Article titles like “The Life Sciences Boom Has Cities Courting Labs. Many Won’t Find Match” and “How Seattle Seeded a Life Sciences Boom” are flooding commercial real estate (CRE) news outlets. Life science and biotech spaces have been gaining attention, and for good reason.
The life sciences industry was doing well even before the pandemic. But once the pandemic arrived, interest in this sector grew. One source explains that investors upped their investments from $13.4 billion in the first half of 2019 to $16.55 billion during the same timeframe a year later (during the pandemic). Now, the life sciences trend continues, and its impact on CRE is beginning to play out.
Defining Life Sciences in CRE
The life sciences industry encompasses several segments within the medical sector. Pharmaceuticals, biomedical technologies, nutraceuticals, and many other subcategories are included in life sciences. In CRE, life sciences can utilize office properties or lab spaces. In some cases, they may choose to transform an existing building, engaging in adaptive reuse. In other cases, they may choose to build, lease, or purchase spaces that meet their unique specifications.
Growth in the Industry
The life science industry is trending upward, but as the first article title (mentioned above) suggests, its growth will have to be strategic. The Bisnow article explains that those who are interested in building life sciences spaces should carefully consider the location. They will need to build in areas where there is a substantial possibility of an applicable workforce. Relevant locations can include areas where universities offer training in life sciences programs and communities that can still offer attractive amenities to potential employees.
Currently, San Diego, the Bay Area, and the Boston area are three of the U.S. markets where the life sciences industry thrives. But the rising costs of living and additional industry funding may cause more life sciences spaces to emerge in other markets. Chicago is a prime example, as developers are looking to build new life sciences projects.
In April, a Forbes article mentioned that over 36 million square feet of new projects were in the works within the top 14 life science markets in the United States. Echoing what other articles have said, the Forbes contributor suggests that landlords and investors are considering converting existing properties to fill the demand for this sector.
Life Sciences Properties
Each subgroup within the life sciences industry requires a different type of space. While biotech and pharmaceuticals may need laboratories with a substantial amount of space per person, medical device companies may need a different layout, clean rooms, and space for assembly lines.
Similar to other types of medical properties, life science tenants typically stay in their locations longer than tenants of other CRE sectors. They often invest quite a bit of capital to ensure their spaces are suitable for their needs. That financial investment is an incentive to stay put for as long as they can. That, plus the need to have lab employees work onsite rather than remotely contributes to the recession-resistant quality that other medical groups have. In fact, one source suggests that the life sciences sector of CRE had a tenant retention rate of 80% and the 10-year occupancy average stood at 94%.
The life sciences industry is a promising subgroup of the niche healthcare real estate sector. Its continued growth could be advantageous for investors, landlords, and other stakeholders. But owners, landlords, tenants, and other interested parties should seek guidance from commercial advisors who are familiar with the sector. Healthcare real estate is a multi-faceted sector of commercial real estate that carries unique requirements. Those who are interested in learning more about this sector of commercial real estate can reach out to a reputable HBRE advisor to ask specific questions about life sciences real estate: [email protected].
If you are interested in learning more about investing in commercial real estate, or if you have questions about buying, selling, or leasing a commercial property, please contact an HBRE advisor. Our team of experienced CRE professionals have the skills and insight to assist with all property transactions. To reach out to us directly, email [email protected] or call 615-564-4133.
