LOS ANGELES—Even as other US industries are dealing with fundamental disruption, the life sciences sector is on a long-term expansion track, with equally long-term implications for the real estate that supports it, says CBRE Group in a new report. The fact that an aging population is facing more health issues is only one of the factors behind that expansion.
“Many solid trends support strong growth going forward for the life sciences sector, especially in major R&D markets,” says Ian Anderson, CBRE director of research and analysis and lead author of the report. “The market for lab space offers several secular growth drivers and constrained supply.”
That combination of growth and constrained supply occurs in part because “unsustainable” healthcare costs are pushing the life sciences industry to find solutions that are more effective and less expensive, the report states. “Cost pressures have driven the industry to focus on operating in markets with greater concentrations of scientific talent, and this is reflected in the market dynamics for laboratory space throughout the country.”
Since 2001, life sciences employment has increased at more than twice the pace of job growth overall. The growth pace has been even more rapid over the past four years, with biotechnology employment up 27.1% from September 2013 compared to7.2% for all jobs, the report states.
From a real estate perspective, that translates into enviable fundamentals. CBRE says lab-space vacancy rates are tight in primary life-sciences markets, standing at less than 2% in Chicago, 4% in the Bay Area and less 5% in Boston. And rent growth has kept pace, with a 50% increase in Boston's Cambridge submarket since '13.
CBRE's analysis found that regions with high concentrations of R&D jobs—including San Diego and Raleigh, NC as well as Boston and the Bay Area—also saw the highest growth in their overall life sciences job bases over the past 15 years. Conversely, those that are focused more on the pharmaceutical and medicine-manufacturing industries, such as Chicago, Philadelphia and New Jersey, are expected to grow at a slower pace than the R&D centers.
“When you look at the landscape of investment opportunities within the commercial real estate sector, few asset classes offer as compelling a case for near-term optimism as the life sciences industry,” says Scott Marshall, president of advisory & transaction services | investor leasing at CBRE. “Our team has analyzed the labor trends and found that, especially in Massachusetts and California, there are significant growth opportunities within the life-sciences industries going forward.”
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
