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  • Writer's pictureRealFacts Editorial Team

A Bright Future for Life Sciences Real Estate Investment: Navigating New Opportunities

Life science facility

The life sciences sector is positioned at the forefront of innovation and growth, making it an attractive target for real estate investors seeking stable, long-term returns. Despite recent economic headwinds such as high inflation and rising interest rates, the sector’s robust fundamentals and significant market potential offer a compelling investment case.

The Growth Trajectory of Life Sciences

Graph of U.S. life science employment

The pandemic dramatically accelerated the U.S. life sciences sector’s expansion, pushing it into the spotlight as a critical area of focus for investors. The sector experienced rapid growth as demand for medical research, pharmaceuticals, and biotechnology surged. Although the subsequent period of high inflation and rising interest rates tempered this growth, CBRE views these challenges as temporary. The long-term outlook remains optimistic, driven by several key factors.

Market Size and Potential

graph of public life science firms

The U.S. is home to the world’s largest life sciences and innovation markets, supported by structural demand drivers such as an aging population, climate change, and technological advancements like artificial intelligence. These factors are expected to spur continued innovation, boosting tenant demand and investor confidence in life sciences real estate.

Investment and Funding Ecosystem

While high interest rates have impacted capital allocation to the sector, life sciences companies are generally well-capitalized and poised for long-term growth. The resilience of the sector is bolstered by robust support from the federal government and non-profits, which have continued to fund research and development activities even during economic downturns.

Resilience and Stability

One of the most compelling aspects of the life sciences sector is its relative resistance to economic cycles. Over the past 30 years, life sciences employment has generally increased during recessions, underscoring the sector’s stability. For example, during the 2007-2009 recession, life sciences companies added 1% to their payrolls, while the overall economy lost 5% of payroll jobs. This trend continued during the 2020 pandemic, with life sciences employment growing by 2% even as total employment fell by 6%.

Sustained Demand for Lab Space

The life sciences industry’s ongoing growth will sustain demand for lab space and real estate. In 2023, the total market capitalization of public companies with U.S. operations exceeded $5 trillion, marking a 12% increase year-over-year. R&D expenditures reached a record-high of $177 billion, up 17% from 2022. This continuous growth drives demand for specialized real estate to support research and development activities.

Government Support

The federal government’s commitment to supporting the life sciences industry is another key factor driving its growth. Initiatives like the National Biotechnology and Biomanufacturing Initiative, signed by President Biden in 2022, provide significant funding and regulatory support. Additionally, NIH grants and contracts continue to drive innovation, with the Congressional Budget Office anticipating a 22% increase in NIH outlays over the next decade.

Diverse Funding Sources

Graph of U.S. life sciences venture capital funded

The life sciences sector benefits from a diverse funding ecosystem that includes NIH grants, venture capital (VC), initial public offerings (IPOs), mergers and acquisitions (M&A), and strategic alliances. This diversity helps stabilize the sector when certain funding sources slow down. Despite recent declines in VC and IPO capital, the total value of deals from all capital sources in 2023 exceeded the prior two years, more than doubling the levels seen in 2013.

Rising Demand for Real Estate

Graph of lagged values of IPO and Venture Capital deals

VC funding and IPO activity are particularly correlated with demand for lab space and life sciences real estate, as they enable earlier-stage firms to scale their workforce and real estate footprint quickly. Although capital flows from these sources fell dramatically from their 2021 peaks, the S&P Biotechnology Index rebounded in 2024, suggesting more capital-raising and real estate demand this year.

Tenant Demand

U.S. life sciences occupiers are actively seeking more than 12 million square feet of lab space as of Q4 2023. This level of demand typically translates into about 1-2 million square feet of net absorption per quarter. After a brief period of negative net absorption in mid-2023, the market is now showing signs of recovery, with optimism growing around the financing environment.

A Positive Outlook

Graph of life sciences tenant requirements

Looking ahead, secular trends such as demographic changes, new therapeutic applications, and technological advancements will continue to fuel demand for life sciences real estate. The sector’s long-term growth trajectory is expected to remain strong, offering investors a unique opportunity to capitalize on its stability and resilience.

In conclusion, the life sciences sector presents a promising investment landscape for real estate investors. Its robust fundamentals, coupled with ongoing government support and diverse funding sources, ensure that demand for specialized real estate will continue to grow. As the sector navigates through short-term challenges, its long-term potential remains bright, making it a lucrative area for investment.


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