With advances in modern medicine accelerating forward, demand for lab space and health-care facilities has also seen a rapid growth. In Cushman & Wakefield’s latest report on the life sciences industry, the sector has demonstrated steady and strong market fundamentals.
With an aging and growing population, the life sciences sector is continuously working on new technologies to improve quality of life. But to keep advancing, companies are seeking additional lab space and more employees. Combined with a steady flow of research capital, the life sciences sector’s market fundamentals have made it more resilient to the cyclical nature of the real estate market.
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Currently, there are 52.4 million people aged 65 and older in the U.S and by the next decade, that number is expected to exceed 73 million. Similarly, the report noted that the median age in the U.S. increased to 38.2 in 2018 and is expected to reach 40 by 2030. As the population grows, so does demand for new treatments, drugs and equipment.
With such inevitable demand, technological advances in life science categories like genomics, gene editing and cell and gene therapy have taken off. Specifically, the cell and gene therapy sector commanded a $1.1 billion market cap in 2018, but is expected to grow by 36.5 percent in the next five years and hit an $11 billion market cap. Similarly, both the genomics and gene editing sectors will also grow by more than 10 percent each in the next five years.
As these sectors grow, so does demand for employees. Starting from the end of 2013, the amount of jobs in the biotech research and development industry has increased by 70,000 each year, or roughly 7.5 percent. In the life sciences sector overall, there were 204,800 jobs in the industry in 2019, with 67 percent of them concentrated in 11 metropolitan life sciences hubs.
A resilient market for life sciences
Considering the growing need for space and employees, rents have increased, while vacancy rates have declined throughout major markets. Throughout the U.S., vacancy rates dropped to 7.1 percent for lab space versus the 12.4 percent rate for office space. With lower vacancy rates, rent for lab space in the 12 most popular life sciences markets has increased to $43.10 per square foot, compared to office space’s average rent of $40.30 per square foot.
Certain markets have also developed into strong life sciences hubs, with areas like Boston/Cambridge having close to no vacancy. The markets of Boston/Cambridge and the San Francisco Peninsula offer the largest markets, with 21.8 million of life sciences space, but others like New Jersey, have also risen to the top due to its history of being home to major pharmaceutical manufacturers. Markets like Boston/Cambridge, the San Francisco Peninsula and Oakland/East Bay all experienced an explosive growth in their talent pools in the last decade.
Earlier this year, Boston Properties partnered with Alexandria Real Estate Equities to combine their nearby properties and develop their first life sciences real estate development in a San Francisco biotech campus.
Despite the last two economic downturns, the life sciences sector’s employment has increased 87.9 percent since 2000. While the industry is still subject to the ups and downs of the market, the report noted that the life sciences market is more likely to weather the storm than other sectors.