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We all know that "location, location, location" is the mantra for many when it comes to headquartering a business – whether you buy or rent property. For many, New Jersey is a great location because of top-notch infrastructure, access to great R&D at universities and proximity to New York and Philadelphia. This past year, 2006, has brought about some interesting trends for the biotech world. Some are bound to carry over into 2007 and we are sure to see changes ahead, real estate-wise, as well. Here are some interesting things to note as we move into the new year.

1. Big Pharma's M&A activity continued to impact Real Estate throughout 2006 and that trend is likely to continue in 2007.
   
   For example: Kos Pharmaceuticals was expanding from a 90,000 square foot R&D building into a 200,000 square foot build-to-suit facility in Cranbury that included laboratory, manufacturing and distribution space. The company was also taking more office space at Cedar Brook Corporate Center in Cranbury to accommodate recent growth. The fourth quarter of 2006 announcement of Abbot Labs' acquisition of Kos immediately halted the project mid-stream. M&A activity continues to impact availability of real estate – it can put large blocks of real estate on the market or it can put it in limbo.



2. Mid-sized bio/pharma companies have typically seen a year of growth. Many have upgraded existing facilities or expanded into adjacent facilities with their current landlord taking on longer term leases in order to amortize the high cost of their build out (typically 7 – 10 year lease terms).
   
   We have seen slow but healthy activity in the 30,000 to 60,000sf range for newly built laboratory/R&D space. For example: Laureate Pharma expanded and upgraded its current facility in Princeton to accommodate its growing business.



3. Companies looking for 10,000 square feet or more -- that are in a financial position to commit to longer lease terms -- are in the best position to negotiate with landlords.

Small, start-up biotechs are finding the real estate climate challenging when it comes to establishing new facilities. Their business plans are short lived (two to three years) and they survive "financing to financing." Landlords are not willing to take on the risk of fronting the high cost of building out laboratory space for companies that 1) cannot see their life cycle beyond 3 years; 2) have no substantial cash on hand; and 3) have no proven product. These companies are faced with few options for available space. The best options for start ups are facilities like the NJEDA's Technology Centre in North Brunswick or sublease opportunities that arise periodically. However, most end up co-habitating or remaining within university laboratory space.

Laboratory Product Availability
There continues to be a paucity of pre-built laboratory/R&D space (relet space), however, in Q3 06, several 10,000 to 20,000 square foot blocks of space have come available in the various geographic market areas.

Landlords who are savvy about the laboratory/R&D market have begun construction on shell space without having a tenant in line; this is called "spec" building (i.e. speculative).

Some examples:

• Princeton Corporate Plaza in Monmouth Junction began construction on a 60,000 shell laboratory building (on spec).
• An abundance of shell space has been pre-constructed by Eastern Properties for laboratory users at Cedar Brook Corporate Center in Cranbury (on spec). They currently have put up three buildings that total 600,000 square feet and can handle laboratory users as small as 10,000 square feet.
• State (EDA) or university funded incubator space is available and expanding across New Jersey in Newark, Camden and North Brunswick.

Mary Ryan is a tenant representation broker with Cushman && Wakefield of New Jersey, Inc. With 20 years of real estate experience, she specializes in life sciences laboratory/R&D/pilot plant/ manufacturing facilities and office space requirements for biotechnology and pharmaceutical companies. She can be reached at: Mary.Ryan@Cushwake.com; 732-452-6174 or 732-991-4439.