South Lake Union checks all the boxes for spinning out life science companies except perhaps one - spaces to house their growth.
Tight only begins to describe the present market for combined office and laboratory space in the highly desirable South Lake Union life science cluster.
"The life science market in South Lake Union contains about 4.5 million square feet of space and there's less than 100,000 square feet of vacancy," said Mike Ruhl, senior director of leasing and development with the Seattle office ofBioMed Realty Trust Inc.
BioMed Realty, a real estate investment trust that was recently acquired by Blackstone Real Estate Partners, is one of the leading life science developers in Seattle's South Lake Union neighborhood. The company's latest project is the recently completed 500 Fairview Ave. N. building.
The new building, which officially opens next month, is the Siamese twin of 530 Fairview Ave. N., which BioMed Realty completed in 2008.
Two tenants in the first building, NanoString Technologies and Novo Nordisk, made early commitments to take additional space in the second building. While that still leaves three of the new building's seven floors - nearly half of its 121,000 square feet - vacant, Ruhl isn't sweating.
The total space needed by the many companies that have kicked the tires at the new building tops 100,000 square feet.
"We feel very optimistic that we'll get the building fully leased this year," he said.
Interest is keen because 500 Fairview is about the only game in town for life science companies that want a South Lake Union address, said Bill Neil, senior vice president of commercial real estate firm Kidder Mathews.
While there's a "tremendous demand" from small and mid-size companies wanting up to 10,000 square feet, there are essentially zero vacancies in previously completed buildings. Very little new construction is coming out of the ground right now, Neil said.
An exception is 400 Dexter Ave. N. - a.k.a. the Juno Building. Alexandria Real Estate Equities Inc., a Pasadena. California-based REIT, is the developer for the 289,000-square-foot building and immunotherapy company Juno Therapeutics is the anchor tenant.
When the building is completed in early 2017, Juno will occupy seven of the 12 floors. While Juno has options on the other floors, Alexandria also is in discussions with other possible tenants, the company said.
Despite the tight supply, Neil doubts any new buildings will break ground this year and maybe not even next year without a commitment from a big fish or two a la Novo Nordisk and NanoString.
Yet that doesn't mean developers don't have sites in mind and plans in the works even if they are "well-guarded secrets," Neil said.
"Developers don't make any money if they don't construct buildings," he said. "Eventually, something will get built."
Alexandria is playing the waiting game with at least two potential projects - one involving a possible 188,000 square feet of space at 1818 Fairview Ave. E. and the other a possible 110,000 square feet of space at 1165 Fairview Ave. E.
It would seem the law of supply and demand would kick in and Alexandria would pull the trigger now. But all demand for life science space is not created equal.
Constructing a building based solely on demand from early stage life science companies - such as those hungry for space in South Lake Union - is risky because so few of them succeed.
Life science buildings can cost nearly twice as much as to construct as conventional office buildings because of the infrastructure needed to support laboratories. Developers usually want an established company to take half or more of the space before breaking ground.
"You don't generally see spec buildings in the life science industry. You see them anchored by a (major) tenant," Ruhl said.
In the same way life science buildings need anchor tenants, life science clusters need anchor research institutions to sow the seeds for companies to launch and grow.
Fred Hutchinson Cancer Research Center is South Lake Union's original anchor, opening its first building there in 1993. The cluster now includes the University of Washington and Seattle Children's hospital - both of which have plans to expand - as well many other institutions that have spawned spinoff after spinoff from their research.
A recent surge in life science funding and investment is accelerating spinoff activity and helping drive South Lake Union's tight real estate market.
"Companies are being formed, they're growing and they need space," Ruhl said.
But space is hard to find for many of these companies.
"Floor plates in existing inventory are about 17,000 or 18,000 square feet and developers are usually looking for full-floor or half-floor users," said Kris Richey Curtis, a partner with the commercial real estate firm Kinzer Partners. "They probably wouldn't carve out 2-4,000 square feet (for a startup)."
One potential solution is to try to sub-lease space from one of South Lake Union's large research institutions, but otherwise there "really aren't a lot of options," she said.
While competition for development sites in South Lake Union from technology companies like Amazon factors into the tight market, Alexandria, BioMed andVulcan Real Estate - the market's big three life science developers - all control enough land to bring additional space to market when they think the timing is right, Richey Curtis said.
The critical mass of research institutions and the urban lifestyle of South Lake Union ensure the life science cluster there will continue to grow, she said.
"We've got this great (environment) that I think will keep our life science sector thriving for decades," Richey Curtis said.
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