Pictured: Kendall Square, Cambridge, MA
The standard university or college campus consists of educational buildings, student dorms and, depending on the athletic programs involved, field houses and sports playing turfs.
However, “University-Anchored Innovation Districts,” a report recently issued by JLL, said that such areas “represent one of the most compelling and resilient real estate investment opportunities in today’s evolving commercial landscape.”
Research institutions support these districts, and as a result, tend to boast higher rents across asset types and lower vacancy rates compared to national and local market figures.
Defining the Product Type
Emily Crutcher, senior vice president of JLL’s Government and Education Division, told Connect CRE that a university-anchored innovation district is a geographic area that leverages a higher-education institute’s research abilities and talent. The result is innovation-fueled economic development.
“These districts typically combine research facilities, startup incubators, corporate R&D centers, mixed-use development, and entrepreneurial support services within a concentrated area,” she added.
The concept isn’t new. Stanford Research Park came online in 1951, while Kendall Square in Cambridge, MA, has been around since the early 1960s.
Nor do such districts happen overnight.
“University-anchored innovation districts may take decades to cultivate and grow,” Crutcher explained, adding that such a locale requires committed university leadership, local, state and federal support, and corporate partnerships. Also involved with such an undertaking are access to venture capital and partnerships with local community colleges.”
Campus Benefits
The JLL report explained that university-anchored innovation districts offer multiple advantages, including:
- Stable anchor tenants, leading to “predictable demand expectations” that support ongoing real estate development.
- An increase in private-sector investment, thanks to start-up activities, technological advances and new intellectual property and technologies.
- An educated, skilled talent pipeline with help from “continuous matriculation of undergraduate and graduate students.”
- Mixed-use environments that generate “attractive ecosystems for occupiers and developers.”
Crutcher commented that tenants occupying these university-anchored areas aren’t all life sciences or biotech. Rather, the tenant type is specific to the university’s research and development areas.
For instance, a district containing a robust agricultural sciences college could attract a mix of tenants “from federal agencies like the USDA to multinational corporate partners specializing in agricultural machinery,” Crutcher said. “There are also start-ups and spin-outs in agricultural technology and veterinary medicine.”
Fitting in with a CRE Portfolio
While not a typical target for real estate investors, university-anchored innovation districts can outperform submarket and national averages in terms of vacancy and rental rates. Additionally, “commercial real estate investors seeking a strong demand story will find that the ‘stickiness’ of a university’s innovation ecosystem will support and grow the tenant base,” Crutcher noted.
But before diving in and putting money into a university-anchored innovation district, the report suggests the following:
When considering opportunities, focus on submarkets with established university-anchored innovation districts. These locations tend to be more resilient even in downturns.
Focus on long-term old strategies, because “the continuous pipeline of STEM talent and research commercialization creates sustained demand drivers to support immediate cash flows and long-term asset appreciation.”
Target flexible and mixed-use space to handle a tenant mix consisting of startups, established companies, and research organizations that would benefit from the collaboration offered by innovation districts.
Crutcher also explained that such innovation districts achieve more success when leadership positions them as community economic development engines. “The university-anchored innovation districts that actively work to strengthen commercialization pathways will find more broad-based support,” she added.
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