The Power is Now

Despite market headwinds, life sciences real estate is still on the rise, new report says – Endpoints News

While many com­pa­nies have turned to re­mote work­ing, leav­ing of­fice spaces emp­ty, sci­ence lab­o­ra­to­ries could be buck­ing that trend.

A bear­ish mar­ket and a de­crease in ven­ture cap­i­tal fund­ing and in­vest­ments may not ma­jor­ly af­fect the life sci­ences re­al es­tate in the long run, ac­cord­ing to a new re­port.

Eliz­a­beth Berthelette

“In the life sci­ence sec­tor, the need for re­al es­tate has fared bet­ter than, say, tra­di­tion­al of­fice sit­u­a­tions where work-from-home schemes were im­ple­ment­ed and still are in play to­day with hy­brid work,” Eliz­a­beth Berthelette, di­rec­tor of re­search at New­mark who was in­volved in the re­search, told End­points News.

“Sci­en­tists on the oth­er hand need to be in labs,” she added.

Lab­o­ra­to­ry space col­lec­tive­ly com­pris­es more than 93 mil­lion square feet of the Unit­ed States. More­over, it has a fu­ture con­struc­tion and ren­o­va­tion pipeline of 33.2 mil­lion square feet with ma­jor life sci­ences clus­ters in Boston, San Fran­cis­co, San Diego and Raleigh, the New­mark re­port found. And each of the hubs has its own unique dy­nam­ics.

For in­stance, in San Fran­cis­co, the de­mand for lab space has sky­rock­et­ed. While an es­ti­mat­ed 5.2 mil­lion square feet of lab space is pro­ject­ed to be de­liv­ered in 2022, ten­ant de­mand is ex­pect­ed to ab­sorb the ma­jor­i­ty of this space.

In Boston, an­oth­er ma­jor life sci­ences hub, a rise in sub­lease op­tions and an­tic­i­pat­ed new sup­ply have shift­ed more bar­gain­ing pow­er to ten­ants, which could im­pact con­ces­sions and rents in the sec­ond half of 2022, the re­port said.

The rise in ex­cite­ment fol­low­ing mas­sive fund­ing and IPOs of biotech dur­ing the pan­dem­ic fiz­zled at the be­gin­ning of 2022. SP­DR S&P Biotech ETF, a lead­ing biotech in­dex, has fall­en near­ly 28% since the be­gin­ning of 2022 and 36.2% since the end of Au­gust 2021.

Life sci­ences ven­ture cap­i­tal fund­ing de­clined 18.5% year-over-year to $20.8 bil­lion in the first half of 2022. How­ev­er, it was still greater than every full-year amount pri­or to 2018, the New­mark re­port added.

“In the long term, we are bull­ish on life sci­ences, giv­en the ag­ing pop­u­la­tion, the em­pha­sis on new sci­en­tif­ic tech­nolo­gies and bi­o­log­ics,” said Berthelette.

De­spite a bright short-term fu­ture, the biotech in­dus­try, like oth­er in­dus­tries, is not im­mune to mar­ket head­winds, and ear­ly-stage com­pa­nies will be im­pact­ed the most, the re­port found.

“Macro­eco­nom­ic de­vi­a­tions, in­fla­tion, ris­ing in­ter­est rates, the cost of con­struc­tion, the cost of debt, all of those things are ris­ing,” Berthelette said.

As a re­sult, many ear­ly-stage com­pa­nies have turned to cash preser­va­tion, with some turn­ing to lay­offs or sub­leas­ing their re­search space.

Matt Gard­ner

Mean­while, an­oth­er re­port by CBRE not­ed that the life sci­ences sec­tor has grown by 79% be­tween 2001-2021, com­pared with 8% growth for all oth­er oc­cu­pa­tions in the US. It al­so found there were more than 163,000 grad­u­ates in bi­o­log­i­cal and bio­med­ical sci­ences in 2020, dou­ble the num­ber just 15 years ago.

Matt Gard­ner who leads CBRE’s Ad­vi­so­ry Life Sci­ences prac­tice in the US, said fac­tors such as in­creased fund­ing cou­pled with many peo­ple grad­u­at­ing with de­grees in life sci­ences have re­sult­ed in in­creased hir­ing.

“Hav­ing a six to sev­en-year run of IPOs, and bull­ish ven­ture fi­nanc­ings, we saw that get in­vest­ed in sci­ence and peo­ple in a way that they nev­er ex­pe­ri­enced be­fore,” said Gard­ner.

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