The Triangle’s Office Sector Slows but Life Sciences, Laboratory Sector Shows Resilience
As companies extend their work-from-home policies for many traditional office jobs, office leasing in general is undergoing re-evaluation and leasing is slowing. But one sector of office space continues growing as space remains essential: life sciences office, laboratory and manufacturing space. Nowhere does this hold truer than in the Research Triangle in North Carolina.
The Triangle occupies a position of power as one of the top five major life sciences centers in the United States. STEM-oriented institutions including Duke, the University of North Carolina at Chapel Hill and North Carolina State University provide education, research opportunities and employment for the area’s highly educated workforce. Large life sciences companies (including giants such as Glaxo Smith Kline, Biogen, Lilly and Pfizer) have taken advantage of the area’s lower cost of living to set up research labs and manufacturing space to support technology and healthcare work.
A tenant and buyer representative for life sciences, technology and healthcare clients, Marlene Spritzer, Vice President of Lee & Associates Raleigh Durham, has witnessed firms from around the country relocate to the Triangle for years. Even before the pandemic, the area was attractive to businesses due to its wealth of resources and mild climate as well as the fact that 47 percent of the population holds bachelor’s degrees or higher. Those factors have also made the region a bastion for in-person office space in the midst of a wider transition to telecommuting.
Slowdown in Traditional Offices
Spritzer says that Lee & Associates sees about 4.6 million square feet of new office product under construction in the Raleigh Durham area currently, but that future construction is likely to slow down. COVID-19 has curtailed new activity in the office sector, especially in urban spaces. Some office groups have pulled out of coworking spaces and want their own suites. Trends will likely push Raleigh’s existing office tenants towards Raleigh’s existing suburban parks.
How will the current widespread telecommuting experience affect traditional office occupancy in the long term? Spritzer says, “A few of our office tenant clients have said to their employees ‘You can come back in if you want,’ but a lot of them are not requiring people to work from their offices for the rest of the year. We’re seeing renewals get done, but the deals generally are smaller. Rates have been holding up for now.”
Meanwhile, Lee & Associates is seeing interest in medical office space in Raleigh, as well as in some nearby communities, such as Garner, Clayton, and Holly Springs.
The Appeal of Life Sciences Office/Lab Space
While many traditional office buildings have seen leasing suffer and tenants seeking rent relief due to COVID-19’s effects, the lab space vacancy rate is very low, especially in the smaller square footage ranges for space (approximately 15,000 square feet).
Unlike regular office work, the widespread switch to telecommuting cannot take root in many life sciences spaces. “You need to be in the lab or in the manufacturing facility in order to work; you need to be present,” Spritzer says. “It can’t be done from home.”
Hands-on lab equipment and manufacturing are essential functions in the Raleigh/Durham area, and they don’t allow for alternative methods of clocking in.
The life sciences sector has remained lucrative and essential despite the pandemic’s upheavals. “The life sciences sector is the probably the strongest sector of all product types in the Raleigh/Durham market. The pandemic has fueled the demand for more lab and manufacturing space to research antibody testing and vaccine development,” according to Spritzer, who notes that many local companies in the Triangle were involved in the early creation of antibody tests or are involved in making vaccines.
Unrelated to the pandemic, cancer research firms and gene therapy companies (like Grail, Eli Lilly, Beam Therapeutics and Kriya Therapeutics) are driving demand for space and new facilities. Manufacturing space tied to some of the pharmaceutical companies (like Pfizer) has become increasingly popular just outside the Triangle. Additionally, life sciences space dedicated to artificial intelligence and robotics saw significant growth before the pandemic, and that expansion is expected to continue in a world where distance remains essential.
Landlords have increasingly recognized the value of lab space and are entering into the market, unlike in the conventional office market. “There have been several landlords purchasing and renovating flex buildings to accommodate lab functions,” explains Spritzer. “These lab spaces are often in areas close to the Research Triangle Park as well as Downtown Durham and near North Carolina State University’s Centennial campus.”
Submarkets like the Research Triangle Park in Wake and Durham counties and the Raleigh Durham airport area in Wake County are the traditional bulwarks of life sciences and pharma companies. But the Chesterfield building and the Durham Innovation District in Downtown Durham are attractive because of their proximity to Duke University. In West Raleigh near North Carolina State University, there’s Centennial Campus and the Biomedical Partnership Center. Each of these areas is expected to maintain robust leasing in the coming months.