Biotech and Pharmaceuticals Rent Labs To Cut Costs
Biotech and pharmaceutical companies are saving money by renting laboratory facilities instead of constructing expensive, new research sites.
John K. Borchardt (June/July 10)
The University of Michigan purchased a Pfizer lab and established its North Campus Research Center there.
The high cost of building a laboratory presents a major financial challenge to small- and mid-sized companies. Renting space offers a low-cost alternative to constructing a laboratory. Lab buildings are much more expensive than office buildings of the same size. A report from the Oregon-based Portland Development Commission estimated the cost of constructing a new laboratory there to range from $250 to more than $1,000 per square foot, depending on the type of lab. A Class A office building in Portland costs $120 to $150 per square foot. (Actual costs vary around the country.)
Rather than spending large sums to purchase or build a lab, firms can rent facilities in large laboratories that have closed. Some have reopened as rental facilities. These spaces allow small- and mid-sized companies to rent first-class laboratory space at a savings, and may also include offices, small production plants, and warehouse space.
Recent mergers and acquisitions have resulted in the closure of laboratories employing 1,000 or more people. In the past two years, Pfizer's research headquarters lab in New London, Connecticut and its lab in Research Triangle Park, North Carolina have closed. After its acquisition by Pfizer, Wyeth's Princeton, New Jersey laboratory also closed. But history indicates that some of these shuttered labs will reopen as multi-user facilities.
Closure of big labs is not a new trend. It has occurred periodically when waves of mergers and acquisitions swept various industries, or when poor economic conditions forced the closure of large labs. Results of previous mega-lab closures show how shuttered labs can evolve.
In 1985 Gulf Oil's corporate research center near Pittsburgh closed when Chevron bought the firm and consolidated research operations in California. The Pittsburgh research center has 53 buildings with a total of one million square feet of laboratory, office, manufacturing, and warehouse space on 85 acres of land. The facility was donated to the University of Pittsburgh, 12 miles away, the following year. The university renamed it the University of Pittsburgh Applied Research Center (U-PARC) and began seeking tenants. In three years employment at U-PARC increased from 250 to over 1,000 people as companies moved into the site.
The complex features an on-site cafeteria, catering service, meeting and conference spaces, a post office, credit union, picnic areas, locker rooms, and showers. Besides laboratory, office, and storage space, there are 32 small-scale manufacturing plants. Advanced manufacturing and testing capabilities include environmental, synthetic fuels, biotechnology, and other emerging technologies.
"While the University of Pittsburgh and its affiliated Manufacturing Assistance Center occupy some of U-PARC, about 66 percent of the leasable space is leased by third parties," says Jeffrey Latcheran, facility manager for the U-PARC site and at the Oxford Development Company. "Intertek PARC Technical Services is the largest tenant, occupying 11 percent of the leasable space, including oil refinery pilot plants and automotive testing facilities." The firm has 400 employees who provide analysis and testing services to other companies, including U-PARC tenants.
While most of the approximately 120 U-PARC tenants are small- and mid-sized firms, several Fortune 500 firms also rent space. Plextronics, with 58 employees, has laboratory, manufacturing, and headquarters facilities occupying over 20,000 square feet in two buildings. The firm develops and manufactures conductive polymers for solar cells and other advanced electronics devices.
"U-PARC is a good fit for start-up companies," Latcheran says. "Quite a few start-up companies are tenants. Leases tend to last five to 10 years. The site offers a lot of flexibility for growth, and tenants often rent additional space as their operations grow. Some tenants have been renting since 1987 to 1989." One of them, Koppers, rents space at U-PARC for its corporate research center. It employs 1,616 people worldwide.