JLL Research

Seattle-Bellevue | 2017

Life Sciences

An evolving industry: Today’s clusters creating tomorrow’s breakthroughs

Seattle CBD

Belltown/Denny Regrade

Pioneer Square Water Front

Bellevue CBD

Suburban Bellevue

MercerIsland

Ballard/University

District

Redmond

South Seattle

Queen Anne

CapitolHill

90

5

405

Lake Union

Bothell

Seattle-Bellevue

Life Sciences Outlook | Seattle-Bellevue | 20172

Seattle - BellevueThe life sciences industry is the fifth largest industry in Washington and is responsible for more than $12.5 billion of the state’s GDP. As the industry continues to expand and capture a wider range of emerging sectors, such as digital health, the trade organization formerly known as Washington Biotechnology & Biomedical Association has rebranded itself as Life Science Washington. This name change, coupled with the establishment of the Life Science and Global Health Advisory workforce panel and the declaration of June 1st as Life Sciences Day in Washington, signals a commitment from the local life sciences community to make the industry more competitive on a global level.

A number of world-renowned life sciences research institutions and companies based in Washington are clustered in the Seattle area, one of the nation’s premier life sciences markets. This list includes the Allen Institute for Brain Science, Fred Hutch, Seattle Biomedical Research Institute, the Institute for Systems Biology, Seattle Genetics and Juno Therapeutics. The presence of major philanthropic organizations and educational institutions, such as the Bill & Melinda Gates Foundation and the University of Washington, has much to do with the high life sciences concentration. The Gates Foundation has funded several major grants to Seattle-based research institutes and the University of Washington consistently ranks in the top five of institutions receiving NIH funding nationally.

Puget Sound is home to many large life sciences institutions, but is driven primarily by small to mid-sized companies that are experiencing dynamic growth as a result ofsignificant innovation.

The market continually ranks in the top 10 nationally in VC and NIH funding, as well as patents issued, further demonstrating its position as an innovation hub supported by some of the world’s largest philanthropic organizations.

Major lab supply:Clusters of established lab stock with long-time industry presence

Life Sciences manufacturing supply:Clusters of manufacturing space devoted to pharmaceutical, biological or medical device & instrument manufacturing

Emerging lab supply:Areas with limited lab stock today that are poised for growth

ScorecardLife Sciences Outlook | Seattle-Bellevue | 20173

At $894.1 million, the Seattle cluster accounted for 3.6 percent of all NIH funding nationally. The number of life sciences businesses has grown by 3.1 percent year-over-year, as startups continue to pop up. As a result of that, along with growth from established companies, employment grew by 1 percent. While there was a notable decline in VC funding in the last 12 months, Paul Allen recently committed $100 million to create the Paul G. Allen Frontiers Group. This is a scientific fund that specializes in biological science.

Despite a failed trial that caused it to cancel its flagship cancer drug, Juno Therapeutics has grown its headcount to about 550 employees. The company received a $50 million payment from its partner, Celgene, to develop and commercialize its pipeline internationally. Seattle-based Alpine Immune Sciences landed $48 million in Series A funding in mid-2016. The company believes this funding will get it through the initial clinical testing of its cancer and autoimmune disease drugs.

Research and development companies make up the largest portion of life sciences institutions in the area. Seattle is on the cutting edge of the fast-growing immune-oncology segment of the life sciences industry. According to a recent report by Research and Markets, this segment is expected to grow from $14 billion in 2019 to $34 billion by 2024. Adaptive Biotechnologies, which is headquartered in the Eastlake neighborhood of Lake Union, has a chance to be a major player in the space.

3%

32%

8%4%

43%

10%Pharma & medicine

manufacturing

Electromedical instrument

manufacturing

Medical equipment & supplies

manufacturing

Testing laboratories

Research & development

Medical & diagnostic

laboratories

Economic

Life sciences employment composition

Life sciencesemployment

24,323

non-labusing

labusing

4%

13%

16%

11%

44%

12%Pharma & Medicine MFG

Electromedical Instrument MFG

Medical Equipment & Supplies

Testing Laboratories

R&D

Medical & Diagnostic Laboratories

Life sciences establishment composition

Life sciences establishments

959

Workforce Total life sciences% Life sciences to private

employmentYear-over-year

growth

Employment 24,323 1.8% 1.0%

Establishments 959 0.9% 3.1%

Funding Total life sciences % To total U.S.

VC funding $128.0m 1.3%

NIH funding $894.1m 3.6%

Inventory Total supply % Total vacancyAverage asking

rent (NNN)

9.7M s.f. 5.5% $22.03 p.s.f.

Cluster score: 48.0

Seattle

Life Sciences Outlook | Seattle-Bellevue | 20174

Lake Union

Rents continue to rise, with lab

space nearly impossible to get

• Lake Union’s office market sits at 4.4 percent vacant, but the lab subset is even tighter, at just 1.3 percent. This is a decline of 180 basis points year-over-year.

• Only one block of available space larger than 50,000 square feet is currently being marketed in the area. The space in the Rosen Building, previously occupied by the University of Washington, is being offered as a long-term sublease.

