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Houston Life Sciences Funding Surges 300 Percent But Lags Behind Other Cities

Texas Medical Center Could Help Accelerate Real Estate Development
August 2, 2018
Houston’s push into life sciences is starting to pay off, but the city is still playing catch-up compared to other medical research hubs.

Last year, life sciences venture capital in Houston was up 300 percent over 2016 levels, and the city saw year-over-year increases in both life sciences employment and number of establishments, according to a new report from Jones Lang LaSalle (JLL).

Even with the rapid increase in funding, commercial real estate space dedicated to life sciences is only a small fraction of Houston’s large health care sector. CBRE Director of Research Robert Kramp said that despite being the largest medical complex in the world, Houston's Texas Medical Center lags behind in commercialization.

Houston received $86.6 million in life sciences venture capital in 2017, compared with $19.8 million in 2016. The increase only represents 0.44 percent of all U.S. life sciences venture capital funding in 2017, according to JLL. Houston is doing slightly better in terms of National Institutes of Health funding, taking home 0.86 percent of the total. At the other end of the spectrum, the greater Boston area garnered more than $3.8 billion in life sciences venture capital, a whopping 19.4 percent of the total.

Driving the decision of investors is the fact that in cities like Boston, every $5 of research spending produces $1 of commercialization. San Francisco is even better at a 3-to-1 ratio. At the Texas Medical Center, it takes $24 to produce $1 of commercialization, according to CBRE research.

Other cities besides mainstay research hotbeds Boston and San Francisco are beginning to lure labs.

Jonathan Schifrin, senior vice president at CBRE, said the lab market in Boston suburb Cambridge is at capacity for both space and highly skilled talent, so landlords and tenants are looking to other locations to expand.

In one example, Pfizer's headquarters in New York will be transformed into a life sciences research center once the drugmaker relocates to the Hudson Yards district.

The Texas Medical Center, which is made up of more than 60 institutions spread out over 50 million square feet, has long been at the forefront of medicine, but not life sciences. Houston has only more recently begun to leverage that strength into a commercial life sciences sector.

"The Texas Medical Center's big push for commercialization centers around TMC3. Incubator space is also springing up in the TMC, helping bridge the gap from research to product," CBRE's Kramp said.

Last year Johnson & Johnson opened the 26,000-square-foot center for device innovation. In 2016, JLABS @ TMC opened as a 34,000-square-foot co-working and incubator space. The roughly 40,000-square-foot TMCxi, an area aimed at attracting tech leaders and venture capitalists, opened in June.

Expected to break ground in 2019 and finish construction in 2022, TMC3 is projected to generate a $5.2 billion stimulus in the state of Texas and create 30,000 jobs, according to a third-party economic impact study. The centerpiece of the 1.5-million-square-foot collaborative research campus -- designed to resemble the double-helix shape of a DNA strand -- will be a multistory facility housing shared core labs, retail and commercial space.

Once completed, collaboration between researchers and the private sector can begin. Five founding institutions will lead the way: Texas Medical Center, Baylor College of Medicine, Texas A&M University Health Science Center, the University of Texas Health Science Center at Houston (UTHealth) and the University of Texas MD Anderson Cancer Center.

Houston’s burgeoning life sciences sector has gained solid footing in the last several years, anchored by more than 1,400 life sciences companies and 15 academic institutions, including medical schools, pharmacy schools and even a high school focused on life sciences. Three of the metro’s five largest employers are Houston Methodist Hospital, Memorial Hermann Health System and UT MD Anderson Cancer Center, each of which has dedicated lab and research space for advancing the future of medicine and health.

From 2016 to 2017, Houston recorded 2.1 percent year-over-year growth in life sciences employment and 3.2 percent year-over-year growth in the number of life sciences establishments, reports JLL. The city ranks seventh among top U.S. life sciences clusters in terms of five-year employment growth at 7.9 percent and fifth in terms of five-year growth in total number of life science establishments at 12.5 percent.

To compete with other major life science metros, Houston will need to hit the books. According to a survey of JLL life sciences clients, nearly 80 percent of location decisions were based on being close to universities and a research and development ecosystem.

Boston is home to nearly 91,000 life sciences workers and graduating over 1,300 more each year, far outpacing even its closest competitor. Houston is home to just under 30,000 life sciences workers with nowhere near the graduation rate. Life sciences isn’t the Bayou City’s strong suit, but the metropolitan area is still heavily invested in the larger sector, as one in nine Houstonians works in a health care-related field.

Kyle Hagerty, Houston Market Reporter  CoStar Group   
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