Life Sciences: Short-Term Struggles, Long-Term Stability

Life sciences real estate includes laboratory, manufacturing, and office space for occupiers who study and develop scientific products and services. Over the past few years, this real estate sector has become a hot asset class, leading to increased demand and ongoing construction.

A recent report from CBRE and soon-to-be-released outlook from JLL explain that life sciences faces a mixed bag in the coming year. But despite headwinds, fundamentals should support this sector – and, by extension, its real estate. Here are trends that the real estate firms are keeping an eye on:

Significant Industry Disruptions

JLL and CBRE analysts explain that the life sciences sector is experiencing disruptions. This is due to new technologies, including 3D printing, closed-loop continuous systems, and artificial intelligence. CBRE pointed out that “advances in biotechnology, medical devices and consumer products are focused on unmet medical needs” while spurring advances in sustainable materials.

As a result, these fundamentals will be “a stabilizing force in the near term and a catalyst for long-term growth,” CBRE pointed out.

According to JLL, the good news is that these trends “have the potential to revolutionize the utilization of real estate in the long run.” JLL continued that the disruptions also require a reassessment of real estate and facilities usage and strategies.

Economic Issues

Like other real estate sectors, life sciences deal with “high-interest rates, a slowing economy, and geopolitical conflicts,” CBRE noted. This has impacted sales transactions of this property type. On the positive side, the fundamentals are solid; CBRE anticipated that the sector has “good prospects for recovery” when the current issues are resolved. But the goal now involves capital preservation and a conservative investment approach.

JLL explained that a “wave of new modalities” will help bolster the situation, including GLP-1 agonists to aid in weight loss, radiopharma and antibody-drug conjugates (ADCs). “These modalities . . . are now showing both clinical efficacy and blockbuster potential,” JLL said.

At the same time, life sciences companies are working toward sustainable and environmentally friendly operations and facilities management. JLL commented that this trend aligns with corporate responsibility goals while reducing costs and decreasing reliance on traditional energy sources.

Supply and Demand

The JLL report commented that life sciences is moving from a macro focus to one that’s hyperlocal. As a result, investment, construction, employment and other decisions depend on a hyperlocal analysis. Additionally, the JLL analysts proclaimed life sciences an occupier’s market, noting that “finding suitable physical space for your operations will likely become easier than ever before.”

CBRE added that net absorption for lab/R&D space was negative in 2023 due to more construction. The top three life sciences markets (Boston-Cambridge, San Francisco Bay Area and San Diego) ended up with a faster inflow of venture capital funding between 2019 and 2021, which CBRE surmised led to “more risk-taking, misallocation of capital and overzealous expansion plans.” These markets also experienced high levels of construction.

JLL indicated that landlords are offering better terms and highly amenitized spaces to entice tenants. Meanwhile, CBRE forecasted construction would fall by 2025, leading to leasing stabilization.