Reading the Vitals of Life Science Real Estate

December 12, 2023 • John Salustri

The life science sector seems to be riding well the wave of economic uncertainty, although, as Cushman & Wakefield points out in its recent report  on the market, the sector is certainly not immune to the confidence-killing impact of the current interest-rate environment.

Nevertheless, despite a downturn in the past 18 months in leasing, investment and job growth, the firm tracks a coming change of fortune. Venture capital funding “is up nearly 20% YOY,” says Cushman, “and the number of life science tenants searching for space is up over 22% since late spring.”

Looking more closely at the leasing, capital and jobs state of play, the firm is tracking an autumn increase in the number of tenants in the market after a first-half slowdown of 41% year over year. There has also been an uptick in the size of the spaces being sought. In June (which the report calls “the nadir of tenant inquiries”), the average was 39,000 feet per inquiry. That began to turn around in July, and “as of October 2023, tenant requirements were 22% higher than June, but they still lag January activity by 24%. The number of tenants seeking space in the market has increased to approximately 220, nearly the number of tenants in the market in January.”

On the VC front, funding totaled $5.6 billion in Q3, an 18% jump YOY. While first-round commitments fell 23% in that time, rounds two and three rose 29% and 31% YOY respectively.

While the current report does not do a deep dive into the jobs market, the issue was covered in  Cushman’s September Update , which reported that, as of August, postings outpaced hirings by 14%, although, “this is lower than the same period last year,” when postings outpaced hiring by 34%.

The report goes on to say that job postings have a three-to-one intensity ratio, with each unique job posted an average of three times, “indicating some continued difficulty in filling open positions.” The relatively good news here is that the number of students getting their life science degrees has grown 6% from 2019 to 2021, at least providing the hope of a larger potential talent pool.

Not surprisingly, the top 10 job markets lead the way in the sector, garnering 69% of that pool of talent.  They are, in order: Boston, New York, San Francisco, New Jersey, San Diego, Philadelphia, Los Angeles/Orange County, Suburban Maryland, Chicago and Detroit/Ann Arbor.

In terms of outlook, not all of the above-mentioned students are destined for a career in life sciences, a measure less of market condition than personal choice. That said, Cushman predicts employment growth, albeit at a decelerated pace, over the next five years.

The September report also treated the construction pipeline, where we see that Boston, the labor-market leader, as well as San Diego and the San Francisco Bay area, have the most robust construction pipelines. Boston leads the way in new projects as well, with 12 million square feet expected in the next 18 months. But the largest market by square footage is San Francsico, number three on the employment list. Inventory there is expected to grow 17% “with current projects under construction totaling nearly eight million square feet.” Going forward, as the job picture grows at its decelerated pace, the construction pipeline is expected to follow suit.

In all, the life sciences market is navigating relatively well through the shaky economic times. While certainly not immune, says Cushman in its November update, “Inherent growth dynamics mean that users of life sciences space will continue to seek opportunities as growth continues.”

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