For vacant office buildings, research labs may offer a new lease on life during COVID

·5 min read
BioMed Realty's new lab space in one of the most recognizable buildings in Boston will boast rooftop gardens and decks with harbor and city views.
BioMed Realty's new lab space in one of the most recognizable buildings in Boston will boast rooftop gardens and decks with harbor and city views.

At the height of the coronavirus pandemic last year, when corporate office buildings stood empty as employees worked from home, a new type of occupant was busily filling those vacant floors: science labs.

With record amounts of money pouring into the fight against COVID-19, companies rushed to launch research projects and call scientists back to work to collaborate on crucial experiments. Demand for lab space boomed.

BioMed Realty is part of that boom. The company, which specializes in real estate for life sciences firms, acquired one of the most recognizable buildings in Boston's skyline this year.

The 14-story glass office tower had served as the headquarters of John Hancock Life Insurance. But after the company consolidated offices in another part of the city, the building sat vacant for two years.

From khakis to lab coats

BioMed Realty is one of several developers betting that a glut of partially vacant office buildings can be converted into labs.

“It's the one industry where the work-from-home philosophy doesn't work,” says Eric Smith, executive vice president at CBRE, the world's largest commercial real estate services firm. That's because workers can't "conduct experiments remotely."

An infusion of venture capital investment supercharged by the pandemic, increased National Institutes of Health funding, and greater research and development spending by corporations into the life sciences field have accelerated demand for lab space.

Boston, one of the country's major hubs for science research, attracted the most money. It drew $9.6 billion in the 12-month period ending March 2021, up 156% from the same period ending March 2020.

Ginkgo Bioworks, a biotechnology company headquartered in Boston, is benefiting from the increased demand for scientific research.

The company has been involved in COVID-19 response, including community testing, epidemiological tracing, vaccine development and therapeutics discovery. Founded in 2008 by five MIT scientists, Ginkgo grew from 281 employees in January 2020 to 500 this year.

Money for COVID-19 research pours in

Last July, Ginkgo was awarded a contract worth about $40 million under the NIH's initiative for coronavirus testing services. It also received $70 million from investors to build a large-scale coronavirus testing infrastructure in Boston. Then, earlier this year, the company announced it would be going public through a special-purpose acquisition company (SPAC) merger in a deal valued at $15 billion.

“We expect to grow to meet these targets of running hundreds of new cell programs every year, of running robust biosecurity efforts,” said Joseph Fridman, a spokesman for the company. “And that's going to need people, and that’s going to need space, and we're going to need to acquire both of those quickly and efficiently.”

The company, which had a footprint of 100,000 square feet of office and lab space before the pandemic, will be increasing it to 270,000 square feet by next month. Additionally, Ginkgo will be leasing 150,000 square feet of a to-be-built lab building in Boston, opening in 2024, and a separate facility in Emeryville, California.

Across all markets, the demand for lab space has increased by 34% since the middle of last year, according to CBRE. At the same time, office vacancy rates have steadily risen, from 12% in 2019 to 17% this June.

That makes office-to-lab conversions an attractive option for developers looking to cash in on the unprecedented demand. While other kinds of conversions, of residential buildings for example, also are being pursued in certain markets, the cost and feasibility of those conversions have kept those numbers low, said Jonathan Miller, a state-certified real estate appraiser in New York and Connecticut.

Converting space is faster than building

"Such conversions will be extremely expensive and will take years to convert," Miller said. "The politics of rezoning and the financial costs of bringing residential building codes into existing commercial buildings I think is problematic."

He believes the COVID-19 vacancies present an opportunity for new businesses, which had been priced out, to come into urban markets such as New York City.

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Office-to-lab conversions offer the possibility of delivering the finished product faster than ground-up construction.

“You could have a tenant occupying that building within 18 to 24 months compared to 36 months for a new project," said Collen O’Connor, vice president of BioMed Realty.

Although conversions are costlier, developers seem to be focusing almost as much on office-to-lab conversions as building new facilities, according to a CBRE study on the Northeast lab market released this month. That is because conversions can be completed in roughly half the time of ground-up construction, allowing them to capitalize on the urgent demand for lab space.

As of June 2021, 4 million square feet of space was being converted into lab use across 30 properties in the Northeast. By comparison, 31 ground-up life sciences projects totaling 7.7 million square feet were under construction.

That doesn’t mean all office buildings are ripe for would-be lab conversions, experts said.

“The life sciences industry, as a whole, requires certain fundamentals to exist in a region, from the talent pool to making sure there's funding and investment going into the life science sector in that region,” said O’Connor of BioMed Realty, which owns and operates 11.4 million square feet of life sciences real estate throughout the U.S. and U.K.

A COVID-19 lab or a fancy hotel?

When it comes to the building itself, high ceilings, floor load capacities and permissive zoning designations are key.

The buildings also would require freight elevators to ensure there's no crossover between shipping and receiving of hazardous materials and the general public.

BioMed Realty lab building rooftop
BioMed Realty lab building rooftop

BioMed Realty has dubbed the former headquarters of John Hancock the Seaport Science Center, and the site will be ready for business by mid-2022.

But don't expect a staid lab building where scientists in white coats do only serious work.

The renderings for the building resemble a fancy hotel, with a 20-foot-high ceiling at the entrance along with rooftop gardens and decks with harbor and city views. Even the lab space overlooks the Boston Harbor.

"The array of amenities for the mind and body reimagines what research can be," it says.

Swapna Venugopal Ramaswamy is the housing and economy reporter for USA TODAY. Follow her on Twitter @SwapnaVenugopal

This article originally appeared on USA TODAY: Office space after COVID: Will conversions to labs fill vacant spots?

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