5 Reasons to Consider Investing in Life Sciences Real Estate 5 Reasons to Consider Investing in Life Sciences Real Estate | Winterspring Capital

5 Reasons to Consider Investing in Life Sciences Real Estate

5 Reasons to Consider Investing in Life Sciences Real Estate

5 Reasons to Consider Investing in Life Sciences Real Estate

The last decade saw explosive growth in the life sciences sector of commercial real estate.  Life science companies are involved in medical research and new technology development. 

Some prominent examples that may come to mind are biotech companies or pharmaceutical companies. 

Large amounts of capital have been and continue to be invested in this space, driving a medical research expansion focusing on new technologies and medicine involving DNA and mRNA, among other tangential fields.  

Exciting new technologies have emerged that have shaken up the face of medical and scientific research, such as artificial intelligence and new breakthroughs in cell therapy. 

The COVID-19 pandemic has brought increased attention from the general populace to a sector of the economy that was already undergoing a rapid expansion.  

When we invest in life sciences real estate, we should also remember that residential real estate like multifamily in the same areas as life science facilities will benefit. 

For example, an area with a pharmaceutical company’s headquarters will be able to charge higher rents than surrounding areas due to attracting higher quality tenants both directly and through tangential industries. 

We are residential specialists who target multifamily, but many of our class A developments are square in the “line of progress,” surrounded by life sciences infrastructure and employers.

About

Real estate aimed towards life science companies will include a laboratory space for conducting physical experiments as well as an office component. 

This could be considered a specific type of flex space, as we discussed in our 
Flex Space Commercial Real Estate Explained article. As technology has advanced, the share of your typical life science facility dedicated to office space has increased. 

Scientists and researchers now spend increasingly large amounts of time using highly advanced computer modeling software for many parts of their research that previously was unavailable. 

As a result of these trends, life science facilities today tend to have slightly more office space than laboratory space.  

The share of lab space may be shrinking as computers play a larger role in research, but that doesn’t mean it’s an afterthought to the companies.  On the contrary, the laboratory spaces in demand now are more sophisticated and cutting edge than ever as highly specialized areas of research are being pursued.  

Like all flex real estate, life science facilities require flexibility and adaptability.  As different research fields are pursued over time, laboratory space may need to be repurposed, expanded, or relocated to different areas of the facility. 

Buildings that allow for this kind of adaptability are in high demand by life science companies who are looking to stay for years and may go through many different phases of research.  They do not want to deal with a facility that can’t grow and adapt with the needs of their company.

Demand has continued to outstrip supply in this sector and it has showed no signs of slowing down any time soon.  Here are a few reasons why you should consider including an investment into life sciences real estate in your portfolio:

1. Funding

5 Reasons to Consider Investing in Life Sciences Real Estate

As the old saying goes, “follow the money.” An agency of the U.S. Department of Health and Human Services, the National Institutes of Health, is the Federal government’s primary arm involved in health and medical research.

They offer grants to life science research and have awarded over $100 billion such grants in the past five years. Additionally, Cushman & Wakefield published a report last year that showed very solid growth over the last decade, with venture capital investments in the sector growing from $3.7 billion to $17.4 billion.

The report also found that, between 2012 to 2019, spending for research and development by life science companies increased by 40%. A similar report from CBRE concurred, finding that venture capital funds flowing in to the life science field are up 40% from where they were a decade ago.

2. Growth:

5 Reasons to Consider Investing in Life Sciences Real Estate

Our development company got started in Boston, Massachusetts, which is currently ranked as the number one market for life sciences by several sources. 

We saw up front the tremendous growth of the local economy driven by the life sciences sector, which spilled out into a need for newer, high quality housing, lodging, and other new commercial investments (see our
Demand Generators for Real Estate Explained article for more information). 

This rapid expansion saw an already robust backbone of 9.6 million square feet of life sciences commercial real estate expand to 18 million square feet today, according to CoStar. 

These trends are being seen across the country as venture capital funds and grants embolden these companies to seek newer and more usable space for their research needs.  

