Life Science Asset Pricing Will Continue Its Climb This Year
The annual average pricing for life science and R&D space with an office component hit an average of $537 per square foot nationally in 2021.
Capital markets activity in the life science sector climbed to new records in 2021, with investment volume hitting more than $18 billion – and experts expect pricing will only continue to rise this year.
That’s a 64% increase year over year, according to a new report from Newmark. The annual average pricing for life science and R&D space with an office component hit an average of $537 per square foot nationally in 2021, more than 50% higher compared with figures from five years ago. Class A pricing for trophy assets in markets like Cambridge, South San Francisco, Sorrento Mesa in San Diego and South Lake Union has hit more than $1000 per square foot.
Standout transactions include Blackstone’s $3.4 billion acquisition of Brookfield’s Cambridge portfolio, as well as Alexandria’s $1.5 billion acquisition of two lab assets in Boston’s Fenway district.
“The lack of existing product in the cluster markets combined with high demand and competitive bidding for R&D product is expected to continue to put upward pressure on pricing in 2022,” the report predicts.
Life sciences companies sought nearly 24 million square feet of new real estate in the third quarter alone, according to CBRE, an amount that exceeded the amount of lab space under spec construction by nearly 2.8 million sq. ft.
Newmark analysts also note that fundraising activity for funds targeting life science and R&D assets “has reached unprecedented levels,” with an estimated $42 billion in activity since 2020. Newmark predicts that VC-backed life science startups will offer big growth potential for investors and will drive high future demand for R&D space.
“The venture capital industry’s pivot to life science has propelled funding to a record $43.3 billion in 2021, representing a compound annual growth rate of 21.3% over the past 10 years. Additionally, abundant dry powder and fundraising activity as well as continued disruption in property types like conventional office, have funneled even greater amounts of capital into life science real estate,” the report notes. “This trend combined with 2022 deliveries of newly developed and renovated life science product in the top supply-constrained markets is expected to keep life science investment at higher levels compared with pre-pandemic years.”