2024 Life Sciences Real Estate Perspective and Cluster Analysis

How can real estate and facilities foster a vibrant life sciences ecosystem that advances science, technology and innovation? The 2024 Life Sciences Real Estate Perspective and Cluster Analysis looks at the fundamental building blocks of major life sciences clusters in the U.S. and assesses the landscape of four industry focus areas: medtech, biomanufacturing, AI and talent.

Signs continue to point toward long-term growth for life sciences in the U.S. and across the globe

We are living in a time of extraordinary scientific progress. Biotechnology patent innovation was 22% higher in 2023 than it was a decade prior, driving company creation, while Evaluate Pharma forecasts worldwide pharma sales will be over 80% higher in 2030 than they were in 2023, driven in large part by a doubling of revenue generated by biologics. While industry challenges persist in the short term, signs continue to point toward long-term growth for life sciences in the U.S. and across the globe.

As the industry returns to equilibrium and the life sciences evolves, so does our annual industry report. This year’s research perspective explores familiar territory and paves a future landscape. Adding to previous cluster models for the biopharma and medtech sectors are rankings for two new focus areas: talent and AI.

How can real estate and facilities advance science, technology and innovation? Which markets are home to the best talent pools? What macro forces are driving decision-making? We answer these questions and more for life sciences companies, investors and developers. This year, our report delineates 10 critical observations and answer core questions. The central question remains is when, not if, the sector will begin its recovery, returning to the robust growth seen over the past two decades.

What are the current dynamics in the U.S. lab market?

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What macro forces are driving real estate decision-making?

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Where are we in the real estate cycle?

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When will life sciences markets advance to equilibrium?

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A 6-12 month supply super cycle followed by a period with limited new supply and repurposing of older assets will boost recovery

In the past year, the pre-existing supply-demand imbalance has grown more acute in most major lab markets. At the heart of today's market pressure sits lackluster demand and robust subleasing. With the addition of over 3 million s.f. of sublease space, the overall national lab availability rate has pushed to 30%.

Tenants are extending decision-making while elevated acquisition levels point to a potential headwind for real estate demand

Two events have the power to shape the demand dynamics in biopharma markets–capital events (VC, IPOs, secondary offerings, etc.) and acquisitions by large pharma. In most major markets, privately held startups make up the majority of tenant requirements, and thus venture rounds are the biggest indicator of future demand. With less growth capital available, tenants now are spending far more time looking for space.

This market downcycle is markedly different than any other

In any market correction there is a tendency to look to past recessions to map out what the return to normalcy could be this go-around. In a sector like life sciences, it can be more difficult, considering it is such a fast-growing sector. The best test-case for this cycle is in the aftermath of the dotcom bust, specifically in mature markets like the Bay Area and Boston. Then, as it is now, there was a rapid increase in vacancy after a deluge of tenant’s space-banked prior to the popping of a capital bubble. Then vacancies rose sharply for 3-4 years before a return to normalcy began. This would imply another year or so of elevated vacancy levels before coming back into more palatable levels for landlords if we follow that precedent.

Established clusters with strong fundamentals and high-quality assets are expected to lead the recovery

We will most definitely see the speed of recoveries contingent on some mix of location, sponsorship and asset quality. Metrics like biotech equity values, venture deployment, scientific leaps and revenue generation will all interplay in the coming years to determine what is the actual need for lab R&D space across the country. By year’s end we could have something in the ballpark of 45 million s.f. of vacant space, with some more potentially delivering in 2025. If we see labs convert to other asset types, it may hasten the return to normalcy.

Sources: JLL Research; Bay Area, Boston, Boulder, Greater DC & Baltimore, New Jersey, Philadelphia, Raleigh-Durham, San Diego, Seattle