This is the first in a three-part series covering the interplay between genomic hotspots and the real estate markets that serve them. This installment examines how young genomics firms are faring in the broad biotech settlements of Montgomery County, Md., where robust demand and anemic supply have conspired to drive rent prices ever higher.
The series, which runs through Wednesday, will also focus on biotech hotbeds in San Francisco and San Diego, Calif.; Cambridge and London, UK; and Munich, Germany.
ROCKVILLE, Md., Nov. 5 – It’s no secret that Maryland’s Interstate 270 has become a hotbed of genomics activity. More than 160 biotech companies now make their home alongside myriad government agencies, industry trade groups, non-profit research groups, and an array of respected universities.
The area, widely known as DNA Alley, has become so popular that biotech companies are practically shouldering each other for space to set up labs there. This stiff competition, reflected by demand for space that outstrips supply by more than three to one, has set rent prices soaring: genomics firms today can expect to up to 50 percent more for lab facility leases than they did just two years ago, experts tell GenomeWeb.
State and local governments also have played a role through enticing tax incentives that lure even more firms to the Alley, as a novel government-subsidized corporate incubator nurtures a handful of nascent biotech companies until they’re mature enough to strike out on their own.
Because young genomics companies can’t afford to tie up capital in buying lab space, leasing remains the common alternative. Average monthly rent along the I-270 biotech strip has ballooned from about $23 per square foot in 1999 to $35 per square foot today, according to industry experts.
That’s on top of service fees and the $300 per square foot or more it often costs to outfit a shell with utilities and power sources necessary to run a modern genomics lab. Those costs are almost a given these days because ready-to-use rental lab space is essentially unattainable, experts say.
“We’ve seen a definite rise in the market during the good times,” says Henry Bernstein, the assistant director of the Montgomery County Department of Economic Development.
There are other signs that the I-270 corridor is becoming more exclusive. Lab-lease prices in the San Francisco Bay area, double the rates in Maryland one year ago, are now just 15 percent to 20 percent higher, according to Bruce Lessler, a senior broker with Trammel Crow Company, a Bethesda-based firm that helps biotech companies secure space. To be sure, part of the narrowing is due to falling prices in the Bay area left by the dot-com shakeout, but helping the trend along are rising costs on the other side of the country.
This trend means that young companies wishing to set up shop in the Alley are having to spend more than ever on space—capital that they and their backers would rather put into research and development. Yet that hasn’t stopped genomics firms from making a run on the area.
“There are over a million square feet of demand right now throughout Maryland and the inventory is currently 228,000 square feet,” says Patricia Larrabee, the executive director of Scheer Partners biotech services group, located in Rockville, Md.
Scarcity of square footage has left as many as 20 biotech companies actively searching for space to lease this fall, Lessler added. The competition has also on occasion triggered a bidding war of sorts: It’s not uncommon for firms to cough up an extra $5 per square foot in rent in order to outbid other suitors, driving the per-square-foot lease price to $40 or more.
But companies are still willing to pay the price. “There’s a game of musical chairs being played, and there are a lot of companies out there that are going to be left without a seat,” says Lessler.
Why the clamor for lab space around I-270? The massive artery runs through a tangle of respected universities and makes a close pass near important regulatory and political centers—a bonus for genomics companies that hope eventually to move their technology downstream.
“It is a prime location,” says Rep. Constance Morella (R-MD), who represents Montgomery County in the US House of Representatives.
Montgomery County, whose county seat is in Rockville, borders Virginia and sits on the northern corner of Washington, DC. The county occupies nearly 500 square miles of space and contains biotech clusters in cities like Bethesda, Gaithersburg, and Silver Spring.
A sample of genomics and biotech companies that call DNA Alley their home includes Aptus Genomics, Celera Genomics, Digene, Gene Logic, Human Genome Sciences, InforMax, Large Scale Biology, Medimmune, and Novavax. There’s even an international presence there with companies like Otsuka Pharmaceuticals, of Japan; Qiagen, from the Netherlands; and Shire Labs, based in the UK.
Industry trade groups, not-for-profit research centers, and a host of specialized government agencies—the Biotechnology Industry Organization, the National Academy of Sciences, the National Science Foundation, and the Institute for Genomics Research, for starters—are all draws.
Companies are also attracted by what many see as a deep talent pool fed not only by the universities—George Mason, James Madison, Johns Hopkins, and the Universities of Delaware, Maryland, and Virginia—but also by personnel branching out from maturing area companies to form their own firms.
State and local governments are partly responsible for the run on lab space in the Alley. According to Bernstein, the Montgomery County official, the county and state offer loan and grant programs to new companies who set up shop in Montgomery County.
While renting remains the most cost-effective way for most young genomic companies to get themselves situated in the Alley, other firms, including larger and more mature groups, are buying. For these companies, though, prices have remained relatively stable over the past several years. And to sweeten the deal further, the county knocks off 80 percent of the real estate taxes over the first two years of corporate residence, and then credits an average of 50 percent of taxes over the next four years, Bernstein says.
Several small genomics companies have also turned to the county’s subsidized incubator facility, in which up-and-comers can rent small lab suites for an average of $2,500 per month. Here, researchers work in humble surroundings while sharing common conference areas and mailrooms. About a dozen companies, including Rexhan, Clairus Technologies, and Protiveris, are currently warming here, according to Bernstein.
But space is so scarce elsewhere in the corridor that some experts predict that companies will soon have to start expanding their searches to nearby areas in Maryland, including Baltimore and Prince George’s County.
Rep. Morella, a congresswoman with a reputation for promoting her district’s biotech industry, is not yet ready to concede the business.
“What we could use, I suppose, is more land,” she says.