Betting on biotech adding more room
BioMed Realty Trust is taking a $35 million gamble on Seattle's biotech industry. Instead of building a research facility with tenants in...
Seattle Times business reporter
BioMed Realty Trust is taking a $35 million gamble on Seattle's biotech industry.
Instead of building a research facility with tenants in hand, the San Diego company is building five stories of laboratory space in the South Lake Union neighborhood without any signed leases.
Developers put up "speculative" office buildings all the time, but they rarely take that chance with more expensive lab space, which requires far more whistles and bells.
Says Bruce Blume, developer of another South Lake Union building that could be used partially for laboratories, "I consider speculative lab space to be an expensive and risky proposition."
But BioMed Chief Executive Alan Gold, whose publicly owned company owns 56 properties across the United States, isn't worried.
"We know that the centers of scientific excellence that exist in the area are growing, and they're going to need more space," Gold said.
BioMed recently broke ground on the 93,000-square-foot Fairview Research Center and says it already has received "significant tenant interest" though the building won't be finished until mid-2008.
BioMed's project is one of four new buildings responding to demand for life-sciences research space in South Lake Union at a time when the industry here, despite setbacks, is showing signs of growth.
Early-stage startups Spaltudaq, VentiRx Pharmaceuticals and Calistoga Pharmaceuticals recently received infusions of venture capital totaling $76.6 million.
South Lake Union's ZymoGenetics, the biggest locally based biotech after Icos was acquired in January, is gearing up to hire a sales force of 50.
It anticipates the U.S. Food and Drug Administration in October will approve Thrombin, a protein drug to control surgical bleeding.
Another reason for the neighborhood's construction surge is that most available properties have recently been taken off the market, said Matt Christian, senior director of brokerage Cushman & Wakefield in Seattle.
There's about 4.1 million square feet of biotech and research space in Seattle, including offices that support the labs.
Vacancy rates have dropped from about 12 percent a year ago to 5 percent.
South Lake Union is a particularly attractive area because of the nearby research institutions, including the Fred Hutchinson Cancer Research Center, Seattle Biomedical Research Institute and laboratories of the University of Washington School of Medicine.
The site of investment and development company Accelerator is also in South Lake Union and currently houses four biotechs, including Spaltudaq.
Lab space costs up to five times more than office space because of all the features needed to accommodate a biotech company, including reinforced floors, special systems to handle electrical loads and gas and oversized ventilation ducts.
The average office building in Seattle costs between $40 and $60 a square foot to build, while lab space ranges from $150 to $200 a square foot, according to Cushman & Wakefield.
Gold is aware of the risks.
He said that "it's very rare" for BioMed to build speculative lab space.
But the company already owns properties in Seattle and Bothell (housing Cell Therapeutics and Nastech Pharmaceutical, respectively).
And he believes strongly in the life-sciences market in Seattle, particularly in South Lake Union.
"There's currently very little or any lab space available in the South Lake Union area," said Gold. "It's a highly sought-after location for life-sciences tenants."
In addition to BioMed's project, biotech and life-sciences research space under construction in the neighborhood includes:
• Calif.-based Alexandria Real Estate Equities, which is developing a property at 199 E. Blaine St. that will become a 110,000-square-foot building housing biotech tenants. Construction is expected to begin this summer.
The company has 12 other properties in Seattle, for a total 879,251 square feet.
• The Blume Co. of Seattle, which recently broke ground on a 183,000-square-foot building for office or biotech tenants at 1100 Eastlake Ave. E. The five-story building is scheduled to open in mid-2008.
• Vulcan, the development company of Microsoft co-founder Paul Allen, which is partnering with the University of Washington School of Medicine on the second phase of its expansion in South Lake Union.
The project includes 284,000 square feet of lab and office space across from the university's research center at 815 Mercer St.
The university could choose to expand by an additional 350,000 square feet in the third phase of construction.
The second phase of the project is expected to bring 900 new scientists and employees to the neighborhood, adding to the area's "intellectual capital," said Ada Healey, Vulcan's vice president of real estate. Vulcan say it's the largest landowner in South Lake Union, with 60 acres.
"South Lake Union has emerged as where the brains are" in biotech, said Healey.
The Blume Co. has been trying to turn its property on Eastlake into an office building since the late 1990s, but the project has been on hold because "market conditions did not look so promising."
Like BioMed's research center, Blume's $75 million project is not under construction for specific tenants. However, the two floors designed for lab space could also be used for offices and don't have many of the features needed for lab research.
The only difference from the rest of the building is the higher ceilings.
Healey believes the biotech and life-sciences market is strong enough in Seattle to support more space — even BioMed's speculative building.
South Lake Union's critical mass of research institutions and companies will continue to draw more interest, she said.
"If you have a great idea, it's really a lot easier to call your buddy that's two blocks away," she said.
Kirsten Orsini-Meinhard: 206-464-2391 or email@example.com