Life sciences/research and development real estate experienced a reset in 2023, according to JLL. Still, demand will likely rebound in the coming year. Experts in the life sciences/R&D real estate space shared additional trends for the sector in 2024 with Connect CRE.
Increased Power in Established Clusters
Nick Cassaro, vice president of life science development at BGO, explained that venture capital investments in life science companies are rising in core clusters like Boston/Cambridge, south San Francisco and San Diego. Other “clusters” defined by BGO include Greater DC and Baltimore, Philadelphia, Raleigh-Durham, Seattle, New York City and New Jersey.
“Companies use the core cluster for employee growth and retention, along with fundraising capabilities,” Cassaro said. He added that BGO has seen investments to companies in these core clusters increase, with a likelihood of returning to pre-pandemic levels.
Cassaro said this trend will likely continue in 2024, driven by increased mergers and acquisitions. M&As have always been part and parcel of the industry, but “with today’s financial markets, we are seeing smaller companies merge with other companies to further extend their runway as life science companies while researching for a common goal,” Cassaro explained.
Meanwhile, larger pharma companies will target smaller ones to increase market share. “They’ll continue to grow their pipeline as some drug patents are set to expire, which will further concentrate the power of these life sciences clusters,” he said.
Still, VC investments in the Life Sciences market will be more strategic than in previous years, as companies will be required to show financial milestones and paths to clinical trials, Cassaro pointed out. “This stabilizes market growth and predictability in 2025,” he added.
More Deliveries, Less Construction
Following the pandemic, major and secondary life sciences markets experienced a boost in speculative construction, said Ken Richter, Project Management Advisors’ Executive Vice President and National Life Science Sector Lead. As a result, R&D vacancies will increase in 2024, even as under-construction lab and R&D space fell in Q3 2023, a CBRE report said.
“For the big three primary life science markets, and many of the secondary and tertiary markets as well, the amount of new speculative space coming into the market in 2024 is far greater than at any other point in the sector’s 25-to-30-year history,” Richter said. Many projects were initiated during the pandemic when the urgency for drug development and interest rates were low. “Not to overgeneralize, but many of these projects will be completed in 2024 and 2025, and it will be a challenging environment to have pure speculative projects underwritten,” he said.
But PMA is bullish on this sector. “In addition to demographics, the complexity of today’s drug delivery modalities will drive more research and Current Good Manufacturing Practice (cGMP) space than the traditional small-molecule delivery,” Richter said.
Lab Design Overhauls
According to Unispace Life Sciences Pharma Engineer and Principal Bobby Savarese, pharma and biotech CEOs are anxious to accelerate the drug discovery process. “The next generation of R&D labs will need to become technology-enabled and ready to support new design delivery plans, which include accommodating new quantum computing capabilities,” Savarese commented.
He added that the new design plans will also help support cost reduction, fast-track delivery and carbon neutrality, with the design achieving a functional lab footprint reduced from 8 square meters to 6 square meters per R&D specialist.
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