Outlook for Life Sciences Real Estate Still “Lively”
Earlier this year, NAI Global reported on the growing life sciences market, as capital continued to pour into the space despite a general downturn in office. In that article, we noted that the sector was picking up steam across multiple markets, both in the US and further afield.
Since then, the global commercial real estate (CRE) outlook has shifted in some big ways, driven by rising inflation, and the possibility of a recession in the cards. As we head into the final stretch of 2022 the question is: How has life sciences held up?
According to a recent CommercialEdge report, the answer is that: “Life science properties continue to command high sale prices in 2022.” Compared to other office assets, life sciences properties are also trading at rates 150% higher on average, coming in at USD645 per square foot compared to USD258 for general office space.
CommercialEdge adds that buildings with the potential to be converted for life sciences usage are trading high as well, as developers and investors rush to meet demand for laboratory space.
Along with continued interest in large markets like San Francisco and Boston, there have also been some speculative developments springing up in new areas.
In their September 2022 Office Market report, analysts Yardi Matrix highlight a 365,000-square foot development currently underway in Boulder, Colorado. This is the first speculative life sciences property in the area and, along with new projects in metros like Phoenix, it marks a continuing trend of expansion into “tertiary markets”.
Employment in Science, Technology, Engineering, and Mathematics (STEM) fields in these areas is growing just as rapidly. The latest numbers from the Bureau of Labor Statistics, for example, indicate that nearly 18% of total employment in Boulder in 2021 was related to STEM fields.
Behind the boom
At a time when demand in many other sectors is taking a downturn, the continued strength of the life sciences market is being driven by advances in biological technology. Yardi Matrix notes: “Thanks in part to breakthroughs of mRNA and CRISPR technologies, billions of dollars of funding— both private and public—have been flowing into the life science sectors in recent years.”
Historically, these kinds of advances have resulted in strong investment returns, both in the short term and over a longer horizon. And given that some of the breakthroughs concern potential cures for the world’s deadliest diseases, it’s no surprise that investors have continued to find a top spot in their portfolios for life-saving life sciences ventures.
With all of that said, it’s worth noting here that overall investment into the sector did slow down somewhat in the first half of 2022. In their Fall 2022 Life sciences industry outlook report, financial consultants RSM put it like this:
“Looking ahead, life sciences companies will encounter fundraising challenges and increased competition for experienced and highly skilled talent, as well as fallout from volatile economic conditions. However, opportunity is always on the horizon for many businesses in the biopharma, medtech and life sciences services sectors.”
Keeping that in mind, and given the sector’s record performance through 2021, it may be prudent to view the recent downturn as more a “slowing of pace” than a sign that the market for this lucrative asset class is drying up altogether.