Life Sciences Real Estate Thrives in the Face of Pandemic
“Pandemic” and “growth” – two words you probably wouldn’t expect to see in the same sentence. For life sciences real estate, however, they make perfect sense. While many facets of the economy have taken a beating throughout the pandemic, life sciences real estate has only gained traction. In fact, it has become one of the most sought-after sectors within commercial real estate and real estate investment.
The rise of life sciences real estate may not be entirely new, but the pandemic has accelerated it. We’ll explore the life sciences landscape, what is driving the increased demand, and what we can expect to see in the near-term future.
The Life Sciences Landscape
There are three stages in the life sciences landscape, including basic research, translational research, and patient delivery:
Basic research focuses on discovery, or when a researcher or scientist has an idea for a new treatment or device.
Translational research is the process of testing and approving a medical intervention (a procedure, treatment, or action) for people with the goal of commercialization. Most medical device, pharmaceutical, and biotechnology companies fall into this group.
Patient delivery is when a drug is available in the market.
In many U.S. markets, real estate developers are targeting traditional laboratory space, which accommodates the first two phases of the life sciences cycle. This comes on the heels of life sciences real estate experiencing record-low vacancies across the United States – as seen in plenty of headlines.
A few recent examples:
The San Diego life sciences market had a record year in 2021, pushing the vacancy rate down to 3.1%.
Boston-Cambridge and New York City submarkets have seen a 1.10% vacancy rate for lab/R&D space.
Rents for life sciences space increased 22% year-over-year in Boston, 19% year-over-year in the Bay Area, and 28% in San Diego.
What’s Driving the Rise of Life Sciences?
The life sciences industry has been climbing for years, but its growth accelerated throughout 2020 and 2021. This is, in part, thanks to record funding.
“The life sciences sector is experiencing an era of unprecedented growth driven by a rise in both public and private funding combined with a post-pandemic sense of urgency and market opportunity,” said Hines Global Chief Investment Officer David Steinback in a company news release.
A record $70 billion of private and public capital poured into life sciences-related companies in North America in 2020. This is a 93% increase over the previous record of $36 billion received in 2018.
What is driving this influx of capital?
The successful implementation of the new mRNA technology, via the COVID-19 vaccine, is expanding possibilities of the technology to fight infectious diseases, cancer, HIV, and more.
The human desire to live long and healthy lives fosters demand for therapeutics that make this dream more and more of a reality.
Life sciences is a largely recession-proof industry. While most office workers can work from home, most life sciences employees cannot work from home. They must go into the lab, which drives demand for more space.
Where Are the Emerging Life Sciences Clusters?
Much of the life sciences industry has remained clustered in a few select areas that have long histories in biotechnology and pharmaceuticals. The top life science hubs in the United States include the usual suspects: Boston, the San Francisco Bay Area, and San Diego. JLL cites that 70% of all venture capital is spent in those hubs.
While these markets are not expected to fall out of favor anytime soon, life sciences companies are expanding their footprints into secondary markets — much like we’re seeing in the tech industry. Some of the quickly rising life sciences markets include Raleigh-Durham, Washington D.C., Atlanta, Phoenix, Chicago, and Dottid’s home turf, Dallas.
“One of the biggest surprises in our recent research has been the amount of employment growth in Sun Belt markets like Phoenix, Dallas, and Atlanta,” said Ian Anderson, Senior Director of Research for CBRE. “These are three big metropolitan areas, but they’re not conventional life sciences hubs. And yet, the data shows that life sciences employment in those markets is growing rapidly.”
So, what is it about these markets that are making them high-potential life sciences clusters?
Raleigh-Durham – Raleigh/Durham already boasts more than 500 life sciences companies that employ over 38,000 skilled workers. Moreover, additional life sciences companies continue to be drawn to the market because of the robust talent pool from its three top-tier research universities.
Washington D.C. – The industry is heavily centered around the National Institutes of Health, the National Institute of Standards and Technology, and the Food and Drug Administration. With a limited real estate supply, increased investment will focus on converting underperforming assets.
Atlanta – Georgia ranks among the top 15 states in the concentration of life sciences graduates, with some of the nation’s top research-intensive institutions. Plus, the area’s annual growth rate for workers in life sciences jobs – 7% – exceeds that of the U.S., overall.
Phoenix – The Sun City is emerging as a competitive life sciences hub. Between 2019 and 2020, Greater Phoenix nabbed the title for highest life sciences job growth. Fueling this is an established research medical community, technical talent from Arizona State University and other college systems, and the availability of land to support new construction.
Chicago – Life sciences companies are increasingly taking note of Chicago’s world-class research universities, talent pipeline, and competitive cost of doing business compared to other life sciences clusters. According to CBRE, venture capital investment in Chicago-area life sciences companies has increased 286% in the last year.
Dallas-Fort Worth – Dallas-Fort Worth was recently named a top emerging market for life sciences by JLL. The JLL study weighed where life sciences jobs are growing the most and the talent pipeline and concentration of STEM professionals. Additionally, DFW is attractive to life sciences companies because of its lower occupancy costs and more centralized access to the rest of the country.
What Does the Future Hold for Life Sciences?
Raj Vora, Life Sciences Core Market Leader at DPR Construction, told Construction Dive, "The outlook is tremendous.” Vora went on to state, “It's going to be a big and growing market for the next probably four or five years before we see it even start to plateau."
But the growth isn’t just centered around new construction. For example, those old Sears and JCPenney department stores? Alexandria Real Estate Equities recently announced plans to redevelop the San Bruno, California, Shops at Tanforan into a biotech campus and innovation hub. And in Atlanta, many landlords are converting office spaces to labs. Underutilized assets are becoming more sought after, especially in submarkets with limited space or supply.
The pandemic has only underlined the long-term demand for innovation in medical research and the production of cutting-edge pharmaceuticals. It’s safe to say that the life sciences boom is expected to continue – with no bust in sight.
Schedule a demo today to learn more about how Dottid can help your company adapt to the rapidly changing commercial real estate landscape and position your company for many years of successful returns.