With biotechnology interest already high and an ongoing pandemic helping drive a thirst for research, the life sciences industry has found itself demolishing previous records for capital and, consequently, space pricing and demand.
According to mid-year data from CBRE, venture capital funding to the life sciences hit approximately $10 billion in 2021’s first quarter. That’s an all-time quarterly high (venture capital to the life sciences had never before eclipsed $7 billion, per CBRE) and more than double the amount of the same quarter just one year earlier.
The influx of investment has resulted in a surge of demand for laboratory and research space across all major markets. Demand, measured by CBRE in square footage sought by tenants seeking space, has grown by 34% since mid-2020, with the San Francisco Bay Area, Boston and San Diego receiving the most attention (and offering the tightest space availabilities). All three of those markets hit new rent records for life sciences spaces, and rents are rapidly growing as well in rising markets such as Philadelphia, Washington, D.C., and Baltimore. New York, with a triple net asking rent of $90.73 per square foot, remained the most expensive city among the top life sciences clusters in the country, but Boston, at $87.48, wasn’t far behind.
Nationwide, more than 15.6 million square feet of speculative building was under way as of the first quarter, but that’s still not enough to meet the current tenant need. In the first quarter alone, pre-leasing of this under-construction space jumped to 29%, up from 22% in mid-2020.
Even with so much growth already, the outlook for the sector is markedly bullish. With the industry continuing to make technological advancements, life sciences employment reached a record high in March and is slated for more improvement. The industry has logged employment growth of 16% since April 2017, exceeding the job gains of even the technology sector.
There’s certainly room in the market for life sciences to grow. With ample liquidity waiting on the sidelines to be deployed — and with other asset classes like retail losing interest from investors — life sciences deals have accounted for just under 4% of all income-producing commercial real estate transactions through mid-June this year, according to Real Capital Analytics. That might not sound like much, but compared to the sector’s long-term market share average of 1.4%, it’s clear that investor interest in the life sciences is firmly on the upswing and poised to stay that way for the foreseeable future.