Life Sciences. An evolving industry: Today s clusters creating tomorrow s breakthroughs. Denver JLL Research

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Ashlie McDaniel
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1 Life Sciences Denver 017 An evolving industry: Today s clusters creating tomorrow s breakthroughs JLL Research

2 Denver With college graduates at 41.3 percent and high school graduates at 90.5 percent, Colorado has the nation s second most highly educated workforce. A consistent, high flow of in-migration has boosted the workforce from which companies can recruit. Access to numerous higher education and research facilities, which boast ample bioscience infrastructure, allows the Denver metro to act as an incubator for various life sciences startup companies. Longmont 5 Boulder 36 Lafayette Broomfield Brighton Northwest 76 Westminster Northeast Commerce Arvada City West CBD Midtown 70 6 Lakewood Southeast 85 Aurora 5 85 Southeast Suburban Southwest Suburban Centennial Major lab supply: Clusters of established lab stock with long-time industry presence Emerging lab supply: Areas with limited lab stock today that are poised for growth Life Sciences manufacturing supply: Clusters of manufacturing space devoted to pharmaceutical, biological or medical device & instrument manufacturing Boulder / Northwest The Boulder and Northwest submarket cluster comprises 71.7 percent of Denver Metro s inventory for lab space and is considered among the top two life sciences clusters in the entire region. Product in this cluster is comprised primarily of second generation lab space and flex/office-to-lab conversion space. The majority of tenant requirements in this area are small, falling in the 5,000 to 15,000-square-foot range. SE / Southeast Suburban The Southeast and Southeast Suburban submarkets are home to 10.4 percent of Denver s lab space. Although these submarkets are not the most active within the life sciences industry, the area is home to the Fitzsimons Life Science District and Anschutz Medical Campus considered to be the epicenter of Colorado s growing bioscience community. Here, many startups benefit from shared creative and incubator space while in growth mode. West Suburbs / Southwest Suburban The West and Southwest Suburban submarkets encompass 17.9 percent of the market s lab space. Within these submarkets, space tends to be both second-generation lab space and flex/office-to-lab conversion product. Tenant requirements in these submarkets are smaller in size, typically ranging from,500 to 10,000 square feet.

3 3 Scorecard Economic Users and real estate professionals alike often compare the search for appropriate lab space in Denver to finding a needle in a haystack. Existing, in-place infrastructure in lab buildings are extremely scarce, so life science companies will often use second generation restaurant space or clean tech space. Oftentimes, smaller users must opt to share lab space. Cluster score: 34. Workforce Total life sciences % Life sciences to private employment Year-over-year growth Employment 7,666.1% 1.7% Establishments 1, % 8.0% Funding Total life sciences % To total U.S. VC funding $58.8m 0.6% NIH funding $348.1m 1.4% Average asking Inventory Total supply % Total vacancy rent (NNN) 4.M s.f. 11.6% $14.83 p.s.f. Across the board, nearly all sectors of the life science industry are growing in Denver. This is most notable in the pharmaceuticals sector, which has experienced employment contraction in three of the past five years. The sheer amount of time and capital required to turn a profit, coupled with a challenging regulatory environment, have been factors in regional companies choosing to consolidate. Life sciences employment composition 35% 1% 5% 6% Life sciences employment 7,66 17% 5% non-lab using lab using Pharma & medicine manufacturing Electromedical instrument manufacturing Medical equipment & supplies manufacturing Testing laboratories Research & development Medical & diagnostic laboratories Incubators and startups tend to thrive in Colorado, but lack of space and funding often pushes these companies out once they become established. Although growing, access to capital and reinvestment for life science companies in Colorado still pales in comparison to coastal states. Oftentimes, these more established markets siphon not only funding, but companies and talent as well from Colorado. Life sciences establishment composition 6% % 10% Pharma & Medicine MFG Electromedical Instrument MFG 34% Life sciences establishments 1,189 1% 16% Medical Equipment & Supplies Testing Laboratories R&D Medical & Diagnostic Laboratories

