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A boost in Q4 venture capital funding for life sciences showed the sector rebounding after three quarters of decline, suggesting new momentum for startups and lab real estate.
New Q4 data from CBRE found sector employment grew 4% year-over-year, asking rates for lab space increased to a record $62.16 per SF, and space under construction grew to 40.3M SF, up 7% from Q3. An increase in new, premium lab space is driving asking rates up.
Matt Gardner, leader of CBRE's advisory life sciences practice, said in addition to the uptick in VC funding, there are numerous other leading indicators pointing toward a healthier market: the increase in money invested in VC funds dedicated to biotech — $22B according to Silicon Valley Bank research — the thousands of new drugs in different stages of clinical trials and the sentiment at the recent JP Morgan Healthcare Conference, which indicated that merger and acquisition activity should be robust this year.
”There’s a saying that you almost never meet a pessimistic venture capitalist,” Gardner said. “One of the reasons why is they see something cool and inspiring just about every day. There’s so much good science on that growth path still, that we’re going to take a long view and say life sciences is still a reason to see good things even when the overall economy is having a hard time.”
There has been a decline in lab demand, down 8.4% quarter-to-quarter to 18.5M SF, and a slight increase in vacancy to 5.7%. Gardner noted that any potential slowdown in new construction and conversions is “something to keep an eye on.”
But that slight shift in vacancy and demand figures has long been seen by analysts as a sign of normalization in the market, especially after a sharp peak in activity and investment in 2021 and a strong but less robust overall performance in 2022. Total VC investment in the sector in 2022 hit $21.7B, roughly 35% below the previous year’s record, but nearly even with 2020.
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