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Life Sciences Outlook Suburban MD / DC / Arlington . 2012 Suburban Maryland clusters driving scientific innovation I-270 Corridor After a rocky start, the submarket has increased momentum Frederick Maryland’s emerging market

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Page 1: Suburban MD / DC / Arlington . 2012 - jll.sk · Suburban MD / DC / Arlington . 2012 Suburban Maryland clusters ... Jones Lang LaSalle or any of their affiliates accept no liability

Life Sciences OutlookSuburban MD / DC / Arlington . 2012

Suburban Maryland clusters driving scientific innovationI-270 CorridorAfter a rocky start, the submarket has increased momentum

FrederickMaryland’s emerging market

Page 2: Suburban MD / DC / Arlington . 2012 - jll.sk · Suburban MD / DC / Arlington . 2012 Suburban Maryland clusters ... Jones Lang LaSalle or any of their affiliates accept no liability

Jones Lang LaSalle • Suburban Maryland / DC / Arlington • 2012

Global trendsThe aftereffects of the recession, coupled with the European sovereign debt crisis, continue to plague business operations in the mature market clusters of North America and Western Europe, including those of life sciences companies of all sizes and maturity levels. Although most life sciences companies continue to enjoy higher profit margins than those of other industry segments, it has become markedly clear that the product development formula of the past no longer applies. As a result, greater emphasis is being placed on the next wave of drugs and treatments – those stemming from biological organisms. Additionally, companies are increasingly diversifying their portfolios to mitigate risk and help fund the lofty costs of innovation, adding generic brands, crop and animal science and even consumer products through mergers and acquisitions.

New product developments have become ever more costly and difficult to achieve. Drug makers are attempting to achieve greater breakthroughs with less funds than in years past. The need to increase a company’s likelihood of developing a new treatment continues to steer conversations around location strategy. Although many companies maintain R&D in mature markets rich with people capital and renowned research universities, others are turning to emerging global clusters due to dedicated private and public funding.

Within the United States, life sciences-focused clusters are at various stages in their evolution. The Northeast and California continue to dominate with their extensive university networks and deep labor pools, but, more and more, emerging clusters offer great talent coupled with more competitive real estate opportunities.

Suburban MD / DC / Arlington market overviewThe Suburban Maryland / DC / Arlington life sciences cluster has benefited tremendously from the area’s large federal government presence. Government agencies such as the National Institutes of

Life Sciences activity in the Suburban Maryland / DC / Arlington cluster largely occurs in suburban Montgomery County.

Health (NIH) and the U.S. Food and Drug Administration (FDA) have provided contracts for private sector companies as well as a critical mass of scientists who have gone on to start or staff many of the region’s private biolife companies.

Aside from its federal backbone, the market boasts a significant inventory of existing lab space which originated primarily from a decision by Alexandria Real Estate to invest in speculative space. The growth that rewarded Alexandria came largely from research into the human genome. The companies that led the region’s development into a cluster included Human Genome Sciences, MedImmune and Qiagen, all with strong ties to the federal government and an affinity for public-private research partnerships.

The life sciences are largely clustered among suburban Montgomery County, particularly along the I-270 corridor. The J. Craig Venter Institute and Johns Hopkins (satellite campus) are both located there. Federal government facilities are found to the south in the Twinbrook, White Flint and North Bethesda submarkets. Washington DC and Arlington, VA act as supporting clusters to life sciences activity in Maryland. Their proximate locations keep talent and funding flowing across the region.

% life sciences employment

VC funding(in millions)

1.7%9th $317.8

Rank in relation to 21 United States clusters

NIH funding(in millions)

$965.65th

% life sciences establishments

1.0%7th 7th

Suburban MD / DC / Arlington life sciences scorecard

Sources: Bureau of Labor Statistics, PricewaterhouseCoopers, National Institute of Health

Suburban Maryland / DC / Arlington

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Jones Lang LaSalle • Suburban Maryland / DC / Arlington • 2012

I-270 Corridor

OverviewThe life sciences are largely clustered among suburban Montgomery County, particularly along the I-270 corridor, known locally as “DNA alley.” Within the I-270 corridor, a heavy concentration of biolifecompanies is found in the Shady Grove micromarket encompassing Rockville and Gaithersburg.

The disposal of large blocks of space and federal budget cuts earlier this year swelled vacancy in the area and diminished rental rates from the peak achieved in 2010. A prime example is J. Craig Venter Institute’s current sublease of its entire building at 9704 Medical Center Drive (124,000 square feet). Conversely, the NIH signed a 15-year lease for 75,056 square feet at 9800 Medical Center Drive in Rockville for its infectious disease research lab. It is one of the largest leases for the industry in 2012. Novavax signed a large deal in 2011 and is slated to move into 20 and 21 Firstfield Road in Gaithersburg. The company will be vacating approximately 25,600 square feet at the end of 2012 and the other half of the building in the middle of 2013. Now that the company has a future home it is trying to sublease its current space at 9920 Belward Campus Drive.

