Alexandria Real Estate Equities executives said rising merger and acquisition activity involving big pharmaceutical tenants points to strong demand ahead for biotech laboratories, even as speculative space needs among smaller firms waned this year.
A recent wave of deals is expected to help the real estate investment trust that's one of the nation’s largest holders of life science real estate, executives told analysts. Global pharma companies constitute the bulk of Alexandria's 800-tenant base in a 75 million-square-foot portfolio, and the company expects they will help keep space filled in current buildings and others set for completion over the next two years.
As a slowdown in demand for coronavirus vaccines and treatment has waned, new demand is being fueled by enhanced research into areas such as obesity, cancer and dementia. A resetting of research priorities has helped fuel a wave of recent biotech deals including Bristol Myers Squibb’s $4.8 billion acquisition of San Diego-based Mirati Therapeutics, which develops commercial drugs to treat cancer.
“Altogether, the result of the current market conditions is that companies are highly conscious of every dollar spent,” Hallie Kuhn, Alexandria’s senior vice president of science and technology, said during a quarterly earnings call Tuesday. “They do not have the luxury of risking their science in unreliable lab space or in locations where they can’t recruit the right talent.”
Pasadena, California-based Alexandria is the largest owner of biotech space in several key life science hubs, including Boston, San Francisco and San Diego, and last week opened a large new laboratory campus near Houston.
Officials said the Alexandria Center for Advanced Technologies, in the Houston suburb of The Woodlands, debuted with a nearly 124,000-square-foot building anchored by San Francisco-based Nurix, which develops cancer and other treatments. Alexandria also said it is extending the company’s seed capital platform, led by the company’s venture investment division, to The Woodlands to support early-stage companies.
More Deals
According to Stifel Financial, global biotech M&A deal value totaled $93 billion in the first half of 2023 and is on track to reach the highest full-year level of M&A activity since 2019’s total of $328 billion. This comes as venture funding for startup firms has recently been rebounding but remains below pre-pandemic levels.
Kuhn told analysts that large pharmaceutical companies have been buying up smaller firms that can give them access to new research areas without duplicating existing operations, especially as they look to boost their production pipelines to replace drugs that are reaching patent expirations.
Alexandria CEO Peter Moglia said new recent research regarding mapping the human brain offers more potential for research space demand, similar to what was generated 20 years ago with the mapping of the human genome. Executives said new tenants going forward could include developers of artificial intelligence technologies that require lots of laboratory-generated biotech research in brain and other growing research fields.
Moglia noted that biotech demand is currently demonstrating a “barbell” pattern, with space expansion concentrated nationally among smaller firms on one end and large global companies on the other side, with mid-sized firms posting less leasing so far in 2023.
Several brokerage firms have reported that small and mid-sized firms, along with smaller subsidiaries of larger firms, have constituted the bulk of space pullbacks this year as some firms have announced layoffs and placed space back on the market for subleasing in cities including Boston, San Francisco and San Diego.
Still, executives noted 66% of space in Alexandria’s nationwide projects slated for completion over the next two years, totaling 6.4 million square feet under construction, has already been preleased and those projects are expected to generate $580 million in new annual income after completion.
For the third quarter ended Sept. 30, Alexandria reported revenue totaled $713.8 million, up 8.2% from the year-earlier quarter. Net income was $21.9 million, down from $341.4 million a year earlier. Funds from operations, an industry-recognized metric gauging performance of changing real estate portfolios, totaled $386.4 million, up 12% from a year earlier.
CoStar News' reporter Parimal Rohit contributed to this article.