Future-proof your life sciences real estate portfolio

For life sciences companies, an accelerating pace of change and the growing cost of capital creates opportunities and challenges. A new wave of patent expirations is poised to drive increased mergers and acquisitions (M&A), while new technologies are transforming the focus of innovation from disease treatment to prevention and even cures.

Exciting new treatments will spark intense demand for everything from laboratory space to manufacturing facilities and global distribution infrastructure. Now, life sciences companies must reimagine their real estate to meet their five- to 10-year goals amidst the shifting sands.

Today’s cost-pressured environment requires organizations to balance the needs for talent, space and access to customers. To thrive in rapid change and uncertainty, companies must become more agile, whether through leasing, multitenancy, embracing flexible workspace solutions or focusing on smaller regional facilities that provide access to favorable market dynamics.

Thriving in the future means taking steps today. The following are six ways that life sciences companies can reimagine their portfolios to support their business strategies.

Given that the cost of developing and commercializing a new medicine or device can cost billions, the life sciences industry historically has not viewed real estate as a major cost center. However, many organizations now recognize that inefficient real estate can reduce their return on investment, while smart location decisions create value. They’re focusing on strategic investments that directly add value, such as state-of-the-art laboratory spaces or revenue-producing manufacturing facilities.

At the same time, many organizations are taking a closer look at their underutilized administrative space to optimize their real estate portfolios. Many are exiting and consolidating administrative space, directing the savings to workplace improvements or the core scientific mission.

Having seen innovation thrive in dynamic life sciences clusters around the world, some major biopharmaceutical companies are creating their own dynamic environments. For example, in 2020, Bristol Meyers Squibb sold its 433-acre campus in Hopewell, New Jersey, to new owners. The secure, multi-purpose R&D and biologic/pharmaceutical manufacturing campus is now home to multiple tenants. Other organizations are developing hubs to foster knowledge-sharing with nearby healthcare organizations and research institutions.

Often, the first step in campus transformation is for the campus owner to execute a sale-leaseback. The campus owner would sell the property and lease back just the space they need. The new owner could then lease the remainder of the campus to complementary organizations. In an urban multistory facility, a biopharmaceutical company might convert a portion of its leased space into a life sciences incubator for startups that could become future acquisition targets.

With increasing pressure to uncover the next blockbuster treatment, many biopharmaceutical and medical device companies are outsourcing real estate and facilities management to become more agile and sharpen their focus on core scientific functions.

Centralized facilities procurement and smart energy management strategies, for example, reduce operating expenses. Furthermore, a facility management provider specializing in life sciences will use next-generation building and equipment maintenance practices. Such strategies prevent research and production disruptions while reducing capital expenses by extending equipment life. In addition, an outsourcing partner can help create productive workplaces that attract and retain talent — and inspire and support employees bringing new products to market.

It’s important to select your real estate landlord or operating partner wisely. They must have deep technical expertise to provide a best-in-class and resilient environment that empowers you to meet your scientific mission. A strategic relationship will create flexibility to meet the demands of a rapidly changing market and your company’s growth.

Creating a proactive facilities management strategy can ensure your real estate portfolio is as efficient as possible and can even present an advantage during M&A. As large biopharmaceutical companies acquire emerging innovators, an integrated facilities management partner can quickly add resources to meet the tight due diligence timelines.

As life sciences organizations rethink their domestic and global footprints, they are using sophisticated location analytics tools to manage the cost structure of their real estate. At the global level, occupiers and investors alike are diversifying and optimizing their real estate footprints in response to talent availability, maturing markets, and greater business and research specialization.

Using today’s tools, a biopharmaceutical company can review its global portfolio of sites, identify facilities with pending lease expirations and determine whether it makes sense to exit a particular market or country in favor of another. For example, the current slack in venture capital funding has created tenant-friendly conditions for laboratory space in some top life sciences clusters, creating opportunities not available five years ago.

Location analytics also can help an organization at different stages. If the company is focused on revenue growth, for example, it will need sales and potentially manufacturing locations in the largest economies, such as the United States, Brazil, Western Europe, China and India. A company prioritizing margin preservation, meanwhile, would benefit from manufacturing sites in lower-cost countries, such as Mexico, Colombia, Eastern Europe or Southeast Asia. Innovators and mature companies seeking potential acquisition targets might look to life sciences and technology ecosystems in North America, Western Europe, the Nordic countries, Japan or South Korea.

Just as movie directors recognize that Hollywood is a top place to find acting talent, life sciences enterprises continue flocking to the top life sciences clusters to access top-tier scientific talent. However, the high cost of real estate in the major clusters has motivated innovators and talent alike to migrate to affordable cities offering attractive lifestyles, such as Austin and Tel Aviv.

In the United States, Boston, the San Francisco Bay Area and San Diego typically provide a reliable source of talent. Deep talent pools also have grown in other global cities, including:

• Cambridge and Oxford, U.K.
• Toronto and Vancouver, Canada
• Berlin, Germany and Basel, Switzerland in Europe
• Beijing and Shanghai, China
• Bangalore and Hyderabad, India

These growing markets also offer the most real estate options, including second-generation space, spec suites and a pipeline of purpose-built supply — although both real estate and talent may come at a high price in some locations. Also important, the influx of sustainable life sciences developments in the top clusters can play a role in talent recruitment, since 72% of biopharmaceutical company leaders say that employees increasingly expect the workplace to have a positive impact on the environment, according to JLL’s Future of Work: Key Trends for Life Sciences.

As companies identify the best markets for talent, they should consider the skillsets that will be needed in the years to come. Access to artificial intelligence (AI) talent and other digital expertise will be critical for biopharmaceutical companies looking to harness the potential of new technologies.

One of the most important decisions a life sciences real estate leader must make is when — and where — to build or buy real estate, and when to outsource to service providers like contract research organizations (CROs) or contract development manufacturing organizations (CDMOs). The complex decision requires analyzing internal and external factors and the economics of a real estate portfolio.

This strategic conversation is most effective when companies take an integrated approach, considering business and scientific goals, key performance indicators and opportunities in the real estate market. JLL’s enterprise-level strategy services can help biopharma companies of all sizes create a path forward as they wrestle with making the right real estate environment available for today’s operations and the future.

Reimagining a life sciences real estate portfolio means aligning facilities with talent strategies, cost optimization and other business goals. Becoming highly agile and digitally integrated can help life sciences organizations future-proof their portfolios and support their five- and 10-year goals. Now is the time to seize the opportunity.

Your breakthroughs are limitless. Your real estate portfolio should be too. Looking for fresh ideas and industry expertise to help guide your portfolio strategy and optimization? Contact the life sciences experts at JLL.