Life sciences was the breakout asset class of 2021. Vacancy is nearly nonexistent in major markets despite record development levels, rents are rising, and investment is blowing up for lab/office space as well as biomanufacturing space.
Despite a massive construction pipeline, demand far outpaces supply by so much — the gap is nearly 3M SF across the top 12 markets, according to CBRE — that some landlords in the Boston area this year have paid tenants to vacate their leases early so they could bring in someone new at higher rents. “Speed to market” has become the buzzword, and developers race to put up space that life sciences firms say they need yesterday.
The pandemic helped drive the sector’s growth as work on vaccines spurred, and will continue to spur, research and development. The MEDS in America Act, a bill introduced in the House, would allocate billions of dollars to upgrade mRNA vaccine manufacturing capacity, which would help production in this pandemic and in any future ones. Multiple other bills making their way through Congress would funnel additional money to life sciences R&D.
Fundraising was intense in 2021, both in terms of venture capital for life sciences companies themselves and in terms of real estate funds looking to invest in the property that will support them, including from brand-new entrants into the sector: Greystar and the Canada Pension Plan Investment Board forged a life sciences joint venture with $1.2B in equity, Hines intends to spend billions in the space in the next two years, and a new company, Life Science REIT, was launched this year after raising £350M in an initial public offering, the biggest REIT IPO in the UK since 2016. Most recently, Bain Capital launched a fund eyeing $9B in life sciences real estate investment.
The space is dominated by a handful of major players, and new entrants in the space, from investors to contractors, may find it more challenging than expected. The spaces are specialized and expensive and difficult to build, and they require uniquely trained workers to build, sell or operate. A lack of widely available data also keeps the pool small.
Many cities, like Baltimore, Chicago, Los Angeles, Houston and Wilmington, Delaware, are trying to get in on the game in a bigger way. Boston and Cambridge are starting to say they have too much of what others consider a good thing, and residents are pushing for a moratorium on lab development. Beyond NIMBYism, growth in life sciences construction is being held back by supply chain issues, both for traditional building materials and for specialized items like microchips.
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