4 4 Boulder / Northwest Boulder / Northwest Lack of functional supply limiting new deals Boulder/Northwest submarket cluster encompasses the cities of Broomfield, Boulder, Lafayette, Louisville, Westminster and Longmont and is home to the University of Colorado at Boulder. Through 016, Boulder and Broomfield counties combined to represent the largest share of medical device and diagnostics (engineering, researching, designing and manufacturing) employment in the ninecounty region, accounting for one in three jobs for this subsector. Pharmaceuticals and biotechnology employment is up 3. percent year-over-year, but down.5 percent since 011. AstraZeneca purchased a 69,000 square foot manufacturing facility from Amgen in order to support existing operations at its Boulder site and to expand biologics commercial manufacturing capabilities. In 016, the cluster recorded 176,907 square feet of positive absorption, but has only experienced 649 square feet of net absorption in the first quarter of 017. During the last 1 months, this market has tightened further, with vacancy rates trending sharply downward and settling at 9.6 percent, currently. Available options for users seeking lab space are believed to be notably tighter than the recorded vacancy rate figure. Longmont and Gunbarrel are low cost alternatives with access to the Boulder workforce. Longmont has a supply of flex and light industrial buildings that have in-place infrastructure to convert to lab space. Looking forward, expect increased absorption, largely reflecting the physical occupancy of users who have inked deals in the past quarter. Leasing-market momentum may be curbed somewhat, however, on account of a lack of functional space. Landlord-favorable conditions remain in the cluster, with no change expected in the next 18 months. Facilities scorecard Supply Boulder Northwest Rentable lab stock Owner occupied lab stock (% of total lab stock) Total vacancy 1.8M s.f. 0.8M s.f. 4.5% 4.6% -3.3 ppts 1.M s.f. 0.0M s.f. 9.% 16.9% -0.5 ppts # of large blocks over 50, Under construction (s.f.) Demand # of requirements Total s.f. requirements Pricing Average asking rent (NNN) Recent activity Undisclosed Tenant Undisclosed address Boulder 14,0 $19.00 NNN RMC Pharma Solutions 1851 Lefthand Cir. Northwest 1,808 s.f. Class C $9.5 NNN Activity key: 118,00 $19.08 p.s.f. +4.% Leasing Sales Under construction Large blocks of space Elion Labs 1401 Infinite Dr. Northwest 41,033 s.f. $15.50 NNN 9,80 $16.98 p.s.f % 4000 Nelson Road AstraZeneca Pharmaceuticals Amgen, Inc. Rba: 69,00 $58.80/s.f.

5 5 SE / Southeast Suburban SE / Southeast Suburban Anchoring CO s life science cluster with Fitzsimons Campus Located at southeastern quadrant of Denver metro, it boasts the Fitzsimons Life Science District and Anschutz Medical Center, both with lab-ready space. Together, these two areas comprise one of the largest bioscience developments in the entire U.S. Upon completion, the campus will boast among the nation s most preeminent and concentrated collaboration of patient care and research-learning centers. Home to the University of Colorado Hospital, the University of Colorado Denver s Health Science Schools, and Children s Hospital. Already, more than 16,000 people work within the District; plans estimate a total workforce that will measure in excess of 45,000 and include professions in teaching, patient care and biotech research and development. The SE and Southeast Suburban submarkets combined for -17,19 square feet of negative net absorption during 016 and -0,907 square feet of negative net absorption during the first quarter of 017, leading to vacancy increasing 7.1 percentage points to.0 percent. Rental rates in the submarkets are currently at $18.00 and $9.75 per square foot NNN marking upward movement in the Southeast Suburban. Historically, tenants have held the upper-hand in negotiations here, and increased vacancy will help them maintain control. Typical users include startups occupying shared, creative and incubator space throughout their growthmode phase. As more VC funding finds its way into the vicinity during the second half of the year, expect an increase in likekind occupiers to seek space as near to Fitzsimons and Anschutz as operating budgets will allow. Looking forward, much of the currently vacant space will need to be absorbed before any further new development will commence. The District will continue to put Denver on the map of U.S. top-markets for life sciences in the years ahead. Facilities scorecard Supply Rentable lab stock Owner occupied lab stock (% of total lab stock) Total vacancy SE 5.0% 0.0% -8.6 ppts Southeast Suburban 5.4% 4.5% +1.7 ppts # of large blocks over 50, Under construction (s.f.) Demand # of requirements Total s.f. requirements Pricing Average asking rent (NNN) Recent activity Undisclosed Tenant 1999 N Fitzsimons Pky SE 16,451 s.f. $18.00 NNN E Arapahoe Rd Regel Enterprises LLC Digital Wave Corporation Rba: 5,6 $87/s.f. Activity key: 9,40 $18.00 p.s.f. 0.0% Leasing Sales Under construction Large blocks of space 3 51,00 $9.75p.s.f. +5.4% 373 Inverness Pky. Zaragon Holdings, Inc. Diamond Ventures Rba: 8,801 $13/s.f.

