The life sciences industry has shown incredible resilience over the past four years since the pandemic hit. Encompassing sectors such as pharmaceuticals, medical technology, biotechnology and research and development, it has played a pivotal role in medical advancements, including the development of vaccines, therapeutics and innovative solutions such as at-home testing and mobile therapeutics.
When it comes to CRE, life sciences requires “brick and mortar” facilities with ample space for labs, storage, and equipment, as well as employees. Given the need for medical device and pharmaceutical manufacturing facilities, the industry requires a variety of office and industrial space. And because life sciences thrives in an area where information and resources can be easily shared, major markets from Boston, Massachusetts to San Diego, California remain the most dynamic hubs of activity.
According to the San Diego Business Journal, “San Diego's life sciences sector is faring better than many other industries in the current heady economic environment and is expected to experience further positive economic growth over the coming year.”
Tim Helgeson, senior vice president of asset management and acquisitions at KBS, said the life sciences industry “is a major economic driver that offers high wages and continues to attract local and out-of-state educated workers. San Diego is also home to leading research universities, including UCSD and San Diego State University, which provide current students with access to mentorship and career opportunities.”
Reflecting its life sciences outlook, in 2021, KBS was instrumental in the acquisition of a 296,327 square foot Class A office complex located in Sorrento Mesa, the heart of San Diego, California's life sciences and technology market.
The tendency to locate brain trusts in central locations, known as “clustering,” is common in tech hubs but is also highly beneficial for life sciences: bringing together large hospitals, universities, research institutes, biomedical and biotech companies makes it easier to share information and facilities, and helps attract a highly educated workforce and strong investments.
“The life sciences sector is underpinned by more fundamental, long-term change than most industries, including advances in science and technology, expanding applications of biotechnology and a secular trend toward more personalized treatments,” said Matt Gardner, Americas life sciences leader at CBRE.
Life sciences real estate investment has been strong over the past decade due to exceptional demand from the burgeoning biotech and biopharmaceutical industries, according to Clarion Partners. Life sciences CRE had record years in 2020 and 2021 but is beginning to ease in 2022 and 2023.
Demand for specialized lab and R&D space in the life sciences sector remains strong due to factors including technological advancements, expanding applications of biotechnology, and increasing funding. As a result, life sciences CRE has emerged as a high-growth segment, attracting significant investment from both private equity and governments.
The major life science clusters, “Tier 1” regions — Boston/Cambridge, MA; South San Francisco, CA; and San Diego, CA — continue to dominate the market, with rents in these locations currently hovering at record highs, significantly above average laboratory rents and traditional office rents nationwide, according to Clarion Partners. Secondary markets such as Austin, TX are also gaining momentum, reflecting the sector's expanding footprint and decentralizing innovation hubs.
“Occupant demand for lab and R&D space remains well above pre-pandemic levels. Additionally, with new innovations and products driving industry expansion, the current demand outlook remains stable for the next few years. Clarion Partners believes the long-term outlook for this alternative real estate type sector is positive. Over the past five years, fundamentals for U.S. life sciences real estate have remained relatively healthy, with inventory nearly doubling as tenant demand surged.”
The life sciences industry drives advances that have the potential to transform healthcare and improve lives. As the sector continues to expand and evolve, opportunities arise to reimagine workspaces, foster collaboration, and strengthen the industry's innovation efforts. With the vibrant support of creative and innovative CRE workspaces, life sciences organizations can remain at the forefront of scientific discovery and healthcare innovation for years to come.
For more information, visit KBS.com/Insights.