Industrial tenants aren’t alone in the race for space in northern New Jersey. Biotech firms are also feeding demand.
“There’s strong demand from [life science] companies, but with the industrial market so strong, there are limited options for them,” said Shawn Straka, a Morristown-based managing director in Cushman & Wakefield’s life sciences practice. “When you do find space, a lot of times you’re getting outbid [by] a warehouse user.”
For life science companies, which often need to find or build highly specialized laboratories, even smaller spaces are scarce, Straka said. He described one client, which he declined to name, looking to buy 50,000 to 70,000 square feet in central New Jersey with plans to invest significant capital in new labs.
But that client’s options are limited, something that Straka noted often leads companies to settle for less than ideal situations. “They’re going to properties with more challenges,” he said.
Rapid growth in New Jersey’s biotechnology sector is creating competition with industrial buyers, said brokers. In a recent report, Cushman & Wakefield found that there are 3,280 life science operations in the state. That includes a number of pharmaceutical giants with corporate headquarters and those that occupy large blocks of office space. Average asking rents for life science lab facilities hit $18.26 per square foot in 2018, the highest price in a decade, according to Cushman.
“We saw a significant absorption of [research and development] space in New Jersey in the last several years,” said Eugene Diaz, a principal at Prism Capital Partners, which is developing ON3, a former drug company site that bridges the towns of Clifton and Nutley. “Companies have lots of cash, and they are reinvesting that capital now. We’re a lot more affordable market than San Francisco or Boston.”
Diaz said ON3, which Prism Capital purchased for a reported $88.5 million in 2016, is meeting some of the demand. He noted that 600,000 square feet of R&D space has been leased at ON3, which has opened for certain tenants. “Overall demand was so high that we leased it in 24 months,” he added.
ON3, which snagged $16.3 million in tax credits from the New Jersey Economic Development Authority, is home to the Hackensack Meridian School of Medicine at Seton Hall University and will eventually house a National Institutes of Health clinical research center, a Quest Diagnostics lab and the headquarters of Modern Meadow, a Brooklyn-born compny that fabricates materials from biological products.
Other recent life science investments of note in northern New Jersey include UNICOM Global’s $25 million buy last year of drug giant Merck’s former 2 million-square-foot Whitehouse Station headquarters, which it plans to turn into a science and technology park. Somerset Therapeutics also agreed to purchase a 67,000-square-foot warehouse in its hometown of Somerset in 2017, while MSN Pharmaceuticals acquired a 203,674-square-foot industrial building in Piscataway that same year for manufacturing and R&D.
Cushman’s Straka, who represented the buyers in the latter two deals, said the MSN transaction was for a “building that had been on the market for a while and was not your typical state-of-the-art distribution facility, but still went for $85 a square foot.”