Exploring Life Sciences: A Growing Real Estate Asset
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Originally posted on the Northstate Equity Real Estate Blog, here!
Life science properties have begun to stand out as a growing asset class for real estate investors, but what are “life sciences” and how do they fit into the landscape of commercial real estate??
This sector, encompassing properties such as research laboratories, biotech facilities, and pharmaceutical manufacturing plants, has seen a significant rise in demand driven by advancements in medical research over the last decade.
In this blog, we’ll explore the recent rise of life sciences as a real estate asset class, as well as explore some of the popular markets that are witnessing notable growth in this sector.
What are Life Sciences?
Life sciences are the fields of studying living organisms and life processes. In real estate, it refers to properties that provide space for research and development, including both office space and laboratories. Some areas of research and development that would occupy a life sciences property include:
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The Rise of Life Sciences Real Estate
The surge in demand for life sciences real estate can be attributed to several factors.
The rapid pace of technological advancements in medical research has led to an increased need for laboratory and research facilities. Biotechnology companies, pharmaceutical firms, and research institutions are seeking modern, specialized spaces equipped with cutting-edge amenities to support their scientific endeavors.
More recently, the COVID-19 pandemic highlighted the importance of healthcare infrastructure and medical research, further driving demand for life sciences real estate. The race to develop vaccines, therapeutics, and diagnostic tools has highlighted the critical role of biotech and life sciences companies, leading to investment in facilities that support these efforts.
Additionally, demographic trends, such as an aging population and increasing healthcare spending, have fueled demand for healthcare-related services and facilities. As the demand for innovative medical treatments continues to grow, so will the need for specialized research and lab facilities.
Hubs for Life Science Real Estate
Several markets across the globe are experiencing significant growth in the life sciences real estate sector. Some of the most popular markets include:
Boston-Cambridge, Massachusetts
Often referred to as the “Biotech Hub,” the Greater Boston area is home to a dense concentration of life sciences. With universities like Harvard and MIT, Boston-Cambridge has long been a leading destination for life sciences real estate investment.
This market is well-positioned to see continued growth as well, as CBRE’s 2024 U.S. Life Sciences Outlook reports over 40% of all lab and R&D space in the country scheduled for delivery will be in Boston-Cambridge. The total footprint of that space is roughly 13.4 million square feet.
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San Francisco, California
Silicon Valley’s influence extends beyond technology and is also a hub for biotechnology and life sciences. The Bay Area has a robust ecosystem of biotech startups, venture capital firms, and research institutions.
While the Bay area has nearly 40 million square feet of lab and R&D space, they have also seen the biggest decline in R&D property sales since Q3 2021. This could be something to keep an eye on as San Francisco continues to deal with real estate market struggles.
San Diego, California
The region’s proximity to institutions like UC San Diego and the Salk Institute has fostered a thriving life sciences community. Additionally, with its favorable climate, and collaborative ecosystem, San Diego has become a hotspot for biotech and life sciences companies.?
While these markets have been well-established in the life science industry, one of the most promising markets going forward is right here in the Triangle.
Research Triangle Park, North Carolina
Located in the Raleigh-Durham-Chapel Hill area, Research Triangle Park is becoming a well-renowned hub for biotechnology and pharmaceutical companies. The region benefits from a skilled workforce, world-class research institutions, and a supportive business environment. These factors make it an ideal location for an investment in life sciences real estate. Additionally, the affordability of lab and R&D space is far cheaper than the major markets listed above.
According to Work in the Triangle, Raleigh is the 5th largest life sciences hub in the country. The region is home to over 600 life science companies employing more than 42,000 people. Major companies like IQVIA, PPD, Pfizer, and AstraZeneca already have offices in the Raleigh area. Based on CBRE’s research in Q4 2023, the region will see more than 500,000 square feet delivered to market over the next two years.
Here is a quick glance to see how the Research Triangle Park compares to its larger counterparts:
Some other notable markets that were not mentioned here include:
Conclusion
As the demand for innovative healthcare solutions continues to grow, life sciences real estate presents a compelling investment opportunity for investors. However, like all real estate markets we are seeing today, there are still risks associated with this asset class. As interest rates remain high, capital markets and economic growth will continue to be slowed in the near future.
Keep an eye out for trends in this property sector over the next 12-24 months as the industry continues to grow and evolve. One potential trend we may see is conversions from office to lab and R&D space to help the office sector recover from high vacancies. It will also be important for demand to keep up with the rapid amount of supply being brought to market in the next two years.
Check out this blog I wrote on the future of office space to learn about potential threats to the asset class.
Overall, as the life sciences sector continues to thrive, investing in the asset class could prove to be a lucrative strategy for long-term growth and diversification in real estate portfolios.