Initially published on Tuesday, May 30, 2023 by Expansion Solutions Magazine
By Mark R. Smith, Contributing Writer
Despite the COVID-19 pandemic and the various market issues of the past three years, it’s not hard to find a sanguine report on the state of the science and tech park (STP) sector.
Consider the perspective of Kevin Byrne, for instance. Byrne, president and CEO of The University Financing Foundation, of Atlanta, offered that the sector is seeing “unprecedented levels of interest from institutions and industry to collaborate, and thus unprecedented levels of demand for space to accommodate.”
His reasoning is simple. “Real estate follows programs,” he said, “so institutions are focused first on the unique factors at the institution, which draws external interest.” They can then combine “unprecedented levels of federal research and infrastructure funding with the demand from industry to innovate to create the ‘state of being’ of university-anchored innovation communities, which fuels the ultimate real estate demand.”
And that, Byrne said, is despite the fact that these companies often require specifically-designed accommodations. “It is very unlikely that available real estate accommodates the unique needs of the institution for research enterprise expansion, startup growth and small-medium firm growth, as well as Fortune 500 [corporations’] desire to co-locate on or near the campus.”
If working out of “a small closet on campus” or at a nearby location ensures that a startup has the right support and ecosystem, Byrne said, “so be it.”
That’s “the best counsel,” he said. “Then label it innovation space to support further investment by the institution in the program,” with the eventual hope that burgeoning demand will lead to the development of specialized real estate via the institution or the private sector.
Ebba Lund held that train of thought. “Demand has stayed strong,” said Lund, CEO of the Malaga, Spain-based International Association of Science Parks and Areas of Innovation. “STPs have close relationships with their companies and supported them through the pandemic, [as well as] the innovative, tech-based companies that operate out of STPs that are concentrated in growth sectors.”
The industry is seeing “strong demand from cities and regions for more innovation spaces, with new STPs and innovation districts being planned and developed around the world,” said Lund, with “existing projects expanding physically, in terms of their infrastructure, and in terms of the services they provide” with their partners to drive economic development.
Accommodating those services is key to cruising the fast lane to the future. “Rather than being threatened or put out of business by digitalization, artificial intelligence, green technologies,” etc., she said, “they are what’s driving [the demand].”
Offering another viewpoint, Will Germain, CEO and managing partner for MCB Science + Health, in Chicago, observed that demand for office space within STPs has softened “since COVID-19. Employers are looking for ways to get people back on to campuses and are trying different methods, like increased events and programs to encourage employees who work from home to come back.”
Germain said some consolidation of spaces is expected, as well as a potential increase in subleasing, but “as it relates to the life sciences and more technical space uses, the demand has remained steady.”
That’s because “the activity in these technical spaces cannot be performed at home, given the need of laboratory equipment and use of special materials,” he said. “Nonetheless, we are not seeing an expansion in space needed as companies tighten their spending, given the decreased investment from private industry due to a halt in the number of initial public offerings and increased desire for preserving capital.”
That issue also applies to incubation space that contains wet labs and other technical spaces, which “has long been a challenge in research parks affiliated with universities,” said Germain.
“These spaces require subsidy and are sometimes difficult to finance,” he said. “Hence, government support or university support is needed to bring these spaces to a park. Most affiliated parks we see that include these spaces have been fairly well occupied.”
“However,” said Germain, “spaces that tailor towards more traditional office co-working have seen less occupancy.”
Happily, the federal government is ready to address this problem, as it is “a major supporter of new development,” said Brian Darmody, executive director of the College Park, Md., office of the Association of University Research Parks.
“The real estate market is tough at the moment with the cooling of the banking market,” said Darmody, “but that could improve when we get the numbers on the first quarter.”
“The combination of banking issues, combined with layoffs with some of the big tech firms, has led to uncertainty,” he said, “though when you hear about layoffs at Meta and Amazon, for instance, and they only lay off 5,000 out of 100,000 employees, that isn’t so bad when you consider the big picture.”
But he pointed out that help is en route: According to the Brookings Institution, with various legislation in place like Infrastructure Act and Inflation Reduction Act, $1 trillion in aid has been authorized by Congress.
“That’s not all for research parks, but a subset of that amount will go towards tech hubs that are being developed by the National Science Foundation, U.S. Department of Commerce and its U.S. Economic Development Administration, and the Small Business Administration,” said Darmody, noting that the U.S. Department of Energy also is investing in energy tech hubs.
“Most of that money will go out on a competitive basis,” he said, “but there will be a set of announcements during the next year or so concerning locations for tech hubs.”
Another opportunity will focus on microelectronics research funded by the DOC and the Department of Defense, “which will be in addition to the investment in building new labs and fabrication facilities for chip manufacturing. That investment will be for billions of dollars,” said Darmody.
All told, about $11 billion from the DOC will go to microelectronic R&D tech hubs that will be competitively awarded around the country during the next year, he said. “So if you’re in a tech hub in a city’s downtown business district that is struggling for whatever reasons, tech hubs will be prominent, so know that sector has a robust future.”
