According to the report, which was prepared by members of CBRE's Life Sciences Group, the major real estate challenge facing the industry is the fact the properties are among the most complex and expensive in the world, requiring extraordinarily high amount of capital to finance both construction and operation. Thomas Sullivan, senior vice president in CBRE's Central New Jersey office and a senior member of the Life Sciences Group, says budgets for life-science buildings often run more than $1,000 a sf (see separate article).

The report points to several key concepts it calls critical for understanding the life-science industry, including the fact the two primary industry drivers are the increasing needs of an agingpopulation and overall consumer demand for improved healthcare. But despite the growing demand, CBRE says the industry's high-risk character limits the number of investors willing to provide capital for early-stage development, with the largest share of investment going to acquisitions of mid- to late-stage products. Because the cost of developing new products is high, with prices for raw materials and labor increasing at a steep rate, life-science companies are looking for ways to contain costs and improve efficiencies without sacrificing safety and environmental concerns.

As a result, CBRE notes, the large pharmaceutical companies are increasingly shifting research and manufacturing offshore, following the same pattern adopted by conventional industries. An increase in federal regulatory demands combined with waning government financial support has sped the exodus, says the report.

Nonetheless, the report indicates the major US life-science property markets are not only holding their own but growing. The San Francisco Bay Area, which remains the world's largest life-science market with more than 800 biotech and biopharma companies occupying nearly 25 million sf of research-related real estate, saw 10 million sf of new life-science development in 2007 alone. While that market is centered in the city of South San Francisco, the recent decision by Pfizer Inc. to locate its Biotherapeutics and Bioinnovation Center in a new 105,000-sf building in neighboring San Francisco shows the industry's geographic nexus is quickly expanding to surrounding areas.

Though the other eight markets studied cannot match the Bay Area's development level, the reports says most are also seeing new growth. The New York City metro area, for example, had 1.4 million sf under construction last year, while Northern New Jersey saw completion of Pfizer's 1.6 million-sf Morris Plains East Campus. In Seattle the Gates Foundation launched construction on the initial phase of it one million-sf research complex. Leasing has also been strong, according to CBRE, with the 8.5-million-sf Boston/Cambridge biotech market recording 1.2 million sf of '07 leasing activity and North Carolina's Research Triangle registering one million sf.

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Report Says Life Science Industry Faces Challenge

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