Jersey learns from its life science lessons.

International real estate service juggernaut, Cushman & Wakefield, this week announced the formation of a new Global Life Science Practice Group which will cater to the specialized needs of one of the fastest growing, and most lucrative, sectors of commercial real estate.

Led by some of the firm's own top experts in the field--including Christopher Kinum, executive director based in the firm's Rutherford, New Jersey, offices--the new group will bring strategic resources to companies large and small, allowing them to navigate both local and regional markets in developing and expanding their operations.

"The requirements of companies in the life science sector differ from all other types of corporations due to the highly technical nature of the business, especially when it comes to research and development," said Kinum.

"The uncertainty of the results of that R&D when new drugs are proposed and either accept or rejected by FDA--those variables have a major impact on planning. As small companies are developing, and larger companies expanding, there is a tremendous need for capital and we are a conduit between developers, state and local agencies, that can try to help fund these activities so the firms can grow and, hopefully, become a big company."

It's exactly because the risk is so great that there is a need for strategic planning, according to Kinum, who explained the GLS Group can explore opportunities involving state and government facilities or developers who have and appetite for life science development.

Latest statistics reveal investors are indeed hungry for a taste of the sector and are pouring money into life science--and reaping rich rewards.

In a white paper on the real estate implications of the sector's anticipated continued growth released to coincide with the launch of the GLS Group, Cushman & Wakefield's research professionals Maria Sicola, Rick Cleveland and Mark Urbanowicz point to strength in the life science sector overall, including an abundance of capital ear-marked for expansion and increased corporate activity, as well as the emergence of life science "clusters" in select U.S. markets that have attracted significant numbers of firms to specific locations.

All of this, said Sicola, accounts for "a noticeable increase in demand for properties catering to life sciences--from investors and companies."

The life sciences sector has benefited from strong demographics, including the aging baby-boomer population in the U.S., technological advances in research and development and increases in prescription drug spending. These trends are positioning life science assets for long-term growth, according to the report, based on sector growth and the fact that life science firms typically sign long-term leases.

The report also cites growing investment demand for life science properties. In 2006, 227 life science related assets traded for a total of $5.1 billion, up from $601 million in 2002, according to data compiled by Real Capital Analytics.

San Francisco remains the nation's top life science market, with up to 30 million square feet of inventory.

But the report also looks at major life science hubs including San Diego and the greater Philadelphia metropolitan region, as well as developing life science markets in suburban Maryland, RaleighDurham, N.C., Puerto Rico, Seattle, metro Los Angeles and the New York metro area and its surrounding suburbs.

It's no coincidence that Kinum is based in Jersey. Dubbed the Medicine Chest of the Nation, the Garden State has the highest concentration of businesses producing prescription pharmaceuticals, over the counter medications, vitamins, diagnostic drugs and medical devices in the country.

Nearly half of the nation's R&D investment in new medicine--about $15 billion--is committed to New Jersey where pharma firms have contributed $20 billion to the state's economy.

The state's life science cluster has a long and illustrious history, having evolved there over the past 100 years. Johnson & Johnson--one of the largest pharma companies in the world--was first established in New Brunswick in 1885. In 1897, Maxwell W. Becton and Fairleigh S. Dickinson established their medical device company, Becton, Dickinson and Company, (now BD) in East Rutherford.

American Home Products Corporation's roots in the state can be traced back to 1926. Seven decades of mergers and acquisitions have transformed that company into a research powerhouse that markets over-the-counter and prescription medicines in more than 100 countries worldwide. Today, its vast research, development, and marketing complex is located in Madison, NJ. HoffmanLa Roche established its first US plant in Nutley and the transistor radio was invented at AT&T's Bell Laboratories in Murray Hill in 1947.

Such clusters traditionally form around educational and research institutions like Princeton and Rutgers universities where there is a high concentration of skilled workers. But in the past two decades, New Jersey upped the ante in its efforts to grow the sector, introducing a slew of incentives and legislation such as the High-Tech Job Retention Act aimed at encouraging small, emerging technology industries in the state. It has pumped millions into the sector through its Commission on Science and Technology, $10 million Springboard Fund, Stem Cell Research Institute and Biotech Venture Fund and it offers tax and employment incentive programs as well as customized training grants.

"New Jersey has been able to grow its life science sector because many of these large companies and academic institutions are already here offering a phenomenal labor source. It offers tremendous incentives and the cache for a start-up of even being close to such historical leaders in the field is also a major magnet," said Kinum.

Yet, despite its obvious success, the state still trails research triangles in North Carolina and California, where there has been explosive growth. Universities are also building their own research facilities, helping places such as Philadelphia leapfrog ahead.

Said Kinum, "It's an expensive place to live and do business and there have been some constraints on growth. Competition is intense and the programs being put together in all of those other states [to attract and retain businesses] are significant."

James Schroeder, a managing director at Studley's New Jersey office, agrees the competition has never been tougher.

He points to Novartis' decision to expand its R&D facilities in Cambridge, Mass., adding, "They're not leaving, but they didn't choose to expand here either. Other firms have also chosen not to locate or expand here, so in Jersey the sector has not been growing as rapidly as it has in other areas."

With its unique specifications, the properties these firms seek are traditionally more expensive. The cost to build out such space in Jersey can range from $120 to $400 psf, according to Schroeder, noting average office costs fall somewhere in the $80 psf bracket.

"Traditionally, New Jersey has a few landlords--including such national heavyweights as Alexandria and BioMed Realty Trust as well as more local landlords like Eastern Properties--who do understand what goes into the risk involved and are prepared to charge a premium to essentially lend them the money, according to Schroeder.

And, despite a reshuffling among several major players, New Jersey's pharmaceutical industry remains a leading economic and real estate growth driver for the state, according to Stephen Jenco, client services manager at Grubb & Ellis.

Jenco noted that the HealthCare Institute of New Jersey's 2007 Annual Report, stated that pharmaceutical companies employed nearly 62,000 workers in the state, and had an estimated economic impact of more than $26 billion on the its economy.

Expanding requirements by pharmaceutical companies were a leading theme of the Bergen North submarket in the second quarter. In Woodcliff Lake, Advance Realty Group completed construction on a 209,000 s/f Class A office building at 100 Tice Boulevard, which will serve as the U.S. headquarters for Eisai.

Barr Pharmaceuticals also leased a 144,000 s/f building at 225 Summit Avenue in Montvale. The generic drug firm is relocating its corporate headquarters from nearby Woodcliff Lake.

"These transactions contributed to the nearly 270,000 s/f of positive absorption that occurred in the Bergen North Class A market," said Jenco.

But the fact there aren't any major corporations currently looking to locate in Jersey underscores the incredible competition in the market, according to Kinum.

"It is now clearly a global practice. There are no countries that do not recognize and look to build a base of life science companies and some are more aggressive than others."

But New Jersey isn't exactly throwing in the towel yet.

Speaking recently, Gary Rose, the chief of the Office of Economic Growth, said, "New Jersey is a leader for biotechnology and life sciences and ensuring that it remains so is a top priority of the Governor's Economic Growth Strategy.

"Through programs such as the Edison Innovation Fund, which supports life sciences companies throughout their discovery, development and commercialization stages, the State is working hard to ensure New Jersey remains an attractive environment for biotech companies to locate, thrive and create jobs."