The COVID-19 pandemic has propelled the U.S. life sciences industry into the spotlight. Now, more so than ever, investors are interested in the life sciences industry as it strives to develop vaccines and effective therapeutics for the virus. This increased interest is creating new opportunities for commercial real estate, according to CBRE’s U.S. 2020 Life Sciences Report.
The global commercial real estate services firm noted that 13 leading markets are driving most of the growth in the U.S. life sciences industry. These markets possess the nation’s largest and most concentrated life sciences and R&D employment bases, as well as the largest inventories of leasable laboratory space. Moreover, they capture the vast majority of funding from the National Institutes of Health and venture capitalists.
CBRE’s new report also identified 10 emerging life sciences markets. With new sources of demand and a flood of venture capital to support various initiatives, these markets are expected to grow substantially in the future.
Trends supporting life sciences growth
Several megatrends are supporting the life science industry’s growth, according to CBRE. The biggest is the nation’s aging population, which requires more life sciences innovation as Americans live longer than ever.
Additionally, the pandemic exposed our nation’s reliance on global supply chain and overseas manufacturing for biotechnology, pharmaceuticals, and healthcare equipment and supplies. Now, the life sciences industry is actively moving to bring some manufacturing and operational facilities back to the U.S., which should “translate into more demand for domestic space,” according to CBRE.
Investing in life sciences
Total venture capital funding for the life sciences industry reached a record $17.8 billion for the 12-month period ending Q2 2020. Meanwhile, National Institutes of Health funding to major universities and institutions for health-care research is forecast to grow by 6% this year to $42 billion.
Life sciences employment, was down by just 1.3% in July and was 1% higher than a year ago compared with the 7.6% decline in total nonfarm employment. Biotech R&D employment, driven by venture capital, was up by 4.9% from a year ago and reached a record in June 2020. In fact, biotech is outpacing tech when it comes to employment growth, according to CBRE’s research.
Given the ongoing investment in life sciences, demand for lab space has grown through mid-2020. In fact, demand is outpacing supply, pushing vacancies in most lab markets to near record lows.
Across the nation, rent for life sciences space is rising rapidly, despite new supply coming online. Total commercial laboratory space has increased by 12% so far year to 95 million square feet. Another 11 million square feet is currently under construction.
Despite increased demand for lab space, the life science sector hasn’t been exempted from the broader pullback in commercial real estate investment. Lab/R&D property sales totaled $9.6 billion for the year ending Q2 2020, a decrease of 18% year-over-year, according to CBRE. The bulk of sales transactions (66%) were in the top three life sciences markets of the San Francisco Bay Area, Boston-Cambridge and San Diego.
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