Maturing Life Science Markets: Greater Philadelphia
October 7, 2022
In our last post, we introduced a focus on emerging life science markets, meaning those that are less mature, less funded, and lesser known than the commonly covered hubs such as Boston or Silicon Valley. As the high cost of living and limited lab space creates challenges for those markets, there are many emerging markets nationally that present alternative options where companies can expand or relocate. One example is the Greater Philadelphia market, which is the focus of this blog post.
Small and mid-sized biopharmaceutical companies are dominating the industry nationally, comprising 71 percent of total biopharmaceutical industry employment and 99 percent of business establishments (TEConomy/BIO, 2020). The Mid-Atlantic Region (for purposes of this discussion, including Virginia, Maryland, D.C., Delaware, Pennsylvania, New Jersey, and New York) reflects this national trend. Larger companies are downsizing and/or outsourcing their innovation to younger and smaller companies that are not as equipped to acquire land or as savvy or sufficiently resourced to build their own facilities from scratch.
As a result, more life science companies are in the market seeking guidance on how to plan, design, execute, and operate the facilities required for their growth. New Jersey and New York tend to be combined by global brokerage market statistics, as do Maryland/DC/Northern Virginia. We will explore activity in these two regions in future blog posts.
Life science activity in Pennsylvania is largely concentrated in the Greater Philadelphia Metropolitan Service Area (MSA), which also includes Northern Delaware (New Castle County). A recent marketing campaign has branded the region, “Cellicon Valley,” based on the cell and gene therapy research driven by the University of Pennsylvania since the 1990s and the life science research and development at Jefferson Health, Drexel University, Children’s Hospital of Philadelphia (CHOP), Temple University, and the Wistar Institute, which have all contributed to significant growth in the region. According to Cushman & Wakefield, “Cell and gene therapy companies dominated the market share of growth and new transactions in R&D, HQ and manufacturing facilities with Century Therapeutics, Carisma Therapeutics, Aro Biotherapeutics, Spirovant, AskBio (Bayer), and Interius all significantly expanding operations (2022 Q1 report).”
A recent report by the CEO Council for Growth and Econsult Solutions reviewed how cell and gene therapy growth in the Greater Philadelphia Region compared to other major markets. The report found that Philadelphia ranked second behind Boston as the best regional hub for cell and gene therapy growth. Most notably, in venture capital—which is a great indicator of growth potential—Philadelphia ranked third behind Boston and San Francisco with $4.2 billion invested between 2018 and 2022.
Perhaps one of the best examples of a successful cell and gene therapy company coming up in Philadelphia is Spark Therapeutics, which announced plans last year to create a 500,000 SF life sciences facility in the University City neighborhood. Spark, founded in 2013, was purchased by Roche in 2019. The growth in Philadelphia’s cell and gene therapy industry continues to be supported with a handful of significant recently announced lab space developments.
The significant number of lab project announcements coming out of this region in recent years is a result of the gradual expansion of capacity there over the past several years. In 2016, the University of Pennsylvania established the Pennovation Center, a 58,000 SF incubator for science and technology startups. An adjacent site, Pennovation Lab, then opened a 65,000 SF lab space offering larger lab spaces for companies outgrowing their previous locations. Most recently, Pennovation Works announced that the campus would expand with a 455,000-square-foot life sciences facility that includes 387,000 square feet dedicated to biological research and development and 68,000 square feet for biomanufacturing.
The Curtis Center, a historic publishing house, has undergone several lab conversions in recent years. Today, several early-stage lab companies occupy the space, and BioLabs recently announced the opening of a 23,000 SF graduate-level lab facility. Cambridge Innovation Center (CIC) opened in 2018 and now has 137,000 SF of office and lab space. CIC recently announced it would convert 50,000 SF into lab space, expanding its offerings to support graduation labs. The graphic below highlights Philadelphia’s largest recent lab space announcements, including several of the aforementioned expansions.
