University and medical trade groups recently warned the National Institutes of Health (NIH) that lack of lab space is a "significant constraint for new research." Yet the plea for money to build new facilities comes as many areas of the country report falling prices and rising vacancy rates for shiny new laboratories that were once the pride of the biotech boom. Research real estate specialists say current conditions could mean bargains for schools adroit in dealing on the open market for lab space.

Presidents of the Association of American Medical Colleges (AAMC), the Association of American Universities (AAU), and the National Association of State Universities and Land-Grant Colleges (NASULGC) outlined the research space crunch in a May 9 letter in response to an NIH request for input on its research resources strategic plan for the years 2004 through 2008.

General clinical research centers, biotech institutes, animal facilities, and specialized lab spaces are all needed for the expanded research enterprise that NIH has funded, wrote AAMC President Jordan Cohen, AAU President Nils Hasselmo, and C. Peter Magrath, president of the NASULGC.

NIH spending on new research facilities has not kept pace with its spending on research projects, they said, citing a July 2001 study. The school chiefs want Congress to pass a federal loan guarantee program to help finance the building of new research facilities.

But newer NIH figures show federal spending on new facilities at academic and research institutions has increased sevenfold over the period that the NIH research budget doubled. In 1999, NIH awarded $30 million for construction projects. This year, the agency has budgeted $210 million, a figure that does not include money to be awarded to build new biosafety lab facilities. In all, NIH has awarded or budgeted for more than $504 million worth of new facilities in the past five years, according to NIH spokesperson Joyce McDonald.

And commercial real estate brokers say the biotech bust has idled thousands of square feet of lab space, much of it clustered around the universities and medical centers that spawned many biotech startups.

"We are seeing for the first time ever built-out labs available for lease in major markets in the US," said Roy Hirshland, president and chief executive officer of T3 Realty Advisors in Waltham, Mass. "Three years ago, they could not build enough labs to keep up with demand."

The Torrey Pines area, favored for its proximity to the Scripps Research Institute, the Salk Institute, and the University of California (UC), San Diego, has seen lab vacancy rates jump from under 2% to more than 5% in the past couple of years. Average lease rates have also fallen from $36 per square foot to $33 per square foot, according to Tom Mercer, senior vice president at the San Diego office of Colliers International, a commercial real estate research and brokerage firm.

Sublease space, once unheard of, is now plentiful in the area as biotechs crumble or constrict to survive. At the end of 2002, a Colliers report on the San Diego research property market put the vacancy rate above 9%, including sublease space. The Southern California county is bearing up well, compared with the situation in other areas, Mercer said.

Landlords left holding the bag for biotech lab space have pricey properties to tenant, said Stephen Friedberg, an attorney in the laboratory real estate practice of Mintz Levin in New York. "Laboratory space is a very expensive build-out," he said of the transformation of raw space into a research facility. "Converting it back is not all that easy."

Friedberg estimated the average build-out cost for a biotech space on the East Coast at $100 per square foot, more than double the cost of outfitting office space. Mercer in San Diego estimated local landlords' cost to outfit lab space at $85 to $125 per square foot.

How likely is it that NIH grantees will bargain-hunt off campus instead of building new labs? Hirshland said big schools are equipped for sophisticated deals, while others still move too slowly to catch the market advantage.

"Scripps and UC Davis both have picked up lab space out in the market," Mercer said. "I think they have been very prudent in doing that."