Life Sciences Has The Demand; Now, It Just Needs More Deal-Makers
Breakneck expansion and new spending have put life sciences — and the developers and brokers who build and sell lab space and specialized offices — in an enviable position. But the sector is missing one key ingredient.
“Today we have immense amounts of capital, lots of focus and a big market," Cushman & Wakefield Director of Business Intelligence Brendan Carroll said. "What’s lagging is the skill."
The maturity of the life sciences market has lowered the perceived risk of investment, inviting new ventures and new capital. According to S&P Global Market Intelligence, biotech alone raised $20B in private equity and venture capital, and UBS found healthcare represented 14% of all deal activity in private equity last year. With President Joe Biden requesting billions of dollars of new spending for the nation’s top health organizations, it’s possible that even more investment may flood the industry.
It’s created a rush for space, and a big gap in the number of real estate professionals with the specialized knowledge to talk and execute ground-up research centers or converting traditional commercial spaces to labs. Newmark’s 2020 year-end analysis on the sector found two can’t-miss symbols of a continued boom in deal-making, amid so many signals of growth: extremely low vacancy, especially for wet lab space, and sprawling construction plans. The top 14 life sciences markets have 36M SF under construction right now.
With the coronavirus pandemic acting as a catalyst for the booming life sciences development market, Carroll wasn’t surprised 2020 was a monster year. Deal volume rose 93%. But what makes that figure even more intriguing is that Carroll could have told you that was going to happen back in late 2019.
“What’s actually more interesting is that the increase had nothing to do with the circumstances of last year,” he said. “Larger deals were already in progress.”
Carly Glova, president of Building Careers, a commercial real estate talent firm based in San Diego, one of the nation’s life sciences hubs, said life sciences roles, especially on the development and project management side, have been her clients' biggest need. Life sciences development and acquisition roles are in high demand, and often earn increased compensation; equity or other incentives average 30% of their total compensation, up to 100%, Glova said.
“That talent pool is comparatively small and folks with that experience can command high comp packages,” she said.
Susie Harborth, executive vice president of business operations at Breakthrough Properties, which specializes in life sciences real estate, is seeing similar opportunities for those with experience. In strongholds such as Boston, the Bay Area and San Diego, as well as emerging markets like Los Angeles, New York City and Philadelphia, firms are ramping up hiring, she told Bisnow. Marcus Meijer, CEO of European investment firm MARK, told Bisnow it was challenging but worth it to find experienced talent; you can get the right property, but without the internal expertise and external relationships, it’s hard to compete and land marquee clients.
“Life science is picking up across the country,” said Dacon Director of Operations Jennifer Luoni, who said her firm, which specializes in lab conversions, has been getting a lot more calls. “We’re seeing developers who would never make this investment before asking us ‘what would it take to convert this building to life science? It used to be logistics and manufacturing; now demand is so high, life science spec development may be worth the risk.”
How do aspiring real estate professionals get into this sector, or how do those with experience find new opportunities? Part of the solution may be expansion and new markets. While roughly 70% of private and venture capital, and scientific talent, are concentrated in the top three markets — Boston, San Diego, and the Bay Area — there are growing markets seeing increased attention from developers, such as Dallas, Seattle, New York and the Research Triangle in North Carolina.
Some real estate skills and strategies are easily transferable. Cathy Bell, an architect and senior associate at NBBJ who specializes in science projects, said it is key to look at development real estate via the lens of clusters; housing, amenities, universities and hospitals, where talent is located, all developments need to be supported at multiple levels.
Cushman & Wakefield Managing Director of Life Sciences Daniel Hackett said it’s important for those in life sciences real estate to understand the life cycle of products and where clients stand in that cycle. Are they part of discovery or manufacturing, or are they full horizon and handle everything. “One of the key things we’re always looking for is the pipeline,” he said.
The pipeline for real estate talent, sadly, isn’t nearly as developed. Technical skills tend to be lacking. Glova said there’s a dearth of midlevel managers, so much so that they often bring in consultants.
“There’s still a small pool of companies doing this, and folks with this kind of specialty are few and far between,” she said.