NYC’s banner life sciences growth set for regulation, market challenges

New York City’s life sciences industry has reached a boom in recent months, but the sector is facing growing threats to its success.

A change in tax laws and the volatility of the market could harm the industry’s record growth, Crain’s reported. The city’s life science sector is propped up by 10 incubator programs spurred by the city’s $1 billion investment in the LifeSci NYC initiative, but upcoming tax laws and market uncertainty could threaten the sector’s livelihood.

The tax law change comes after a consequence of the 2017 Tax Cuts and Jobs Act kicked in at the beginning of 2022. Crain’s reported companies are now required to pay off R&D expenses over five years, instead of as a one-off, potentially increasing tax liability and hampering liquidity for firms with a big focus in research and development, i.e. life sciences companies.

“If these deductions now have to be taken over a longer period of time, firms could be less attractive to an acquirer,” Christine Kachinsky, a life sciences tax professional at KPMG, told the publication.

Tenants in the sector leased 433,000 square feet in 2021, according to CBRE data, a near tripling from 2020 and exceeding the leasing volume of the previous seven years combined. The average asking rent on triple-net leases in the sector in Manhattan was $114 per square foot in 2021, up $3 year over year, while availability rate for ready-to-use lab space dropped to 3.3 percent.

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Boston, San Francisco lead surging life sciences market

The boom in life sciences comes after a flood of investor interest, but Crain’s reported that waves in the economy have sparked uncertainty and slowed investments.

The Nasdaq composite has leveled off in recent months, as has the Dow Jones. Crain’s reported investors are doing more due diligence on burgeoning firms, forcing them to slow down hiring and growth.

To confront the growing wave of challenges, the city and state may look to continuing to provide tax credits through their initiatives. According to Crain’s, incubator companies are exempt from the payroll tax if employees work on site. The new administration may also look to add to previous investments in the sector.

[Crain’s] — Holden Walter-Warner