7.5 minute read time
February 5, 2021

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CBRE's Canadian Life Sciences Team - Jeremy Kenemy, Dan Lacey, Kevin Nelson

The world was plunged into the first pandemic of the modern age only to have a vaccine developed at record-setting speed. Help is on the way, and it can’t arrive soon enough.

And 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 could be limited by a severe shortage of much-needed facilities and conservative real estate investment philosophies.

Landlords and investors have been blowing up the phone of CBRE’s Montreal-based broker Jeremy Kenemy to ask him what opportunities exist for investing in lab space. Montreal has had an active life sciences sector for years. But pandemic-inspired investor interest in the industry have sent demand into overdrive. “COVID added to the frenzy in a big way,” says Kenemy, who heads CBRE’s Canadian Life Sciences Team in Montreal.

Life sciences hub

Montreal is North America’s sixth-largest life science and health technologies hub, home to more than 650 related companies. Over 10,000 students graduate from health-related programs in the city’s 11 higher education institutions, including world-renowned McGill University. And the city is one of the most affordable real estate markets on the continent in terms of operating costs.

“There are amazing homegrown biotech companies that are doing cutting-edge science here,” Kenemy says, noting that the city has become a hub for biotech research and development. This has had a knock-on effect on the commercial real estate market.

Kenemy recently closed a deal for a 20,000 sq. ft. new lab space, and a 40,000 sq. ft. lab deal he did in 2019 was one of the biggest ones of that year. He took on a listing for a 50,000 sq. ft. speculative lab building, a purpose-built greenfield extension to an existing facility. And he and the landlord managed to fill most of the space within 18 months with a variety of lab tenancies that ranged from 3,000 sq. ft. to 17,000 sq. ft.

A major U.S. player, Maryland-based Alexandria Real Estate Equities, has taken office space in Laval, a Montreal suburb, and is converting it into a lab complex. It’s telling that a foreign company is taking the lead when Canadian talent and ideas are ready for homegrown real estate solutions. “There’s so little existing lab product that’s vacant,” says Kenemy. “So I’ve been doing lots of deals like this where landlords are converting buildings to accommodate lab users.”

There’s also a brand-new lab building in the works in Montreal, a 400,000-sq.-ft.-plus facility. “It’s very ambitious,” Kenemy says, “but the developer understands that there’s demand for this kind of space in Montreal—build it and they will come.”

Despite these new projects, the Montreal market remains severely under-supplied with life science lab space. Kenemy is working to change this. He’s been busy facilitating joint ventures, bringing together real estate owners, who aren’t familiar with lab operations and tend to balk at the considerable up-front costs of building or retrofitting lab space, with lab operators who scale up quickly but don’t always understand real estate.

“We have the potential to make this happen. You just need to get the stakeholders together,” says Kenemy. “Someone who has access to capital and experience with development and building management, plus a user-operator who understands how labs need to be laid out and what scientists need to be productive. Life science is state of the art, but that doesn’t mean always starting from scratch. Retrofitting existing buildings can add a ton of value and bring in quality covenant tenants.”

For more information on McMaster Innovation Park contact CBRE Canada Life Sciences Team



Toronto wakes up to new possibilities

While Toronto hasn’t seen nearly the same kind of life sciences real estate activity as Montreal, interest in the sector in the wake of COVID-19 has been just as fervent. “Suddenly everybody wants to connect with me and talk about opportunities,” says CBRE’s Daniel Lacey, Toronto lead for the Canadian Life Sciences Team.

Nearby McMaster Innovation Park in Hamilton has been a boon for the industry. The campus hosts over 100 companies in the life sciences, engineering and advanced manufacturing and high-tech sectors, including Fusion Pharma, which started at McMaster University.

But Toronto itself is lacking specialized space for life sciences in the downtown core, save for the perpetually 100%-occupied MaRS Discovery District. And there are no new developments on the horizon. Lacey attributes this in large part to the risk-averse nature of local landlords and investors.

“From an ownership perspective, life sciences isn’t for everyone,” Lacey says. “It’s high cost and high risk, but then it’s also high reward. With all the news about vaccine innovation and production, plus new government supports for the industry, my hope is that there will be more focus on growth opportunities and less on the well-known risks.”


“From an ownership perspective, life sciences isn’t for everyone. It’s high cost and high risk, but then it’s also high reward."
Daniel Lacey

This is the frank conversation he’s been having with landlords who’ve been calling him up wondering about prospects for life sciences. “I’m honest with them: ‘Let’s talk through the entire scenario, and at the end of this you’re not going to have certainty. Most say, ’Wow this sounds exciting and an opportunity but we’re going to have to adjust our threshold.’”

What’s the new calculus? 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. “Traditionally, it’s the next wave of tenants who come in behind them that are likely to be more successful extend their lease for the next 20 years,” says Lacey.

There is great potential for the development of a life sciences hub in downtown Toronto. Lacey points to Bedpan Alley, the stretch of University Avenue dominated by preeminent hospitals and related health services. “We definitely have room for a downtown Toronto asset to come to market and absorb the pent-up demand for lab space.”

Lacey has also been in talks with U.S.-based shared lab space providers - think WeWork for the life sciences industry - who are interested in coming to Toronto to operate a facility. “They’re ready to sign a 25,000 sq. ft. lease downtown. I just have to show them the asset that’s ready to do it.” “Opportunity is knocking,” adds Lacey. “Will Toronto answer the call?”

“At capacity”

Vancouver-based AbCellera Biologics Inc. made headlines last December when it was announced that the biotech firm was working with U.S. drug titan Eli Lilly & Co. on the same type of medicine that was given to U.S. President Donald Trump to treat COVID-19, a monoclonal antibody treatment.

CBRE’s Kevin Nelson, who leads the Life Sciences Team in Vancouver, says the news helped spur renewed interest in the biotech sector. But at the moment there’s little he can offer clients by way of available lab space.

AbCellera will be building two buildings in Vancouver, between the new St. Paul’s Hospital development and Vancouver General Hospital, to fulfill its own requirements. Otherwise, Nelson says, the state of the Vancouver life sciences market is at-capacity. “There’s tons of demand and no supply.”

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 for a developer to step up and build facilities to accommodate this growth, knowing once they do the tenants will certainly come.

Nelson says that he, like Lacey and Kenemy, has had to help landlords understand that life sciences real estate doesn’t work like other property types.

It costs a great deal to build out a lab space and the tenants don’t often have stellar covenants, meaning there’s likely to be some turnover. However, the eventual payoff can be substantial if owners are patient. “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.”

“But recognize the profile of your tenant,” he cautions. “You can’t look at it conventionally, like requiring a balance sheet showing $200 million in profit. It just doesn’t work that way with biotech. There are eight pharmaceutical companies in North America that are profitable, and that’s it. So the tolerance for risk has to be higher.

“If you’re a landlord there are riches to be had here,” adds Nelson. “But life sciences is not for the faint of heart.”

After all that we’ve been through over the past year, here’s hoping we’re all brave enough to lay the groundwork for a bustling life sciences sector that can help us improve health outcomes during and long after the pandemic.

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