The Stakes Are High in the Life Sciences Location Game

Life sciences companies require a highly skilled and specially trained scientific labor force, unlike most industries in which general skill sets can be easily transferable to the tasks required. Therefore, the life sciences industry provides higher than average salaries and benefits to its well-educated employees, creating a boost to the local economy and increasing the tax base. Your life sciences company will be a highly sought-after addition to most state and local communities. However, in order to choose the best location for your new or expanding operations, company leadership should understand some of the current trends affecting the life sciences sector before establishing the key criteria that will be used in making site location decisions.

Cost-Saving Trends
Like many life sciences companies today, your company might be under tremendous financial pressure to cut costs and consolidate facilities due to factors such as the lack of a viable R&D pipeline for future drugs; an excess of facilities due to the acquisition of other biotech and pharmaceutical companies; or because your existing drugs are coming off of patents. In the past, life sciences companies were focused on increasing top-line revenue but, today, cutting bottom-line costs is being aggressively pursued.

Consequently, many life sciences companies are rationalizing their overall real estate portfolio in an effort to cut fixed costs. In many cases, consolidating facilities or deferring capital projects is becoming commonplace; however, four trends, in particular, are gaining significant and noteworthy traction, and may be considered viable options:

An increasing number of life sciences companies are selling their facilities to a third-party service provider, entering into service agreements, and then contracting back the exact scientific services that the life sciences company was conducting at the facility. The life sciences company reduces its fixed costs and can then focus on its core expertise, while the third-party provider can take advantage of excess capacity in the facility and drive more revenue through these facilities.

Another trend gaining traction is the outsourcing of facilities management to a third-party provider so the life sciences company can focus on its core area of expertise and use the services of best-in-class facilities management professionals to manage the real estate. The life sciences company reduces fixed costs while concurrently receiving the benefits of leading-edge thought leadership on efficiently and effectively running its facilities.

Traditionally, laboratories are very heavy users of energy because a large amount of energy is consumed in the heating and cooling of a lab. The proactive management of utilities with a focus on energy reduction and efficiency is becoming increasingly important. For example, in the past, the ventilation rate for a typical chemistry lab would be 12-14 air changes per hour. In many labs, this rate has been greatly reduced in order to cut costs, sometimes to as low as six air changes per hour.

Other emerging technologies are increasingly focusing on issues concerning energy reduction and efficiency. For instance, fume hoods (whose purpose is to control users' exposure to toxic or flammable gases or vapors) are normally closed manually. Occupancy sensors have now been created that will automatically close these fume hood sashes after a predetermined length of time. In fact, some companies are giving scientists and researchers an energy budget related to fume hood use in an effort to "incentivize" the way researchers use their space.

A fourth cost savings measure is to design new labs to be easily reconfigured so that when one group of scientists is done with the lab, a new group can move in within hours or weeks - instead of the months it would take to reconfigure a new lab to meet the exacting requirements of a scientific work environment. These "plug-and-play labs of the future" are easily adaptable and much less costly than traditional labs.

Site Location Criteria
Real estate decisions for life sciences companies are decidedly more complex than those made by most traditional corporate entities. In addition to the traditional decision-making criteria that most companies use, your life sciences company should incorporate the following major factors when choosing a location:
n A highly skilled scientific labor force: Does the jurisdiction have the necessary educated labor at competitive compensation levels to fulfill the needs of the company today and in the future? It should be noted that these types of employees are typically found in and around hubs of world-class academic and research institutions and within close proximity to biopharmaceutical supplier networks.

Favorable state/local tax treatment and a friendly regulatory environment: Do the local and state governments understand the operational needs and critical "time is of the essence" requirements of life sciences companies and are they able to assist your life sciences company with permitting and regulatory approvals? Life sciences real estate decision-makers need to know if a location's regulatory climate and permitting process is clear, easy, and timely.

Utility service and costs: Are the area utilities reliable and sufficient for operational needs and are the costs competitive? Given the high utility demands of biotechnology and pharmaceutical companies, utility costs should be thoroughly analyzed in order to determine how expensive one location would be over other similar short-listed sites.

The existence of a critical mass of affordable existing life sciences facilities: Is there a critical mass of readily available and equipped lab facilities that can be retrofitted vs. having to design, build, and finance new laboratory construction? It is not uncommon for laboratory/biopharmaceutical manufacturing facilities to cost $100 to $1,000 per square foot to build out; with capital being constrained today, retrofitting existing functional facilities may be preferred over having to build from a shell condition.

The current state of the economy has caused companies all across the world to take creative measures to cut costs, and life sciences firms are certainly no different. Even as more and more states create initiatives to lure your life sciences firm and its highly educated and well-compensated work force to their communities, financial objectives must be met. Failing to recognize the current economic pressures and your unique real estate site location criteria upfront can create challenges down the line, both economically and scientifically. By keeping these specialized characteristics and trends in mind when making your next location decision, your company will effectively mitigate against some of the larger challenges that can occur.

James V. Cahill is a managing director at Jones Lang LaSalle. He focuses on assisting life sciences companies with the identification of and negotiation for office, laboratory, and biopharmaceutical manufacturing facilities. He can be reached at (301) 214-1144 or James.Cahill@am.jll.com.