Potential Life Science Space Demand Surge
Cushman & Wakefield, Chicago, said it sees a potential wave of demand for lab space, diagnostic centers and healthcare facilities in the next few years.
“With a growing and aging global population, the life sciences sector is seeing more capital investment and scientific advancement than any time in history,” said Cushman & Wakefield Executive Director Greg Bisconti, who leads the firm’s Life Sciences Advisory Group.
This decade could be “transformative” on several levels, Bisconti said. “We may experience an economic correction, but the inherent need and advances should continue to drive the national and global demand for laboratory and related office and manufacturing needs,” he said.
Bisconti said the life sciences industry has historically weathered economic ups and downs better than other sectors. “On that note, the ups are likely to be stronger and the downs less severe than we have seen in the past,” he said.
Cushman’s Life Sciences 2020: The Future is Here report said the National Institutes of Health, venture capital and corporate research and development invested nearly $125 billion in the pharmaceuticals and life sciences sectors in 2018. “In the current decade, growth in life science-related employment has been more than three times stronger than total U.S. employment,” the report said. “As capital has flowed into life sciences, employment has increased, leading to greater demand for lab and office space and a 12-million-square-foot pipeline under development.”
With rising capital expenditure and employment driving growth, the report called the life sciences sector a “small but rapidly growing” commercial real estate product type. It studied 14 major U.S. life science markets and found they contain 146 million square feet of lab space, with another 12 million square feet expected within the next two years. “Currently, vacancy is lower and rents generally are higher for lab space than for office space in these 14 markets,” the report said.
The largest life science markets include Boston/Cambridge, Mass.–where lab-space vacancy hovers near 0 percent–and the San Francisco Bay area. Both have 20-plus million square feet of space. San Diego and New Jersey follow, each approaching 20 million square feet of lab space. As of third-quarter 2019, average asking rent for lab space in the markets studied equaled $43.10 per square foot, ranging from a low of $22.85 per square foot in New Jersey to $130 per square foot in Boston, Cushman said.
“Real estate investors have become increasingly focused on alternative asset classes, and appetite across the U.S. for life sciences assets or buildings that can be converted to lab use is extremely strong,” said Cushman & Wakefield Executive Managing Director of Capital Markets Joshua King. “There is a significant amount of capital chasing a finite number of opportunities in the sector. The relatively strong pipeline we are seeing in New York and across the country demonstrates that investors and developers are eager to build more product in order to capture the underlying demand.”
That development pipeline and other drivers also point to a promising outlook for life sciences and healthcare properties investment and capital markets, Cushman said.