GAITHERSBURG, MD–Maryland's suburbs outside of Washington DC have, over the last decade evolved into a biotech community of startups with a few established companies thrown in, such as MedImmune which has its headquarters here.

This year Maryland ranked No. 6 on the top 10 US life sciences clusters in 2016 in JLL's Annual Life Sciences Outlook Report, up from No. 13 in 2015.

But how long can that last?

Right now life science space in Maryland region is at its lowest vacancy at 3.5% to 4% — an uncomfortable range for tenants, Pete Briskman, managing director of JLL tells GlobeSt.com.

Unfortunately, the two major landlords here — Alexandria Real Estate Equities and BioMed — have taken a conservative approach to speculative development, which is what the area really needs, Briskman said.

This has been a problem in the marking for a while.

Last year JLL reported that 500,000 square feet of pent-up demand in Maryland's life sciences sector could push vacancy rate for prime lab space below 3%, leading some landlords to raise rent rates by as much as 20% and offer fewer concessions.

In such a scenario more development would occur, but in this case it didn't, or at least not enough to meet demand. In part because the main landlords are publicly-traded REITs, they opted to pick and choose among the highest credit tenants and spend whatever capital they had for spec development in other markets that delivered higher returns.

Alexandria Real Estate, for example, targeted 96% of its capital for investment into “high quality facilities in urban innovation clusters including Greater Boston, San Francisco, New York City, San Diego, and Seattle. Maryland is contributing to the REIT's revenues — but largely through the ability to charge higher rents.

According to the REIT's CIO during a recent earnings call:

In Maryland, the expiration is $19.11 in 2017, and there's a 2% vacancy in Maryland right now, which for a long time was a weak market and it started to push rents. And so we're going out with proposals today in the $28 to $32 range, so possibly Maryland could contribute significant growth next year.

Briskman predicted as much last year. Spec development dollars will continue to be earmarked towards more mature markets such as Massachusetts, the Research Triangle and San Diego, which have historically provided higher returns, he said last year.Now these competing supply and demand forces are coming to a head, he says, namely because the early tenants here have grown up.

The startups have matured now and need more space to grow, he said.

This state of affairs was one of the drivers behind the recently-formed Montgomery County Economic Development Corp. which named David Petr as its first CEO in August.

The Montgomery County Department of Economic Development was phased out in July of this year per a plan established last summer when the Montgomery County Council voted to privatize most of the economic development agency and turn it into a nonprofit corporation.

Briskman said he believes the new entity will push through incentives to spur the spec development this corridor needs.

Instant Insights /

Maryland's Biomed Tenant Base is Maturing and There's No Space To Grow. Now What?

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