The previous decade saw explosive growth in the life sciences sector of commercial real estate. These are companies that are involved in medical research and new technologies development.
Some prominent examples that may come to mind are biotech firms or pharmaceutical firms.
Considerable amounts of capital have been and continue to be invested in this space, driving a surge of medical research expansion focusing on new technologies and medication involving DNA and mRNA, stem cell research, and more.
Exciting new technologies have emerged which have reignited excitement 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 was undergoing a rapid expansion.
As soon as we invest in life sciences real estate, we should also remember that developing or investing in multifamily real estate in proximity to life science facilities can be highly profitable.
For instance, an area with a pharmaceutical firm’s headquarters will be able to charge higher rents than surrounding areas due to bringing higher quality tenants both directly and through tangential businesses. This is good for all businesses in the surrounding area- from grocery stores, gyms, malls, and healthcare services.
We are residential pros who target multifamily, but a number of our Class A developments are square in the”line of progress,” surrounded by life sciences infrastructure and employers.
Real estate aimed towards life science companies include a lab space for conducting physical experiments as well as a workplace component.
As technology has advanced, the share of your typical life science center devoted to workplace has improved.
Scientists and researchers now spend increasingly large amounts of time with highly advanced computer modeling applications for many pieces of their study that previously was unavailable.
As a consequence of these tendencies, these facilities today tend to have slightly more office space compared to laboratory space.
The talk of lab space may be shrinking as computers play a larger role in study, but it does not mean it is an afterthought into the businesses. On the contrary, the laboratory spaces in demand now are more sophisticated and cutting edge than as highly specialized areas of study are being pursued.
Like all flex real estate, life science facilities need flexibility and adaptability. As distinct research fields are pursued over time, lab space might have to be repurposed, expanded, or relocated to different regions of the facility.
Buildings that allow for this type of adaptability have been in high demand by life science companies that want to stay for years and may go through several distinct phases of research. There is no point in developing space that can’t be adapted as the company grows.
Demand has continued to outstrip supply within this sector and it’s showed no signs of slowing down any time soon. Listed below are a few reasons why you should consider adding a investment into life sciences real estate in your portfolio:
As the old saying goes,”follow the money.”
They provide grants to scientific research and have awarded over $100 billion these grants in the past five decades. Additionally, Cushman & Wakefield released a report a year ago that showed very good growth over the last decade, together with venture capital investments in the sector growing from $3.7 billion to $17.4 billion.
The report also found that, between 2012 to 2019, paying research and development from life science companies increased by 40%. A similar report from CBRE concurred, finding that venture capital funds flowing into the life science field are up 40 percent from where they were a decade ago.
Our development firm got started in Boston, Massachusetts, which is currently rated as the number one marketplace for life sciences by several sources.
We saw up front the enormous growth of the local economy driven by the life sciences sector, which spilled out to a demand for newer, higher excellent housing, lodging, and other new industrial investments (visit our Demand Cleaners for Real Estate Explained post for more information).
This rapid expansion saw an already robust backbone of 9.6 million square feet of life sciences commercial real estate expand into 18 million square feet now, according to CoStar.
These trends are being observed throughout the nation as venture capital funds and grants embolden those businesses to seek increasingly more usable space for their research needs.
There’s also some level of delayed-onset growth occurring due to the timely nature involved in exploring and creating new technologies and treatments. Funding which has been brought in over the course of the past decade led originally to R&D that’s just now beginning to bear fruit. The push for a vaccine following the outbreak of this COVID pandemic reveal indicators of the kind of muscle these businesses have started to flex following years of continuous progress.
Another lesson that the COVID pandemic has educated the business is the demand for bringing the supply chain back home.
Overreliance on foreign links in the supply chain caused problems and created uncertainty throughout the pandemic and companies want to prevent this by onshoring, even though this incurs added costs.
This tendency will present an opportunity for the new evolution of warehouse and storage facilities for all these supply chains.
3. Vacancy Rate:
When compared with traditional office commercial real estate, lifestyle science has roughly half the vacancy rate, at 9 percent, when considering a national average. Strong markets like Boston and San Francisco saw exceptionally low rates of 4 percent and 2%, respectively, annually. It will take many years before the supply of new life science facilities can begin to keep pace with the current demand.
In a report released by Cushman & Wakefield, it was discovered that life science job growth has risen by 7.5% annually because 2013. This is an incredible increase when compared to previous twenty year period, when job growth in this sector was 1% annually. Still another indication the life sciences real estate is in a fantastic position, as employment development indicators are usually a number of the strongest clues of stable expansion.
5. New Markets:
Even though Boston, Seattle, San Diego, and San Francisco would be the superstars in the life science globe today, the business is growing rapidly and this has started to and will continue to drive growth into new markets. The major life science markets of today all have a higher cost of living which make it harder for employee and employer alike.
This really is driving a push into new markets, including Philadelphia, Maryland, and North Carolina, to mention a few. Areas with a strong backbone of research-based university(ies) and an educated population will be in a solid position to welcome new life science firms in their market.
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