The previous decade saw explosive growth in the commercial real estate life sciences sector. These are companies that are 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 expansion in medical research that focuses on new technologies and drugs involving DNA and mRNA, stem cell research, and more.
Exciting new technologies have emerged that have rekindled excitement in the scientific community, such as artificial intelligence and new advancements in cell and gene therapies.
The COVID-19 pandemic has drawn 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 near life sciences facilities can be very profitable.
For example, an area with the headquarters of a pharmaceutical company may charge higher rents than the surrounding areas because it will bring in higher quality tenants both directly and through cross-business deals. This is good for all surrounding businesses, from supermarkets, gyms, shopping centers, and healthcare services.
We are residential professionals targeting multi-family housing, but several of our Class A developments are on the “progress line,” surrounded by life science infrastructure and employers.
Real estate for life science companies includes a laboratory space for conducting physical experiments, as well as a workplace component.
As technology has advanced, the proportion of your typical life science center dedicated to the workplace has improved.
Scientists and researchers are now spending more and more time on 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 laboratory space.
The talk about lab space may shrink as computers play a larger role in the studio, but that doesn’t mean it’s an afterthought in business. On the contrary, the laboratory spaces in demand are now more sophisticated and avant-garde than as highly specialized study areas are pursued.
Like all flexible real estate, life science 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 for this type of adaptability have been in high demand from life sciences companies who want to stay for years and can 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 outpace supply within this sector and has shown no signs of slowing down in the short term. Listed below are some of the reasons why you should consider adding a life science real estate investment to your portfolio:
As the old saying goes, “follow the money.”
They provide grants for scientific research and have awarded more than $ 100 billion in these grants in the last five decades. Additionally, Cushman & Wakefield released a report a year ago that showed very good growth over the past decade, along with venture capital investments in the sector that grew from $ 3.7 billion to $ 17.4 billion.
The report also found that between 2012 and 2019, research and development pay by life sciences companies increased by 40%. A similar report from CBRE agreed, finding that venture capital funds flowing into the life sciences field are up 40 percent from where they were a decade ago.
Our development company started in Boston, Massachusetts, which is currently ranked the number one market for life sciences by various sources.
We saw from the start the enormous growth of the local economy driven by the life sciences sector, which translated into demand for newer and better homes, lodging and other new industrial investments (visit our post Explaining Demand for real estate for more information). information).
This rapid expansion saw an already robust backbone of 9.6 million square feet of life science commercial real estate expand to 18 million square feet now, according to CoStar.
These trends are being seen across the country as venture capital funds and grants encourage these companies to seek increasingly usable space for their research needs.
There is also some level of late-onset growth due to the timely nature involved in exploring and creating new technologies and treatments. The funding that has been obtained over the last decade originally led to R&D that is only now beginning to bear fruit. The push for a vaccine after the outbreak of this COVID pandemic reveals indicators of the type of muscle these companies have begun to exert after years of continuous progress.
Another lesson that the COVID pandemic has educated 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 onshoring, even though this generates additional costs.
This trend will present an opportunity for the new evolution of warehouses and storage facilities for all these supply chains.
3. Vacancy rate:
Compared to traditional office commercial real estate, lifestyle science has about half the vacancy rate, 9 percent, when considered a national average. Strong markets like Boston and San Francisco posted exceptionally low rates of 4 percent and 2%, respectively, annually. It will be many years before the supply of new life science facilities can begin to adapt to current demand.
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 indication that life sciences real estate is in a fantastic position, as employment development indicators are often some of the strongest clues to stable 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 in new markets. Today’s major life sciences markets have a higher cost of living, making things 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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