Qiagen plans to build a 244,000-square-foot facility and will initially only occupy half the space, allowing the balance to be ready for anticipated future company expansion. Emergent BioSolutionsreportedly moved into an additional 8,000 square feet to total more than 40,000 square feet at 2273 Research Boulevard. The company sells the only approved anthrax vaccine to the federal government and recently won a grant worth up to $200.0 million dollars to launch a new biodefense development and manufacturing facility in the state of Maryland. Intrexon decided to stay and renew at 20358 Seneca Meadows Parkway in Germantown. Based in Blacksburg, Virginia, Intrexon signed a 55,000-square-foot lease of both laboratory and office space. The company designs and produces novel and enhanced biological products and processes throughout multiple industry segments.

Human Genome Sciences (HGS) was acquired by GlaxoSmithKline (GSK) in 2012 for $14.25 per share. GSK revealed that the transaction will improve their earnings beginning in 2013 and will result in a $200.0 million cost saving by 2015. These companies have reportedly worked together for years, including a lupus treatment which was granted marketing approval last year. HGS occupies 9910 and 9911 Belward Campus Drive and 14200 Shady Grove Road. GSK placed 14200 Shady Grove Road on the market for sublease in 2012. The three building complex totals 657,414 square feet and is located close to the I-270 corridor.

In the area of new development, the National Cancer Institute (NCI) has a build-to-suit under construction. The building will be approximately 575,000 square feet and is slated to deliver in 2012 /

2013. Great Seneca Science Corridor is under construction with multifamily projects; however, the existing and proposed development plans include 17.5 million square feet of commercial space, 9,000 dwelling units and 52,500 jobs.

OutlookGiven historically modest growth in election years, a decrease in the federal budget and an apprehensive posture toward new investment among most businesses across the country, tenant demand in the I-270 Corridor’s life sciences sector has stagnated. State and local government incentives, venture capital investments in the life sciences space and technological innovations, however, could produce significant long-term gains for the industry in the years ahead but does not have enough influence to be an immediate effect. In light of these conditions, real estate participants would be well advised to continue monitoring the life sciences industry to ensure that supply / demand trends are optimized in their favor.

Leasing Development SalesActivity key: Tenants in the market Large blocks of space

BIOMED REALTY TRUSTpurchased Belwood I and II in 2012 for a reported $26.2 million ($245.80 p.s.f.). The two properties totaled 106,469 s.f.

NIHThe institute signed a 15-year lease for 75,056 s.f. at 9800 Medical Center Drive.

GREAT SENECA SCIENCE CORRIDORis under construction with multifamily projects; however, the existing and proposed development plans for 17.5M s.f. of commercial space.

J. CRAIG VENTERThe institute is subleasing their entire building at 9704 Medical Center Drive, consisting of 124,000 s.f.

State and local government incentives could produce significant long-term gains for the industry in the years ahead but does not have enough influence to be an immediate effect.

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Jones Lang LaSalle • Suburban Maryland / DC / Arlington • 2012

9800 Medical Center Drive 75,000 s.f. lease deal 9800 Medical Center Drive 75,000 s.f. lease deal

Alexandria Real Estate Equities

15010 Broschart Road10,882 s.f. lease deal15010 Broschart Road10,882 s.f. lease deal

Alexandria Real Estate Equities

1701 Research Blvd105,000 s.f. lease deal1701 Research Blvd105,000 s.f. lease deal

BioMed Realty Trust

2092 Gaither Road 26,107 s.f. lease deal2092 Gaither Road 26,107 s.f. lease deal

TA Associates

I-270 Corridor lease activity

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Jones Lang LaSalle • Suburban Maryland / DC / Arlington • 2012

FrederickOverviewMany price-conscious tenants are drawn to the Frederick market due to its proximately to I-270 and the Shady Grove micromarket. In general, as space in the Rockville-Gaithersburg area, including Shady Grove, is absorbed this could cause tenants to venture farther north on I-270 into Frederick. A handful of tenants have decided to be in both the I-270 Corridor and Frederick markets. MedImmune has their headquarters in Gaithersburg but also has a branch in Frederick and Qiagenand Charles River Laboratories have also made Frederick their home. Qiagen moved in an additional 10,000 square feet in early 2011 to occupy the entire building at 6951 Executive Way. Charles River Laboratories is staying in Frederick, renewing their lease of 35,003 square feet early in 2012.

OutlookStrong ties to the Shady Grove micromarket should bode well for the emerging market. After experiencing a slight increase in vacancy in 2011, it has tempered off in 2012 and will likely remain stagnant over the coming quarters.

Charles River Laboratories is staying in Frederick, renewing their lease of 35,003 square feet.

CHARLES RIVER LABORATORIESrenewed 35,003 s.f. for five years at 15 Wormans Mill Court.

due to deliver in 2014.

U.S. ARMY MEDICAL RESEARCH INSTITUTE OF INFECTIOUS DISEASE is under construction on a six-story research facility at Fort Detrick, due to deliver in 2014.

EMERGENT BIOSOLUTIONSsold Wedgewood IV, buildings 1 and 3 (292,000 s.f.) to Matan Realty for $12.2M, both 100 percent vacant.

MRIGLOBALhas a reported lease expiration in 2013. R&D is presumed to be the function at its current Frederick location.

Leasing Development SalesActivity key: Tenants in the market Large blocks of space

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