Obsolescence Equals Opportunity_final (002)

Dan Kildee (MI-05), would establish a Qualified Office Conversion Tax Credit to incentivize the conversion of vacant office buildings into other uses. This would establish a 20% tax credit for costs associated with converting office buildings, with a requirement to incorporate affordable housing for any qualifying residential conversion. OFFICE TO LIFE SCIENCES REPURPOSE STRATEGIES Taking a step up in degree of difficulty in execution, life sciences conversions have gained interest among owners and investors in recent years given strong fundamentals and prospects for consistent growth. Cushman & Wakefield’s recently published Life Sciences Sector Update released in October 2022 highlights the underlying factors supporting life sciences strong tenant demand and record low vacancy near 3%. The sector’s outsized growth is even more evident in following rent growth, which has expanded by 67% nationwide since 2015. Similarly, UK rents have expanded by 63% over the same period. Repurposing a property to life sciences can not only increase occupancy, but also meaningfully increase

property-level NOI given that life sciences rent levels and growth significantly outperform traditional office rent. Chart 20 features comparative rent growth figures for life sciences versus traditional office product across key markets. Life sciences rent growth in San Diego, for example, has surpassed 60% since just prior the pandemic, all as traditional office rent has expanded by a smaller margin of 8.7%. Such conversions can not only generate more property income but can also significantly increase the property’s attractiveness as a niche office investment. Life sciences properties are increasingly attracting institutional investor attention for acquisition. Life sciences conversions are a complex endeavor and involve a careful analysis of both building specifications and market-level conditions. The need to simply consider building-level features arises as a common misconception among owners or investors considering a life sciences conversion. Before even turning to building features, a wide variety of factors must be taken into consideration, including: • Subtype Considerations: While generally well-defined, life sciences properties span across a variety of subtypes, including bench

CHART 20: CUMULATIVE RENT GROWTH Q4 2019 - Q2 2022

Life Sciences Rent Growth

Traditional O€ce Rent Growth

60%

40%

20%

0%

Boston

Seattle

Denver

Chicago

San Diego

SF Bay Area

Philadelphia

Suburban MD

New York City

Raleigh/Durham

Source: Cushman & Wakefield Research.

Southern California

34 | OBSOLESCENCE EQUALS OPPORTUNITY