The life science industry has thrived in Colorado for decades. But in the last year or two, more people are moving in and around Denver to research everything from diseases and medical devices to pharmaceuticals and drug discovery. That means there’s less space equipped with proper ventilation and technology and fewer labs available for research and development.
Lab vacancy is at 5.3% nationally, a record low, according to a quarterly report released by the real estate firm CBRE. In the Denver metro area, vacancy dropped from 4.2% at the end of last year to 1.7% in the first quarter of 2022.
“I can’t think of another industry where the success or failure of the company is so closely tied to the facility,” said Erik Abrahamson, a vice president at CBRE.
The report shows there are 33 active tenants in need of 1.3 million square feet in metro Denver, where the industry holds about 3.4 million square feet in labs as well as research and development spaces. The lack of available facilities — and high quality facilities in particular — is threatening to stifle the growth of the industry in Colorado.
Boulder, the heart of the industry in Colorado, had 0% lab vacancy in the first quarter. After the CBRE report came out, news broke of the record $625 million sale of Flatiron Park, the biggest single asset sale in state history, by Blackstone’s San Diego-based BioMed Realty Trust Inc. The campus is mainly office buildings, located on Flatiron Parkway near 55th Street and Valmont Road About half the 1 million square foot complex will eventually be redeveloped for life-sciences tenants, the group told The Wall Street Journal.
“BioMed Realty’s significant investment in Boulder reinforces Colorado’s reputation as a leading North American hub for life sciences” Elyse Blazevich, president and CEO of the Colorado BioScience Association, said in an email. “Well-regarded investors and developers see the opportunities in our fast-growing ecosystem and want to work collaboratively with our community to expand our existing infrastructure and address the need for specialized lab and office space.”
The biggest influence in 2021 was the number of out-of-state companies expanding into Colorado, Abrahamson said. These companies wanted to open new offices but found themselves competing with tenants who were already here. He said the industry was already growing before the pandemic and didn’t slow down when it hit, because scientists still had to conduct research in-person.
New companies are moving to the Denver area because it’s easier to attract and retain employees here, plus the cost of living is lower than the other major industry hubs near San Diego and Boston, Abrahamson said.
In this industry, it’s not just important to have lab space, but to have highly technical, state-of-the-art facilities. Life sciences buildings need increased security, plumbing, HVAC and uninterruptible power. An incorrectly built lab can lead to wrong test results and even the downfall of a company, even if its research is spot on.
The quality of the labs and equipment, plus typical construction delays like supply chain problems and permitting, is extending the timeline to get out of the vacancy crisis. All life sciences manufacturing must be done in buildings that clear FDA regulations designed to keep products safe and effective.
“Due to the complicated nature of these facilities, it takes a lot longer than building out a warehouse or building out an office,” Abrahamson said.
Converting an existing space into a lab takes at least a year. But building a facility for drug manufacturing could last two to three years to meet the sector’s enhanced requirements, like tall ceilings and aggregate facilities of at least 100,000 square feet.
The average of 1.7% vacancy across the Denver area is a bit misleading. Most regions of the metro — Boulder, Northwest, Longmont, North Central, Southwest, West and South Central — had a 0% vacancy rate in the first quarter. Northeast had 12.7% vacancy and Southeast had 7.9%, CBRE reported.
So current vacancy in the area is low, but so is new construction. Denver had the second smallest amount of lab space under construction among the top 12 life sciences markets in the first quarter of 2022, according to the report.
Only four projects are under construction according to the report and all are conversion as opposed to brand new spaces. The number of projects underway ranges from market to market, with Massachusetts boasting 57 while Chicago only has one. A few facilities in Colorado are being built without a tenant already in mind, a promising sign for tenants, and are set to be delivered this year or early next year.
Still, there are only 180,319 square feet under construction in Denver and Boulder, compared with more than 13 million square feet under construction in Boston and Cambridge, Massachusetts. Still, the Massachusetts market has an even lower vacancy than Colorado.
“Your timeline in Denver, Boulder may sound like a long time, but that may actually be a steal compared to other markets you’re considering,” said Sara Johnston, a communications manager for CBRE.
Hope on the horizon
Lincoln Property Company will build 450,000 square feet of lab space in Broomfield, set to open in early 2024. BioMed acquired Flatiron Park’s 22-building campus in Boulder and will convert office spaces to labs for both current and new companies. These two new projects were announced after the CBRE report, but will expand the industry’s local presence as they open over the next few years.
A group of organizations and institutions in the field called the Colorado Coalition are hoping to receive the federal Build Back Better Grant. Their proposal is one of 60 finalists and would lead to six construction projects for biosciences and cleantech.
Funding from the grant would also grow toward employment for and startups by people of color. The announcement is set to come by mid-September.
“We’re super excited about the Build Back Better,” said April Giles, vice president of Fitzsimons Innovation Community. “We’re all kind of hoping and crossing our fingers.”
Fitzsimons, which is not a part of the Colorado Coalition, invests in startups and provides them with lab space on its own campus in Aurora, located across from the UC Health and Children’s Hospitals. More than 30 companies are on the waiting list for lab space in its 100% full building designed for new startups.
The group is set to open up two new buildings, one this year and one by mid-2024. Giles said the goal will be to take only a few months to move in new companies, if not immediately meeting their need.
“Real estate is really a means to an end for us,” said Steve VanNurden, Fitzsimons’ president and CEO. “It’s really to see companies grow and benefit patients. And some of those companies may benefit you and I someday.”