There is also some degree of delayed-onset growth occurring due to the timely nature involved in researching and developing new technologies and treatments.  Funding that was brought in over the course of the past decade led initially to R&D that is just now beginning to bear profitable fruit.  The push for a vaccine following the outbreak of the COVID pandemic show signs of the kind of muscle these companies are beginning to flex after years of steady progress.

Another lesson that the COVID pandemic has taught the industry is the need for bringing the supply chain back home. 

Overreliance on foreign links in the supply chain caused problems and created uncertainty during the pandemic and companies want to avoid this by onshoring, even if this incurs added costs. 

This trend will present an opportunity for the new development of warehouse and storage facilities for these supply chains.

3. Vacancy Rate:

5 Reasons to Consider Investing in Life Sciences Real Estate

Compared to traditional office commercial real estate, life science has roughly half the vacancy rate, at 9%, when looking at a national average.  Strong markets like Boston and San Francisco saw incredibly low rates of 4 percent and 2 percent, respectively, last year.   It will take many years before the supply of new life science facilities can begin to keep pace with the current demand.  

4. Jobs:

5 Reasons to Consider Investing in Life Sciences Real Estate

In a report published by Cushman & Wakefield, it was found that life science job growth has increased by 7.5% every year since 2013.  This is an incredible increase when compared to the previous twenty year period, when job growth in this sector was 1% annually.  Yet another sign the life sciences real estate is in a great position, as employment growth indicators are usually some of the strongest clues of stable growth.

5. New Markets:

5 Reasons to Consider Investing in Life Sciences Real Estate

While Boston, Seattle, San Diego, and San Francisco are the superstars in the life science world today, the industry is growing rapidly and this has begun to and will continue to drive expansion into new markets.  The major life science markets of today all have a high cost of living that make it harder for employer and employee alike. 

This is driving a push into new markets, including Philadelphia, Maryland, and North Carolina, to name a few.  Areas with a strong backbone of  research-based university(ies) and an educated population will be in a strong position to welcome new life science companies into their economy.

 

The last decade saw explosive growth in the life sciences sector of commercial real estate.  Life science companies are involved in medical research and new technology development. 

Some prominent examples that may come to mind are biotech companies or pharmaceutical companies. 

Large amounts of capital have been and continue to be invested in this space, driving a medical research expansion focusing on new technologies and medicine involving DNA and mRNA, among other tangential fields.  

Exciting new technologies have emerged that have shaken up the face of medical and scientific research, such as artificial intelligence and new breakthroughs in cell therapy. 

The COVID-19 pandemic has brought increased attention from the general populace to a sector of the economy that was already undergoing a rapid expansion.  

When we invest in life sciences real estate, we should also remember that residential real estate like multifamily in the same areas as life science facilities will benefit. 

For example, an area with a pharmaceutical company’s headquarters will be able to charge higher rents than surrounding areas due to attracting higher quality tenants both directly and through tangential industries. 

We are residential specialists who target multifamily, but many of our class A developments are square in the “line of progress,” surrounded by life sciences infrastructure and employers.

About

Real estate aimed towards life science companies will include a laboratory space for conducting physical experiments as well as an office component. 

This could be considered a specific type of flex space, as we discussed in our 
Flex Space Commercial Real Estate Explained article. As technology has advanced, the share of your typical life science facility dedicated to office space has increased. 

Scientists and researchers now spend increasingly large amounts of time using highly advanced computer modeling software for many parts of their research that previously was unavailable. 

As a result of these trends, life science facilities today tend to have slightly more office space than laboratory space.  

The share of lab space may be shrinking as computers play a larger role in research, but that doesn’t mean it’s an afterthought to the companies.  On the contrary, the laboratory spaces in demand now are more sophisticated and cutting edge than ever as highly specialized areas of research are being pursued.  

Like all flex real estate, life science facilities require flexibility and adaptability.  As different research fields are pursued over time, laboratory space may need to be repurposed, expanded, or relocated to different areas of the facility. 