Recent Philadelphia Lab Space Announcements
- Discovery Labs adding several million SF
- Drexel University adding 500,000 SF
- UPenn’s Pennovation Works adding 455,000 SF
- Navy Yard adding 3 million SF
- Center City adding 200,000 SF
- Cambridge Innovation Center adding 50,000 SF more of lab space
Schuylkill Yards adding 472,000 SF Construction of One uCity and 3.0 University Place
Despite the recent large investments and 1 million square feet of lab space in development, there is a shortage of lab space supply in Philadelphia, as in most markets. According to CBRE, as of Q1 2022, average asking rents in the Philadelphia market are roughly $45/SF and the vacancy rate is about 14%. However, compared to the Boston market average asking rent of $90/SF, Greater Philadelphia offers significant cost savings while still offering access to academic institutions, an entrepreneurial culture, and a technically skilled workforce.
Indicators such as employment and venture capital investment suggest that the growth in Philadelphia is expected to continue in the upcoming years. According to Cushman & Wakefield, “Major life sciences hubs will continue to be drivers of life science and lab real estate with employment and funding trends also boding well for real estate growth in emerging markets around the country.” This bodes well for Philadelphia, which is the fourth-largest market by employment. Additionally, venture capital investment is surging with the National Venture Capital Association reporting an estimated $2.4B was earmarked in Q2 2022 for life science investments in the Greater Philadelphia .
Due to the exponential growth of venture capital, increased NIH funding, and acceleration of cellular and gene therapy brought about by the COVID-19 pandemic, the nonprofit organization, NYC Builds BIO+, expanded into the Philadelphia region and held an inaugural Philly Builds Bio+ Symposium in September. The purpose of the symposium was to “bring life science and real estate communities together around the key drivers of the life science industry in Philadelphia (its opportunity and potential), and the opportunities and challenges of life science real estate development in the region” (Philly Builds Bio+). Representatives of Facility Logix attended the event to discuss the future market of Philadelphia life sciences. Check out our LinkedIn post to learn more.
In recent years Facility Logix has been very active in New Castle County, Delaware, and has gathered key regional insights. Most of the life science activity in Delaware is concentrated in the northern part of the state with proximity to I-95. In 2019, FLGX completed an Innovation Ecosystem Market Assessment for Delaware, which showed an increase of early-stage science company activity in the wake of the 2016 Dow-DuPont merger due to a mass shift of DuPont employment in the state from layoffs, retirements, etc. For example, in 2017 the state created the Delaware Innovation Space (a partnership of the State of Delaware, the University of Delaware, and DuPont) on the DuPont Experimental Station campus in north Wilmington, which has roughly 150,000 SF of lab space. CBRE’s 2021 report includes ~190,000 SF of lab space in the region, located at the Delaware Technology Park, where space is occupied by a mix of University of Delaware programs and private companies.
In response to nationwide lab space demand in the region, in 2021 the state of Delaware instituted a grant program to support the high cost of lab space projects, which thus far is projected to add roughly 50,000 SF of lab space to northern DE. A significant development is also underway, transforming a portion of the DuPont Chestnut Run Campus in north Wilmington. In December of 2021, MRA Group purchased a portion of the campus and is in the process of transforming it into an innovation center, called Chestnut Run Innovation and Science Park (CRISP). The 163-acre campus has 780,000 SF of existing office and lab space, and MRA Group plans to build shared amenities including a hotel, fitness center, outdoor amphitheater, conference space, and restaurants. The site has additional capacity to build new labs and manufacturing facilities, dramatically increasing the state’s potential to attract and accommodate expansions of science and innovation-based companies.
Source: Chestnut Run Innovation and Science Park webpage
The Greater Philadelphia region is just one example of the evolution of life science hubs outside the historically dominant Boston and California markets. Although those markets offer a plethora of talent and investment opportunities, they also come with high rents and cost of living, causing some employees and employers to seek alternative locations nationally. Next in our series we will explore the evolution of the Maryland life science ecosystem as another example of these important emerging markets.
If you have questions about this analysis or are interested in hearing more about Facility Logix, please contact Ariel Gruswitz at ArielG@flgx.com.
About Facility Logix – One of only a few facility-related consulting services firms in the United States specializing in the life sciences industry, Facility Logix provides owners’ representation; facilities planning; move and transition, project, and operational management implementation; marketing and business development; and feasibility studies.