Investing in science: why life sciences real estate is exploding
The previous decade saw explosive growth in the life sciences sector of commercial real estate. They are companies dedicated to medical research and the development of new technologies.
Some prominent examples that may come to mind are biotech companies or pharmaceutical companies.
Considerable amounts of capital have been and continue to be invested in this space, fueling a wave of medical research expansion focused on new technologies and drugs involving DNA and mRNA, stem cell research, and more.
Exciting new technologies have emerged that have reignited enthusiasm in the scientific community, such as artificial intelligence and new advances in cell and gene therapies.
The COVID-19 pandemic has brought increased attention from the general public to a sector of the economy that was experiencing rapid expansion.
As soon as we invest in life sciences real estate, we must also remember that developing or investing in multi-family real estate in close proximity to life sciences facilities can be very profitable.
For example, an area with the headquarters of a pharmaceutical company may command higher rents than surrounding areas due to attracting higher quality tenants both directly and through tangential businesses. This is good for all the businesses in the surrounding area, from supermarkets, gyms, shopping centers and health care services.
We are residential professionals who focus on multi-family housing, but several of our Class A developments sit on the “line of progress,” surrounded by life sciences infrastructure and employers.
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Real estate earmarked for life sciences companies includes laboratory space for conducting physical experiments, as well as a workplace component.
As technology has advanced, the proportion of your typical life sciences center dedicated to the workplace has improved.
Scientists and researchers now spend increasing amounts of time using highly advanced computer modeling applications for many parts of their study that were previously unavailable.
As a consequence of these trends, these facilities today tend to have slightly more office space compared to lab space.
The conversation about lab space may be winding down as computers play a bigger role in studying, but that doesn’t mean it’s an afterthought in business. Rather, the laboratory spaces that are in demand now are more sophisticated and cutting-edge than the highly specialized areas of study that are being pursued.
Like all flexible real estate, life sciences facilities need flexibility and adaptability. As different fields of research are pursued over time, laboratory space may need to be reused, expanded, or relocated to different regions of the facility.
Buildings that allow this kind of adaptability have been in high demand from life sciences companies that want to stay for years and may go through several different phases of research. There is no point in developing a space that cannot be adapted as the company grows.
Demand has continued to outstrip supply within this sector and shows no signs of slowing down anytime soon. Here are some reasons why you should consider adding a life sciences real estate investment to your portfolio:
1. Financing
As the old saying goes, “follow the money.”
They provide grants for scientific research and have awarded more than $100 billion in these grants over the last five decades. Additionally, Cushman & Wakefield published a report a year ago that showed very good growth over the past decade, along with venture capital investments in the sector growing from $3.7 billion to $17.4 billion.
The report also found that between 2012 and 2019, paid research and development for life sciences companies increased by 40%. A similar CBRE report competed and found that venture capital funding flowing into the life sciences field is up 40 percent from a decade ago.
2. Growth:
Our development company started in Boston, Massachusetts, which is currently ranked as the number one market for life sciences by multiple sources.
We saw in advance the huge growth of the local economy driven by the life sciences sector, which spilled over into a demand for new and more excellent housing, accommodation and other industrial investments (visit our post Demand Cleaners Explained for real estate for more information). information).
This rapid expansion saw an already robust backbone of 9.6 million square feet of life sciences commercial real estate now expanding to 18 million square feet, according to CoStar.
These trends are being seen across the country as venture capital funds and grants encourage these companies to seek more and more usable space for their research needs.
There is also some level of late start growth due to the timely nature involved in exploring and creating new technologies and treatments. The funding that has been raised over the past decade originally led to R&D that is only now beginning to bear fruit. The push for a vaccine following the outbreak of this COVID pandemic reveals indicators of the kind of strength these companies have begun to show after years of continued progress.
Another lesson that the COVID pandemic has taught the business is the demand to bring the supply chain back home.
Over-reliance on foreign links in the supply chain caused problems and created uncertainty during the pandemic and companies want to avoid this by relocating, even if this incurs additional costs.
This trend will present an opportunity for further evolution of warehousing and storage facilities for all of these supply chains.
3. Vacancy rate:
Compared to traditional office commercial real estate, Lifestyle Science has about half the vacancy rate, 9 percent, when looking at a national average. Strong markets like Boston and San Francisco posted exceptionally low rates of 4% and 2%, respectively, per year. It will be many years before the supply of new life sciences facilities can begin to keep pace with current demand.
4. Jobs:
In a report published by Cushman & Wakefield, life sciences job growth was found to have increased 7.5% annually since 2013. This is an incredible increase compared to the previous twenty-year period, when growth of employment in this sector was 1% per year. Yet another sign that life sciences real estate is in a great position, as job growth indicators tend to be some of the strongest clues to steady expansion.
5. New Markets:
Although Boston, Seattle, San Diego and San Francisco would be the superstars in the life sciences world today, the business is growing rapidly and this has started and will continue to drive growth into new markets. Today’s major life sciences markets have a higher cost of living, making it more difficult for both the employee and the employer.
This is really driving new markets, including Philadelphia, Maryland, and North Carolina, to name a few. Areas with a strong backbone of research-based universities and an educated population will be in a strong position to welcome new life sciences companies into their market.
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