Vaccine Production Puts Spotlight on Canadian Life Sciences Struggles

Moment of opportunity could be squandered if real estate developers don’t step up to build new lab space and support domestic biotech industry

With a vaccine on the way amid a global pandemic, there has never been a greater appreciation for the life sciences sector, or more interest in enhancing Canada’s capabilities in this area. This has sent demand for related real estate into overdrive. But both the vaccine and future life sciences aspirations will be limited by a severe shortage of much-needed facilities.

According to the CBRE Canadian Life Sciences Team, real estate investors and large landlords are showing interest in lab space in Canada’s life science hubs in Montreal, Toronto and Vancouver, where homegrown biotech companies are doing cutting-edge, world-leading science. But a lack of space and conservative real estate investment philosophies are holding the sector back.

In Montreal, the nation’s leading hub for competitive commercial lab space, there are a handful of purpose-built labs underway, and in some cases older office and industrial spaces are being converted to accommodate labs. However, the city’s life sciences sector remains severely under-supplied.

“Part of the challenge for risk-averse landlords and investors is that they aren’t familiar with lab operations, which require considerable up-front costs to build or retrofit spaces,” notes CBRE’s Jeremy Kenemy, who heads the Life Sciences Team in Montreal.

“Setup costs for life science tenants often need to be amortized over a longer period than with conventional office tenants, and landlords might not get an immediate return on their investment with the first tenant. New market entrants break trail and face the biggest challenges but are also setting themselves up to reap the rewards.”

In Toronto, interest in the life sciences sector has been just as fervent, but Canada’s largest city faces even greater supply challenges, and there are no new labs being built in the downtown core. McMaster Innovation Park (MIP) in Hamilton was first out of the gate and is providing options for lab users in the Toronto suburbs, but there is no equivalent in Toronto proper.

CBRE’s Daniel Lacey points to the potential for a development in proximity to Bedpan Alley, the stretch of University Avenue that’s dominated by top hospitals and health services. “We definitely have pent-up demand for lab space in Toronto. Opportunity is knocking. Who will answer the call?”

In Vancouver, home to some of Canada’s largest life sciences companies, including Stemcell Technologies, AbCellera and Zymeworks, CBRE’s Kevin Nelson has seen demand soar from landlords and investors looking into biotech space. The sector is one of B.C.’s fastest-growing, with employment increasing by 5.6% between 2017 and 2018, to 17,300 jobs. What’s needed is a developer to step up and build facilities to accommodate this growth, knowing once they do the tenants will certainly come.

“It’s such a landlords’ market right now,” says Nelson. “There’s a 50% premium on rents if it’s biotech space. While there’s a pandemic imperative at the moment, there’s also an economic benefit to those who contemplate and execute a specialized life sciences development.”