• The presence of the life sciences community plays a large role in Lake Union being the most expensive submarket in the Downtown Seattle cluster. Average asking rates for lab space are $39.37 per square foot, NNN. This is an increase of 14.8 percent year-over-year and represents a 19.8 percent premium over traditional Lake Union office space.

• The Alexandria Center, a 288,850-square-foot building, is the only life sciences project currently under construction. It will deliver fully leased in Q2.

• ZymoGenetics said it will vacate the Lake Union Steam Plant in 2019. Bristol-Myers Squibb acquired the pharmaceutical company for $885 million in 2010. Some of the Steam Plant’s employees will transition to the company’s Bothell facility. While this is certainly a hit to the Lake Union life sciences industry, it does open up about 112,000 square feet of lab space for one of the region’s other biotech companies.

Capitol Hill

Pill Hill will remain space

constrained

• Capitol Hill is the home to Harborview Medical Center, Swedish Medical Center, as well as Benaroya Research Institute, Theraclone Sciences, CellNetix and PharmaIN.

• The submarket currently has no vacant lab product and no new projects planned for the near future.

Facilities scorecard

Supply Lake Union Capitol Hill

Rentable lab stockOwner occupied lab stock(% of total lab stock)

2.0M s.f.1.7M s.f.37.7%

0.6M s.f.0.3M s.f.

8.7%

Total vacancy(Change year-over-year)

1.3%-1.8 ppts

0.0%-10.8 ppts

# of large blocks over 50,000 s.f. 1 0

Under construction (s.f.) 0.3M s.f. 0 s.f.

Demand

# of requirementsTotal s.f. requirements

7280,000 s.f.

00 s.f.

Pricing

Average asking rent (NNN)(Change year-over-year)

$39.37 p.s.f.+14.8%

$31.20 p.s.f.0.0%

Battelle1100 Dexter Avenue NLake Union42,575 s.f.Class A

Rosen Building964 Republican StreetLake Union60,375 s.f.Class A

The Alexandria Center400 Dexter Avenue NLake Union288,850 s.f.Class A$47.00 NNN

1st Hill Medical PavilionHeitman / NexCore GroupCapitol HillRba: 227,628Class A$845/s.f.

Activity key: LeasingSalesUnder constructionLarge blocks of space

Recent activity

Suburbs

Life Sciences Outlook | Seattle-Bellevue | 20175

Bothell

Several options for growth exist

in the suburbs

• Bothell is the second largest life sciences market in the Seattle area with 2.1 million square feet of inventory spread between its two core areas of Canyon Park and North Creek. The location in the suburbs offers quality, low-cost alternatives to the more expensive Lake Union and Capitol Hill submarkets in Seattle.

• Vacancy in Bothell declined 90 basis points year-over-year to the current rate of 17.2 percent. Although there is only one block of available space larger than 50,000 square feet, Bothell remains the one submarket in the region with plentiful available lab space.

• Seattle Genetics, the largest biotech company in Washington, has announced that it plans to hire 200 employees after adding 150 in 2016 and more than 100 the year before. The company currently has about 900 employees and a market capitalization of $8.3 billion. In addition, Seattle Genetics is expanding to 100,000 square feet of new office space in its Canyon Park campus in order to accommodate its growth.

• Alder Biopharmaceuticals, a Bothell-based biotech company, has raised more than $200 million since its IPO and continues adding to its headcount.

Redmond

Vacancy plummets and rental

rates rise

• Vacancy in Redmond dropped 760 basis points in the last 12 months and currently stands at 4.7 percent. Rental rates increased 24.9 percent year-over-year, but at $16.83 per square foot NNN, Redmond is still the cheapest option for lab space in the region.

• One of the largest life sciences deals in the last several years occurred in 2016, when Michigan-based Stryker acquired Redmond-based Physi-Control International for $1.28 billion. The defibrillator maker was previously owned by Bain Capital.

Facilities scorecard

Supply Bothell Redmond

Rentable lab stockOwner occupied lab stock(% of total lab stock)

1.6M s.f.0.5M s.f.22.5%

0.5M s.f.0 s.f.5.4%

Total vacancy(Change year-over-year)

17.2%-0.9 ppts

4.7%-7.6 ppts

# of large blocks over 50,000 s.f. 1 0

Under construction (s.f.) 0 s.f. 0 s.f.

Demand

# of requirementsTotal s.f. requirements

8311,000 s.f.

260,000 s.f.

Pricing

Average asking rent (NNN)(Change year-over-year)

$20.95 p.s.f.+1.7%

$16.83 p.s.f.+24.9%

ZymoGenetics3450 Monte Villa ParkwayBothell51,561 s.f.Class B$26.27 NNN

Nexus Canyon Park21720 23rd Drive SEBothell66,568 s.f.Class B$26.00 NNN

Alder Biopharmaceuticals11804 North Creek ParkwayBothell68,700 s.f.Class B$17.76 NNN

Acucela21720 23rd Drive SEBothell17,488 s.f.Class B$22.50 NNN

Activity key: LeasingSalesUnder constructionLarge blocks of space

Recent activity

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