Tight markets drive new real estate solutions
Minneapolis/St. Paul perspective: Although considered a secondary market on a national scale, Minneapolis boasts a very active Life Science community and competition for space is heightened. Decreasing vacancy rates are pushing companies to align real estate opportunities and space trends to attract and retain top talent in the industry.
Driven by fierce competition for space and labor, tenants are putting more emphasis on site selection and amenities, which play a key role in attracting talent and capital.
Low vacancy is a trend in almost every cluster, but how demand is being accommodated varies.
In traditional clusters like Boston and the Bay Area, ample investor interest and bullish market perspectives have led to a major construction boom.
Meanwhile, those in secondary cluster are seeking new ways to utilize space. For example, in Minneapolis some smaller companies are repurposing second-generation restaurant and clean tech for office space for office use.
Prioritizing talent is critical to growth
Minneapolis – St. Paul perspective: Minneapolis ranks in the top 5 for talent in Life Science communities. This, accompanies with strong demand for work space that aligns with current trends, has companies developing and acquiring real estate that differentiates them from the pack.
While location is a theme for development, it’s at the forefront of talent attraction, development and retention. Life sci ences firms are recognizing what it takes to hire and acquire skilled workers.
This is where clusters benefit tenants. Highly concentrated with life sciences establishments and the individual that come with them, these communities present an opportunity to recruit employees with minimal disruption to their personal lives. Additionally, proximity to higher education institutions is crucial.
Strategic hunt for revenue growth
Minneapolis – St. Paul perspective: Local companies such as St. Jude, Boston Scientific, Medtronic, etc. all have been actively seeking M&A targets to diversify and add value to their organization bottom line. Furthermore, real estate facilities have been trading hands at a rapid pace. Boston Scientific, along with others, have either attempted to sell or vacated a handful of facilities in the Twin Cities in recent years. Compressing operating expenses via consolidation is the number one tactic these companies are deploying.
With the practice of strategic tax-inversion coming under scrutiny of the U.S. Treasury Department, tax-incentivized shortcuts are no longer a viable cost-savings option. In addition to high operating expenses, Big Pharma is projected to lose $17 billion this year in patent expirations . These factors and more have contributed to the world’s largest companies struggling to grow revenue, and it’s forcing companies to reassess their approach.
Multinationals have turned to “business swaps”—the divestment or acquisition of a business line or asset for the purpose of driving revenue. This trend of strategic M&A activity is contributing to the disposition of life sciences properties.
Influx of new sources of capital
Minneapolis / St. Paul perspective: Institutional investment real estate has long focused on ‘Core’ markets such as New York, Chicago, Los Angeles, San Francisco, etc., however, Minneapolis has been one of the leading ‘secondary’ markets in the United States in the past five years. As an influx of capital enters the Twin Cities, investors are looking for solid performing, stable assets to purchase. With the density of Life Sciences companies in the Twin Cities and the growth projections, real estate housed by Life Sciences organizations is attractive.
Traditionally, institutional real estate investors have looked past life sciences properties, however, this is rapidly changing. Why?
Leading life sciences clusters boast self-sustaining ecosystems that house world-class universities, high concentrations of life sciences professionals and top-notch research centers.
With institutional-quality tenants, low vacancy rates and a resilient, global industry, life sciences real estate will continue to attract the attention of core investors. And this investment brings good things to the companies that utilize the space.
Minneapolis/St. Paul perspective was written by JLL’s Brian Ginkel
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