To further his point, Darmody noted that he has recently “been to several R&D conferences that reported record-breaking attendance,” including AURP’s meeting in Phoenix and the DOE Advanced Research Projects Agency-Energy Innovation Summit in National Harbor, Md. at the Gaylord National Convention Center.
Catalyst Campus for Technology and Innovation, which has locations in Colorado Springs, Colo.; Ogden, Utah; and College Park, Md., partners with universities, government and industry to foster innovation “in an open environment to encourage different parties to work together,” said Executive Director Dawn Conley.
“This type of innovation space is really important to advance new technologies, especially for the government entities,” said Conley. “Locally, we focus on the space domain so we have to keep ahead of our adversaries that control satellites systems for GPS,” etc. “If that goes down, its $1 billion per day in costs to businesses.”
“The demand for innovation, science and tech parks here in Colorado Springs is high because of the military presence,” she said. “There are five installation bases here, so we have a high demand for space by contractors. This is a huge state for aerospace industry, with 500 companies. Half are in Colorado Springs and therefore small business and technology evolve around them.”
Many of those companies have dual-use technologies “that are developed for the military, but also have commercial uses,” said Conley. “That facilitates advancements in offerings like our Accelerator Program, where we bring in small companies, expose them to opportunities with the government to provide solutions to their problems.”
It’s all part of the science and technology ecosystem. “We pair our government partners with a software developer, for instance, where they can have real-time interaction,” she said, “as opposed to what can often become a longer drawn-out process. We bring the government off the base into a co-location space to setup constant interaction that is often lacking in these circumstances.”
“I think what the government has finally realized is that doing innovation right is hard and that it has to be more proactive in accelerating change,” said Conley. “So we work to lessen the bureaucratic burden and help them heighten technology transfer efforts to bring a greater use of their inventions on the open market.”
She added that the stage is set “on a more national level” to accelerate technology innovation and heighten the U.S.’s competitive advantage. “The need and the desire is there,” Conley said. “There has been a global shift due to geopolitical pressure with Russian and China where we have to be more nimble.”
As the economy evolves and the university-anchored innovation community industry moves ahead, “The challenge,” said Byrne, “will be ensuring that the community is the primary driver. Unsuccessful research parks focus on real estate; successful research parks focus on people and programs.”
Even the potential enrollment challenges at institutions, “with the pending enrollment cliff, can be mitigated by creating a strong innovation community and developing additional sources of programmatic income for an institution to offset potential tuition loss,” he said. “That’s much easier said than done, but the current trend is for institutions of all sizes to expand external engagement to develop sustainable sources of income.”
“The hope” at MCB Science + Health, said Germain, “is that interest rates will stabilize and hopefully decline in 12 months. However, we also believe, given the drop in valuation in some commercial real estate asset classes, we may see continued pressure on loans in lenders within some of the challenged real estate asset classes.”
That said, the venture capital market looks to be holding its own.
“We had a record amount of venture capital investment in the last several years,” Germain said. “However, in 2022 VC investment lagged 2021, which was a record year. All the same, 2022 investment was still exceeded 2020 and prior. We believe capital access has tightened, but investors are still holding on to dry powder for the right investment under the right circumstances.”
Lund added that many STPs “have initiatives to help connect them with the right investors. The funding available varies hugely both by sector and geographical region,” she said, “but whether there’s enough or not, STPs do all they can to make sure their companies can access it.”
But opportunity is opportunity, and venture capital “follows good ideas and good companies, so there is always plenty of capital available,” Byrne said. “Many [investors], including [former AOL CEO and Chairman] Steve Case, have analyzed the venture model, with the overwhelming majority of the venture money on the east and west coast.”
“However,” he said, per Lund’s observation, “there is investment-worthy innovation in North Dakota, Atlanta, Albuquerque, Tucson and St. Louis. The venture money is finding the good ideas.”
With VC money available for the right concepts, “unprecedented levels of federal funding and a very healthy demand for university/industry collaboration, the next 6-12 months are fulsome,” Byrne said. “The caution will be to focus on the strength of the institution and what makes collaboration with it unique to partners, rather than just developing with expectations.”
“The counsel is always to over-perform with the programming of an innovation initiative before diving into the real estate,” he said. “Place is definitely needed if an institution wants to significantly increase its research enterprise and industry engagement, but [establishing] place is not the first move.”
Also, look for many new concepts to address climate change. The sustainability sector is vast and will be critical “to nurture and scale up companies with green solutions and help legacy industry to decarbonize,” said Lund, “as well as how to make STPs more sustainable and lead the fight.”
Various entities are “looking for new ways to build or refurbish existing buildings to be greener, finding mobility solutions that reduce the impact of thousands of employees travelling to (and from) work and strategies to work in harmony with the local environments where they are located,” she said, “be that water conservation in arid regions or protecting nature in on-site nature reserves.”
STPs, said Lund, “are long-term projects, so in the next year we expect to see the continuation of current trends: high demand, relative stability whatever the latest trends in tech happen to be.”
“And the consolidation of the new developments are already under way,” she said, “with an increasing emphasis on hybrid spaces where talent can work, play and live.”