shared with WRAL TechWire that the decision was influenced by the region’s competitive business costs, rich talent pool from local universities, and a robust pipeline of new products for consumers.

The life science and biotechnology sectors are experiencing the fastest job growth in history. The Triangle alone employed around 34,000 industry workers in 2020, with an overall job growth rate of 5% and an even higher rate of 6.7% in R&D roles. The CBRE report anticipates continued job creation in the industry, driven by the persistent demand for life science spaces.

Over the past two years, more than 50 single-story buildings near Research Triangle Park have been acquired by life science investors for lab conversions. Notable transactions include the rezoning of the former Morrisville Outlet Mall, now known as The Stitch, for life science use, and the subsequent lease by Invitae, as reported by WRAL TechWire.

Morrisville’s proactive approach to zoning changes has facilitated life science developments, such as the Spark LS project by Trinity Capital, spanning 109 acres. The News & Observer reported on this significant zoning regulation update.

The industry has attracted substantial investments from prominent companies like Amgen, Tempus, Grail, and a massive $2 billion from FUJIFILM Diosynth Biotechnologies, which plans to expand its workforce and facilities further. Iqvia is also set to bolster its employee numbers with a new 160,000 square foot facility.

In a strategic move, bluebird bio sold its Durham facility to National Resilience, Inc. for $110 million in July 2021, retaining around 100 employees post-transaction.

Joel S. Marcus, founder and executive chairman of Alexandria Real Estate Equities, spoke at a Triangle Business Journal event, expressing optimism for the Research Triangle’s future, despite the pandemic’s economic impact. His company, managing roughly 4 million square feet of life science space in the Triangle, is aiding two companies in occupying 274,000 square feet of space.

Furthermore, Alexandria Real Estate Equities expanded its footprint by acquiring the former RTP Foundation headquarters for $25 million.

On a national scale, venture-capital funding for U.S. life sciences companies has hit a record high, exceeding $30 billion in the year ending September 2021, with the Triangle receiving about $586 million of that investment, as per the CBRE report. This influx of capital underscores the sector’s vibrant growth and the Triangle’s pivotal role in this thriving industry.

Within the span of just ten years, the Triangle’s biotech sector has seen a remarkable expansion, doubling its laboratory space and welcoming a surge of new talent, solidifying its standing among investors and industry leaders.

The Big Picture:

Esteemed biotech centers like Boston now view the Triangle as a formidable competitor, as highlighted in a recent Boston Globe feature. This shift is attributed to the Triangle’s skilled workforce and its cost-effective environment for business operations, including affordable land, construction, utilities, lab facilities, and housing.

Why It Matters:

The biotech industry has been a driving force behind the Triangle’s economic development, propelling Research Triangle Park to national prominence. The region offers a wealth of high-paying opportunities, ranging from advanced degree holders in science to community college graduates in pharmaceutical roles.

By the Numbers:

As of 2022, the life sciences sector employed approximately 40,000 individuals in the Triangle, marking a significant growth from the previous decade. Lab and R&D spaces expanded from 4.4 million to 9.3 million square feet between 2016 and 2023. Notably, nearly 30 life sciences firms, including Fujifilm Diosynth and Eli Lilly, have committed $8.9 billion to the area, promising close to 7,000 new jobs.

Zooming In:

At the heart of the Triangle’s biotech boom is Research Triangle Park, currently undergoing a $1.5 billion development. The park’s influence extends throughout the region, with downtown Durham emerging as a startup hub and new pharmaceutical manufacturing sites developing from southern Wake County to Sanford. Both Chapel Hill and Raleigh are experiencing a rise in lab construction.

Major Projects:

• Spark Life Science in Morrisville, poised to offer 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 upcoming lab high-rise.

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

Between the Lines:

The region’s growth is fueled by the presence of three top-tier research universities, which collectively secured $1.9 billion in NIH funding in 2023.

Threat Level:

Despite the boom, rising vacancy rates and potential funding slowdowns pose challenges to the industry’s momentum.

However:

JLL has recognized the Triangle as the leading biomanufacturing market in the nation, noting its construction pipeline’s solid foundation.

What’s Next:

Novo Nordisk is poised for expansion in the Triangle, with new land acquisitions and permit filings signaling future growth.

North Carolina’s Research Triangle Park (RTP) has been recognized as the fourth most prominent biotech hub in the United States, following industry giants such as Boston, San Francisco, and San Diego. This prestigious ranking, as reported by the authoritative source Fierce Biotech, reflects RTP’s significant impact on the biotech and pharmaceutical sectors.

The assessment, conducted by CBRE Research, highlights the surge in demand for laboratory space and the expansion of lab facilities within the region. RTP’s rise to prominence is not due to sheer size or fame but rather its strategic position as a nexus of research and development nestled between Raleigh and Durham.

Innovative pharmaceuticals are at the forefront of RTP’s offerings. Notably, Novartis has recently received approval to commence production of Zolgensma, a groundbreaking gene therapy for spinal muscular atrophy, at their expansive 170,000-square-foot facility.

Adjacent to RTP, Morrisville is also making waves with new manufacturing sites for Enzyvant and Kriya Therapeutics, both pioneering companies in regenerative and gene therapy, respectively.

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 Durham, 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 Durham, featuring insights from Daniel J. Ryan, Co-Chief Investment Officer and Regional Market Director, Durham, at Alexandria Real Estate Equities Inc.

A recent headline claimed that finding lab space in Durham 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 Durham, 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 Durham 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 Durham’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 Durham. 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 Durham 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.

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