Buildings that allow for this kind of adaptability are in high demand by life science companies who are looking to stay for years and may go through many different phases of research.  They do not want to deal with a facility that can’t grow and adapt with the needs of their company.

Demand has continued to outstrip supply in this sector and it has showed no signs of slowing down any time soon.  Here are a few reasons why you should consider including an investment into life sciences real estate in your portfolio:

1. Funding

5 Reasons to Consider Investing in Life Sciences Real Estate

As the old saying goes, “follow the money.” An agency of the U.S. Department of Health and Human Services, the National Institutes of Health, is the Federal government’s primary arm involved in health and medical research.

They offer grants to life science research and have awarded over $100 billion such grants in the past five years. Additionally, Cushman & Wakefield published a report last year that showed very solid growth over the last decade, with venture capital investments in the sector growing from $3.7 billion to $17.4 billion.

The report also found that, between 2012 to 2019, spending for research and development by life science companies increased by 40%. A similar report from CBRE concurred, finding that venture capital funds flowing in to the life science field are up 40% from where they were a decade ago.

2. Growth:

5 Reasons to Consider Investing in Life Sciences Real Estate

Our development company got started in Boston, Massachusetts, which is currently ranked as the number one market for life sciences by several sources. 

We saw up front the tremendous growth of the local economy driven by the life sciences sector, which spilled out into a need for newer, high quality housing, lodging, and other new commercial investments (see our
Demand Generators for Real Estate Explained article for more information). 

This rapid expansion saw an already robust backbone of 9.6 million square feet of life sciences commercial real estate expand to 18 million square feet today, according to CoStar. 

These trends are being seen across the country as venture capital funds and grants embolden these companies to seek newer and more usable space for their research needs.  

There is also some degree of delayed-onset growth occurring due to the timely nature involved in researching and developing new technologies and treatments.  Funding that was brought in over the course of the past decade led initially to R&D that is just now beginning to bear profitable fruit.  The push for a vaccine following the outbreak of the COVID pandemic show signs of the kind of muscle these companies are beginning to flex after years of steady progress.

Another lesson that the COVID pandemic has taught the industry is the need for bringing the supply chain back home. 

Overreliance on foreign links in the supply chain caused problems and created uncertainty during the pandemic and companies want to avoid this by onshoring, even if this incurs added costs. 

This trend will present an opportunity for the new development of warehouse and storage facilities for these supply chains.

3. Vacancy Rate:

5 Reasons to Consider Investing in Life Sciences Real Estate

Compared to traditional office commercial real estate, life science has roughly half the vacancy rate, at 9%, when looking at a national average.  Strong markets like Boston and San Francisco saw incredibly low rates of 4 percent and 2 percent, respectively, last year.   It will take many years before the supply of new life science facilities can begin to keep pace with the current demand.  

4. Jobs:

5 Reasons to Consider Investing in Life Sciences Real Estate

In a report published by Cushman & Wakefield, it was found that life science job growth has increased by 7.5% every year since 2013.  This is an incredible increase when compared to the previous twenty year period, when job growth in this sector was 1% annually.  Yet another sign the life sciences real estate is in a great position, as employment growth indicators are usually some of the strongest clues of stable growth.

5. New Markets:

5 Reasons to Consider Investing in Life Sciences Real Estate

While Boston, Seattle, San Diego, and San Francisco are the superstars in the life science world today, the industry is growing rapidly and this has begun to and will continue to drive expansion into new markets.  The major life science markets of today all have a high cost of living that make it harder for employer and employee alike. 

This is driving a push into new markets, including Philadelphia, Maryland, and North Carolina, to name a few.  Areas with a strong backbone of  research-based university(ies) and an educated population will be in a strong position to welcome new life science companies into their economy.

 

Invest with Winterspring

Invest with Winterspring

5 Reasons to Consider Investing in Life Sciences Real Estate
5 Reasons to Consider Investing in Life Sciences Real Estate
5 Reasons to Consider Investing in Life Sciences Real Estate
5 Reasons to Consider Investing in Life Sciences Real Estate