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Market Report: Life Sciences Site Selection Focused on Smaller Cities, Access to Innovation and Incentives

North American life sciences companies are shuffling and right-sizing their footprints to maximize ROI in R&D and other corporate functions and, increasingly looking toward smaller metropolitan areas with rising industry influence.

Q1 / Winter 2013
Research and development productivity has always been a top priority for life sciences companies. But with a series of key brand-name drug patents set to expire in 2013, a.k.a. the “patent cliff,” industry leaders are bracing themselves for a revenue drop that analysts estimate could reach $30 billion. In response to this mounting revenue pressure, North American life sciences companies are shuffling and right-sizing their footprints to maximize ROI in R&D and other corporate functions.

Life sciences companies increasingly are looking toward smaller metropolitan areas with rising industry influence. The 2012 Jones Lang LaSalle Life Sciences Cluster Report explores this shift by ranking 21 U.S. cities according to weighted scores for industry employment, life science establishment, NIH funding, and venture capital funding.

The report identifies an interesting trend in the higher-ranking cluster areas: More important than size is whether a city offers a strategic combination of intellectual capital, research facilities, and public-private funding opportunities. Thus, San Diego, Philadelphia, and Raleigh-Durham are rising in importance as industry hubs, while the nation’s largest metropolitan areas, New York/New Jersey and Los Angeles, remain in the top 10, but have moved lower on the list. The top 10 U.S. markets for life sciences in 2012, according to the report, are listed in the accompanying chart.


Richard McBlaine explains how leading life sciences companies should optimize and manage their property portfolios.
For the first time, companies are evaluating the cost of innovation and developing strategies for maximizing ROI in R&D, including where facilities are located and how they are managed.


Although established clusters, such as Boston, still top the chart, emerging clusters such as Denver, central/southern Florida, and Indianapolis have moved up from their rankings in the 2011 report. In 2012, such areas as Westchester/New Haven, Ohio, Salt Lake City, Dallas/Fort Worth, Wisconsin, and Michigan are also revealed to be contenders.

Year over trends include:

  • Boston remains the clear worldwide leader.

  • San Diego surpasses Los Angeles and San Francisco in overall ranking.

  • Raleigh-Durham and Philadelphia also rise.

  • With HQ consolidation, New York/New Jersey and Los Angeles areas decrease in importance, but remain industry leaders.

  • Regions anchored by smaller cities are rising in influence, demonstrated by strong showing by Minneapolis-St. Paul and Philadelphia overshadowing larger cities in their regions, such as Chicago and New York.

  • There are no new additions or drop-offs to the top 10.

Smaller Metropolitan Areas Are Gaining Ground
Lower overall costs of occupancy — coupled with academic resources and an educated work force — have made clusters outside the nation's largest metro areas more attractive to multinational pharmaceutical companies focusing on right-sizing and R&D productivity. In the Midwest, Chicago remains an emerging cluster, while Minneapolis is holding steady as a top-10 cluster for the second year in a row.

In California, San Diego has risen from being the seventh to the second most-active U.S. cluster, surpassing both San Francisco and Los Angeles in its ranking. San Diego recorded a staggering $13.8 billion in M&A activity in the last 12 months, including AstraZeneca’s acquisition of Ardea Biosciences, Hologic’s purchase of Gen-Probe, and Bristol-Myers Squibb’s offer to acquire Amlyin Pharmaceuticals. While this type of consolidation could potentially leave empty space on the market, middle-market companies have driven a steadily increasing demand for space in life sciences-oriented facilities, keeping space occupied and rents stable.

Likewise on the East Coast, Raleigh-Durham leapt to fourth position from ninth, surpassing such Mid-Atlantic markets as Washington, D.C.; and Raleigh-Durham demonstrated large-scale growth and new development fueled by agro-technology companies Syngenta, BASF, Monsanto, and Bayer CropScience. The latter, for example, recently opened a new $20 million research greenhouse. Similarly, Philadelphia’s institutions have fed the region’s 432,000 jobs and $20.2 billion in life sciences earnings, accounting for nearly 15 percent of the city’s economic activity.

Proximity to Innovation Is a Driving Influencer

While reducing real estate costs is a growing consideration in life sciences site selection, a key motivator is proximity to a thriving, diverse community of innovators. That is, a low-cost location without a high-value talent pool may not yield the same return on investment as a higher-cost location populated with exceptional researchers.

The importance of access to a thriving and diverse community focused on innovation has never been greater. According to Deloitte’s 2012 The Future of the Life Sciences study, “Significant revenue growth is unlikely to be achieved organically, mergers and acquisitions will continue, and partnerships/alliances will emerge as an important means of revenue generation. Companies will need to leverage the fact that partnerships will be ubiquitous and may include cross-sector partnerships and collaborations with payers as well as academia.”

The need for proximity to talent means the equation is not as simple as moving to smaller, more affordable clusters. Take, for example, Greater Boston, the established center of the global life sciences industry. With more than 74,000 employees serving the pharmaceutical, biotechnology, and medical device subsectors, average asking rents for lab space in Cambridge, Boston’s R&D epicenter, have returned to peak levels of $54.61 per square foot.

Public-Private Partnerships Sweeten the Deal
Some emerging clusters are adopting the “if you build it, they will come” mentality, combining targeted incentive packages, new facilities, assistance from economic development groups, and public-private partnerships in concerted efforts to attract life sciences companies. Examples of this growing trend include Westchester/New Haven (suburban New York City), central and southern Florida, and Indianapolis, all of which are creating targeted incentive packages including TIFs and other subsidies, along with newly constructed, state-of-the-art incubator centers and parks specially designed for life sciences uses. These incentives are important as life sciences companies balance their need to be near world-class scientific institutions with their need to manage facilities costs.

These communities are banking on the idea that leading organizations will find greater value in sites with lower real estate costs than they would find in bigger clusters. For example, the Max Planck Institute for Neuroscience opened a 100,000-square-foot Class A research center at Florida Atlantic University in Jupiter, Fla., in 2012, marking the Munich, Germany-based Institute’s first North American facility.

The bottom line is that for life sciences companies, site selection involves unique factors beyond the simple math of real estate costs. Many are realizing that locations outside the big-city real estate box can potentially benefit the bottom line — when the area in question has the talent and resources to support promising new discoveries.


The Top-10 Cities for Life Sciences Companies in 2013

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