Innovative Leasing Strategies for Repositioning Vacant Research Campuses

Repurposing research facilities in real estate

Over the last 10 years, research facilities have gone from real estate darling to looming debacle as big pharma has moved offshore and occupancy rates have plummeted.

Certainly, some of these large, empty campuses need to be repurposed, at least partially. The question is, how much? And how can they attract quality tenants looking for the features these sites naturally offer?

The Reality

Major pharma manufacturers are selling their campuses to new owners and leasing back only some of their former footprint. To add to the challenges, tenants are asking both for shorter leases and less space than in decades past. The result? Bisnow recently reported that “the start of the pandemic spurred life sciences to the top of the commercial real estate investment heap,” with the national vacancy rate reaching just under 7% in early 2022 but rising to nearly 24% by June 2024.

The Good News

The about-face in life sciences real estate is a tough situation for which no one has all the answers. Many assume these properties should start over as office space or residential conversions and that the new owners have to join the swarm of research campuses competing for new tenants in the repositioning process. However, there are other options.

What we haven’t seen in the doom-and-gloom reporting is a discussion of lease options to immediately attract the kinds of tenants who may be a more natural fit for these campuses.

The most obvious prospects are biotech startups (aka “incubators”), for which any onsite high-tech labs or vivariums reduce their construction costs and time to commence research. These features are highly appealing to these startups, since they are often burdened with substantial equity funding. They are under a lot of pressure and need to create their product and get it through clinical trials and FDA approval quickly, so they can recover the initial investment and make a profit in the manufacturing process.

And if they’re able to do that, they’re likely to be very interested in moving over to the manufacturing facilities on the same campus.

But life sciences research isn’t the only tenant type these large campuses appeal to. These transitioning pharma research and manufacturing facilities often have unique and attractive features – such as cogen power systems and central chilled/boiler plants – that can draw other good-credit tenants with minimum fit-out costs.

In addition, these facilities stand ready to meet large power and chilled water requirements without breaking a sweat. Such attributes make these sites an attractive option for data centers and film and TV studios, in addition to the research incubators. These may be strange bedfellows, for sure, but they’re also practical ones, particularly in the Northeast, where getting large amounts of power to a new site can be a brutal, expensive, and unappealingly long process.

Hopefully, any or all of these “good tenants” will grow quickly, which is another major advantage these large real estate parcels can offer.

In addition to all these natural site advantages, here are three additional ideas to make a campus property stand out:

• “Free” conceptual engineering services, such as 100 hrs for qualified tenants looking for “high-tech” space
• Discounted central utilities for the first year
• Discounted rent for years 3–5

The goal of these offer suggestions is to bring tenants in quickly and stabilize owner cash flow. Of course, buildings are almost as unique as people, so nothing will work in every situation. But marketing to prospects who are a good (if not traditional) fit and bringing them in fast can provide owners some shelter while considering long-term plans and goals.