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EAST BRUNSWICK, NJ-Though a certain percentage of life-science space is given over to administrative tasks that need only standard office space, the bulk of the burgeoning industry’s need is for highly engineered research and manufacturing facilities costing up to more than $1,000 a sf to build, not counting specialized laboratory furnishings and apparatus. While the number of highly specialized life-science buildings has grown exponentially over the past five to 10 years, the rate of growth appears to be slowing due to the same economic forces that drove conventional industries to relocate outside the US and Canada.

“The future in the US, we think, is that it’s stable with flat growth,” says Thomas Sullivan, senior vice president in CBRE’s Central New Jersey office and a senior member of the Life Sciences Group. “Certain products have to be made in North America because of the skill it takes to make them and the level of regulatory oversight. But the lower-margin, high-volume drugs that are comparatively easy to make, by and large, those have been outsourced already and that will continue.”

Moreover, even for more complex medicines, he notes, it’s possible that advances in education in places like China and India could result in research being shifted overseas. “No one is quite sure of the impact of research improvements on offshoring,” he says. “It’s a lot tougher to quantify than manufacturing. When you offshore manufacturing, it’s a set project. You know the drugs and products that are appropriate to move to China or India or Korea. R&D is a lot less definite. Should you move 100 research positions to India or Singapore or China? Are there enough skilled people in those areas to do the complex R&D? I don’t think that question’s been answered.”

A new report from the Chemical Pharmaceutical Generic Association in Milan, Italy says India is becoming increasingly prepared to handle complex research and will likely play a major role at least in development of generic versions of biotech drugs. It does not expect the same of China or other Asian countries. In terms of general pharmaceuticals, however, the report projects 30% to 35% growth for both India and China through 2011.

Sullivan believes US markets with well established biotech clusters will likely remain strong because of the capital and intellectual investment that has already been made in them. But he doubts the numerous untested markets that are pinning their hopes on biotech growth will see the development they’re hoping for. “It’s harder to predict what’s going to happen with some of the secondary and emerging markets. They won’t all come out winners,” he remarks.

As for which emerging overseas markets will benefit from life-science growth, in addition to the countries mentioned above, Sullivan names only Eastern Europe as another possibility, but he says Puerto Rico, formerly a pharmaceutical manufacturing stronghold, could enjoy a comeback. “Puerto Rico has always been viewed as a very favorable location, and they are trying to maintain that base,” he comments. “But there’s been a significant turnover due to globalization and shifting tax laws.” Its location close to the US mainland probably won’t matter much, he adds, because unlike appliances, cars and other common consumer products, the small size and weight of pharmaceuticals make rising long-distance freight costs of minimal concern.

Though many observers view life-science structures as office buildings, Sullivan emphasizes they are very much industrial product. “From the outside many of these buildings look like office space, but all the functionality of major industrial activity is still there,” he explains “Don’t go by exterior appearances. When you’re dealing with biotech and pharmaceuticals, typically 50% or more of the space is dedicated to R&D. You need loading docks, trade elevators, laboratory space and, most importantly, building systems that go way beyond offices.”

The reason so many life-science buildings look classier than most industrial properties, he tells Globest.com, is their location in high-profile urban neighborhoods adjacent to major universities, where planning and zoning regulations mandate higher aesthetic values. While the additional $10 to $20 a sf costs for improved aesthetics would not make sense in standard warehouse or manufacturing buildings costing $100 a sf to build, he says they’re hardly noticeable in the stratospheric budgets of life-science projects.

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