6 West / Southwest Suburban West Suburbs / Southwest Suburban Submarket has gained momentum with new tenants The West and Southwest Suburban submarkets are largely aligned within the Jefferson County

6 6 West / Southwest Suburban West Suburbs / Southwest Suburban Submarket has gained momentum with new tenants The West and Southwest Suburban submarkets are largely aligned within the Jefferson County boundaries. Long considered a leading area for bioscience with renowned research institutions and global companies, JeffCo boasts Colorado s second-highest concentration of medical device manufacturers at 9.5 percent. It is home to the Colorado School of Mines, where pioneering research is being conducted in the field of nano medicine and biofuel. Located in Golden, National Bioenergy Center serves as the nation s central point of contact for bioenergy and bio-products with its state-of-the-art lab facilities spread across multiple federal agencies. Space tends to be both second-generation lab space and flex/office-to-lab conversion space, and as momentum has picked up over the last year, the West Suburbs are on the cusp of containing major lab supply. The cluster recorded 37,730 square feet of positive net absorption in 016, but just -519 square feet of negative net absorption in the first quarter of 017. Vacancy in the cluster is down year-over-year and sits at 13. percent currently. Rental rates are currently $11.83 per square foot NNN in the West Suburbs, reflecting an 18.3 percent increase from the previous year. Despite strong growth, the submarket offers one of the lowest rates in the market. Rental rates are currently $11.37 per square foot NNN in the Southwest Suburbs, a 0.9 percent decrease from the previous year. Given the historically elevated vacancy rate, the life sciences market pendulum has rested mostly with tenants for the past several years, but is likely to swing toward landlords as more space is absorbed. Facilities scorecard Supply Rentable lab stock Owner occupied lab stock (% of total lab stock) Total vacancy West Suburbs 0.6M s.f. 13.% 16.3% 0.0 ppts Southwest Suburban 4.7% 4.7% -3.8 ppts # of large blocks over 50, Under construction (s.f.) Demand # of requirements Total s.f. requirements Pricing Average asking rent (NNN) Recent activity Undisclosed Tenant 8100 Southpark Way Southwest Suburban 1,04 s.f. $10.00 NNN 3,10 $11.83 p.s.f % 0 $11.37 p.s.f. -0.9% Activity key: Leasing Sales Under construction Large blocks of space

Want to know more? Contact: Roger Humphrey Executive Managing Director Life Sciences +1 (908) 698-867 Roger.Humphrey@am.jll.

Loughlin@am.jll.com Lisa Strope Director, New England Research Americas Research +1 (617) 531-443 Lisa.Strope@am.jll.com Wes Simon Analyst, Boston Research Americas Research +1 (617) 531-416 Wes.

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7 Want to know more? Contact: Roger Humphrey Executive Managing Director Life Sciences +1 (908) Richard McBlaine International Director Corporate Client Development +1 (31) Dan Loughlin Managing Director Brokerage, New Jersey +1 (973) Lisa Strope Director, New England Research Americas Research +1 (617) Wes Simon Analyst, Boston Research Americas Research +1 (617) Megan Shields Analyst, Boston Research Americas Research +1 (617) About JLL JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. A Fortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 016, JLL had revenue of $6.8 billion and fee revenue of $5.8 billion and, on behalf of clients, managed 4.4 billion square feet, or 409 million square meters, and completed sales acquisitions and finance transactions of approximately $136 billion. At year-end 016, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of more than 77,000. As of December 31, 016, LaSalle Investment Management has $60.1 billion of real estate under asset management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit About JLL Research JLL s research team delivers intelligence, analysis and insight through market-leading reports and services that illuminate today s commercial real estate dynamics and identify tomorrow s challenges and opportunities. Our more than 400 global research professionals track and analyze economic and property trends and forecast future conditions in over 60 countries, producing unrivalled local and global perspectives. Our research and expertise, fueled by real-time information and innovative thinking around the world, creates a competitive advantage for our clients and drives successful strategies and optimal real estate decisions. 017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

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