The past decade has seen explosive growth in the life sciences sector of commercial real estate. These are companies that are involved in medical research and development of new technologies.
Some notable examples that may come to mind are biotechnology companies or pharmaceutical companies.
Large amounts of capital have been invested and are still being invested in this field, further expanding medical research focused on new technologies and drugs involving DNA and mRNA, stem cell research, and more.
Exciting new technologies have re-ignited enthusiasm in the scientific community, such as artificial intelligence and new breakthroughs in cell and gene therapies.
The COVID-19 pandemic has brought increased attention from the general public to a sector of the economy that has been undergoing rapid expansion.
Once we invest in life sciences properties, we must also remember that developing or investing in multi-family properties close to life sciences facilities can be very profitable.
For example, an area where a pharmaceutical company is headquartered will be able to charge higher rents than surrounding areas due to bringing in higher quality tenants either directly or through spin-offs. This is good for all businesses in the surrounding area – from groceries, gyms, shopping malls, and healthcare services.
We are residential specialists targeting many families, however a number of our Class A developments are square in the ‘line of progress’, surrounded by life sciences infrastructure and employers.
Real estate targeted at life sciences companies includes laboratory space for conducting physical experiments as well as a workplace component.
As technology advances, the share of a typical life sciences center dedicated to the workplace has improved.
Scientists and researchers are now spending an increasingly large amount of time on highly advanced computer modeling applications of many parts of their studies that were previously unavailable.
As a result of these trends, these facilities today tend to have slightly larger office space compared to laboratory space.
Talk of lab space may shrink as computers play a larger role in the study, but that doesn’t mean it’s an afterthought in business. On the contrary, the laboratory spaces required now are more advanced and modern than in highly specialized fields of study.
Like all resilient real estate, life sciences facilities need flexibility and the ability to adapt. As distinct areas of research are pursued over time, laboratory space may have to be reoriented, expanded, or moved to different areas of the facility.
Buildings that allow this type of adaptation have been in high demand by life sciences companies that want to survive for years and may go through several distinct phases of research. There is no point in developing a space that cannot be adapted as the company grows.
Demand continues to outpace supply within this sector and it shows no signs of slowing down anytime soon. Here are some reasons why you should consider adding life sciences real estate investing to your portfolio:
As the old saying goes, “follow the money”.
They make grants for scientific research and have given out more than $100 billion in these grants in the past five decades. In addition, Cushman & Wakefield released a report a year ago that showed very good growth over the past decade, along with the growth of venture capital investments in the sector from $3.7 billion to $17.4 billion.
The report also found that between 2012 and 2019, research and development payments from life sciences companies increased by 40%. A similar report from CBRE agreed, finding that venture capital money flowing into the life sciences field is 40 percent higher than it was a decade ago.
Our development company started in Boston, Massachusetts, which is currently ranked as the #1 market for life sciences by several sources.
We have seen in advance the exponential growth of the local economy driven by the life sciences sector, which has spilled over into demand for housing, housing and other new and higher and premium industrial investments (visit the annotated post on real estate demand cleaners for more information).
That rapid expansion has seen an already strong backbone of 9.6 million square feet of commercial life sciences real estate, which expands to 18 million square feet now, according to CoStar.
These trends are being observed across the country as venture capital funds and grants encourage these companies to seek increasingly more usable space for their research needs.
There is also a certain level of delayed growth that occurs due to the timely nature involved in exploring and creating new technologies and treatments. Funding provided over the past decade originally led to research and development that is just beginning to bear fruit. The push for a vaccine in the wake of the COVID pandemic reveals indications of the kind of muscles these companies are starting to flex after years of steady progress.
Another lesson that the COVID pandemic has taught us is the demand for supply chain repatriation.
Overreliance on foreign links in the supply chain has caused problems and created uncertainty throughout the pandemic and companies want to prevent this by sourcing, even though this involves additional costs.
This trend will provide an opportunity for the new development of warehouses and storage facilities for all these supply chains.
3- Vacancy rate:
Compared to traditional office commercial real estate, lifestyle science has nearly half the vacancy rate, at 9 percent, when considering the national average. Strong markets like Boston and San Francisco saw exceptionally low rates of 4% and 2%, respectively, annually. It will take many years before the supply of new life sciences facilities begins to keep pace with current demand.
In a report by Cushman & Wakefield, it was found that job growth in the life sciences field increased by 7.5% annually due to 2013. This is a staggering increase compared to the last 20 years, when job growth in this sector was 1% annually. Still another indication that life sciences real estate is in great shape, employment development indicators are usually some of the strongest signs of stable expansion.
5. New Markets:
Although Boston, Seattle, San Diego and San Francisco will be the superstars in today’s life sciences world, the business is growing rapidly and this has begun and will continue to drive growth into new markets. All major life sciences markets today have a higher cost of living which makes it more challenging for employee and employer alike.
This is really driving a push into new markets, including Philadelphia, Maryland, and North Carolina, to name a few. Regions with a strong backbone of research-based universities and well-educated populations will be in a strong position to welcome new life sciences companies into their markets.
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