The former Hoffmann-LaRoche campus in Nutley and Clifton, now known as ON3, as part of a mixed-use adaptive reuse project by Prism Capital Partners.
By Joshua Burd
Despite years of consolidation by Big Pharma, New Jersey is one of a handful of markets that stand to gain from a promising growth trajectory for the U.S. life sciences sector.
That is among the findings of a new CBRE report, which points to what it says is a long-term expansion track for pharmaceutical, biotechnology and medical device manufacturing companies across the country. That expansion will be due in large part to the aging U.S. population, technology and increased funding amid mounting pressure to find new treatments — creating an opportunity for real estate markets that can support research and development.
Researchers with CBRE say northern and central New Jersey is in such a position, thanks to its deep history with the pharmaceutical sectpr and the availability of laboratory and R&D space. The region has about 17.2 million square feet of lab space, the report found, placing it behind only Boston-Cambridge, the Bay Area and San Diego.
“Today, consolidation within the pharmaceutical industry and a shift of focus to the major R&D centers, where larger research universities exist, has moderated growth and activity in the state,” CBRE wrote in its report. “Nonetheless, New Jersey’s market for biotech, lab and R&D real estate has shown remarkable resilience as it transitions to biotech and smaller R&D and manufacturing operations.
“Furthermore, state and local governments are broadly supportive of the industry and its unique facility requirements.”
CBRE tracked 11.9 percent vacancy within the northern and central New Jersey laboratory market, with an average asking rent of $22.62 per square foot. At the time of the report, the firm identified seven tenant lab requirements for a total of 420,000 square feet.
The market for lab space is divided among several submarkets including the combined cluster of Princeton, Route 1 and Cranbury, as well as the Interstate 78 corridor, according to CBRE. Those submarkets continue to be the home of many of the blue-chip companies that have made New Jersey a stronghold for the life sciences sector.
And while the state is still grappling with downsizing, CBRE said the industry still enjoys direct government support via targeted financial incentives, public and private funding and partnerships between business and academia. The industry also maintains a strong presence here: The report notes that, from 2015 to 2017, biopharma companies headquartered in New Jersey accounted for 29 percent of the drugs approved by the FDA.
Meantime, New Jersey employs more than 120,000 highly educated life sciences workers, CBRE said, citing data from the trade association BioNJ. The state is the operating base for over 1,000 biopharma companies, with more than 1,000 drugs in development by those companies.
That puts New Jersey in a strong position going forward, CBRE concluded, noting that regions with high concentrations of R&D jobs also saw the highest growth in their overall life sciences job bases in the past 15 years. That places New Jersey alongside leading markets such as Boston, the San Francisco Bay Area, San Diego and Raleigh, North Carolina.
The report also placed New Jersey among several markets in which new construction has been limited in recent years, due in part to large-scale consolidation. But CBRE wrote that the near-term outlook “is for strengthening conditions in all of these markets, where persistent demand is absorbing vacancies and rents are rising.”
The firm predicted that the market in New Jersey would tighten over the next 12 to 18 months, with rents rising by 10 to 15 percent for high-quality, second-generation space. CBRE researchers pointed to one prominent biotech lease last year, Modern Meadow’s 70,000-square-foot commitment at the former Hoffmann-LaRoche campus in Nutley and Clifton, known as ON3, as a sign that amenity-rich, mixed-use locations will stand to gain.
“With its unique combination of biopharma manufacturing and drug development R&D, New Jersey is now poised for renewed growth over the next (five to 10) years,” said Tom Sullivan, senior vice president with CBRE’s life sciences group, who is based in East Brunswick.
As part of its report, CBRE outlined several factors that speak to an expanding life sciences market:
- The nine-year gain in average life expectancy in the U.S. since the 1960s
- Rapid advances in life-sciences technology
- Increases in funding from the National Institutes of Health and venture capital sources, such as a 53 percent uptick in venture capital investment in the U.S. life sciences industry over the last decade
“When you look at the landscape of investment opportunities within the commercial real estate sector, few asset classes offer as compelling a case for near-term optimism as the life sciences industry,” said Scott Marshall, CBRE president of advisory and transaction services.
