For years, life science companies have made their home in metro areas like Boston and the Bay Area. But Mark Hefner, CEO and shareholder of MGO Realty Advisors, says that is changing.
“Major metropolitan cities like Boston, San Francisco, Seattle and San Diego that have been long-established life science hubs are expensive to operate in,” Hefner says. “Everything from real estate to cost of living in these cities is expensive. Now, with the Covid-19 crisis, companies are facing tremendous budget constraints and increasing pressures on their bottom line, forcing them to reconsider where they are located.”
Hefner says employees are moving away from these cities to take advantage of telework policies implemented during the pandemic. “This has created the perfect storm for life sciences companies to re-evaluate their real estate footprint and look at tier two cities that have some of the factors essential to their success in a market,” he says.
As they look to these secondary markets, Hefner says these companies will be seeking close proximity to teaching hospitals, research institutions and universities, state and local tax incentives, lower cost of living and access to human capital.
“Many states without income tax are poaching companies from expensive coastal states that are still piling on burdens on productive citizens and businesses,” Hefner says. “With that said, it’s going to be difficult to find all these things in one community. They won’t be able to attract the same talent in Des Moines or Portland as they would in Boston. So these situations are inevitably going to require a give and take.”
Life sciences companies can’t move into just any building. They operate wet labs, which need a specific infrastructure. In many second-tier markets, there aren’t enough buildings with these features to meet their criteria.
“Some life sciences companies need gallons and gallons of water a day, and sufficient power sources – the commercial building supply with these resources would vary depending on location,” Hefner says.
Hefner says that if a company has time, it can do a market-by-market analysis of all the different criteria on their checklist to come up with the most viable building.
“Depending on how cooperative and expensive different municipalities can be, it can really slow down the project and influence these decisions,” Hefner says.
Traditionally, big life sciences companies would move to new locations and then subcontractors would follow, according to Hefner.
“Due to the current state of the pandemic and a large remote workforce, life sciences companies can make this transition in phases,” Hefner says.
Usually life sciences personnel in wet labs and product development need to be onsite. Hefner says those functions will move in the first phase of the transition.
“Also, it is more likely that second-tier cities will capture office expansions before they become the headquarters,” Hefner says. “It’s safe to say it will take three to five years for us to be able to look back and see the changes that have occurred.”