Investment in Life Sciences CRE Beginning to Taper

Investment in life sciences has been off the charts since the onset of the pandemic, but that’s not a sustainable level of growth for any industry, so it is naturally beginning to taper, according to Mark Goodman, the principal of Mark Goodman & Associates.

Goodman’s firm has tracked real estate development trends for 40 years.

“When you also factor in the current economic uncertainty, that has led to the pause button being hit on some projects and a complete stoppage on others,” he tells GlobeSt.com.

For example, Alexandria Real Estate Equities just lost $30 million on a project from which they simply withdrew, Goodman said.

Investments Expected to Remain Strong

However, the life sciences market certainly isn’t bleak, as investments in life sciences are still above pre-pandemic levels and expected to remain strong, according to Goodman.

“There is still significant demand for move-in ready, purpose-built lab/office space and many other projects across the U.S. are continuing to move forward,” he said.

Goodman said that venture capital availability for life sciences start-ups has somewhat diminished the demand for space from an overheated market to one that is growing at a more modest pace.

“This, combined with interest rate uncertainty and construction cost escalations, have tempered the new development market,” he said. “It certainly hasn’t stopped growth — this industry will continue to grow and so will demand for space, but it will occur at a more modest pace.”

Emerging Cluster Have Advantages

The nation’s top cluster cities, such as San Francisco and Boston, are seeing average rents for lab space skyrocket as the supply of move-in-ready facilities dwindles.

“They’ve grown so fast that the area’s resources are very thin and there is little land left to build on,” Goodman said. “Correspondingly, the cost of living has risen in tandem, making it harder for lab workers in those cities to find quality housing at an affordable price.

“This opens up opportunity for emerging clusters, like Chicago, that have all of the assets needed to support a successful life sciences enterprise and can offer readily-available space at a much lower price per square foot, with an attractive cost of living and urban lifestyle that is very appealing to high-tech talent.”

He said that state governments are also stepping into the game to bolster emerging cluster markets.

“Illinois, for example, recently announced a $15.4 million investment in a wet lab capital program that will support the development of eight new spaces and fund $90 million worth of wet lab expansions,” Goodman said. “Incentives like these can be vitally important to start-ups that need to make the most of limited capital investments.”