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Pandemic Stokes Already Robust Demand for Real Estate in the Life Sciences Sector

10/22/20

This report was provided by real estate services firm CBRE

The pandemic has accelerated momentum in the U.S. life sciences industry, particularly amid the race to produce a COVID-19 vaccine and develop other medicines for human ailments. That has meant more growth for metros like San Diego, which ranks third on CBRE’s list of the largest U.S. life sciences markets in its new report on the sector.

Nationally, the life sciences sector has reached new highs this year in R&D employment and venture-capital funding. Those and other factors have resulted in a surge in demand for life sciences real estate in markets from longstanding centers like Boston and the San Francisco Bay Area to emerging hubs such as Pittsburgh, according to a new report from CBRE.

“San Diego continues to be one of the top innovation clusters in the United States, given the concentration of top-ranked universities, independent research institutions and pharma R&D presence in the region,” said Ryan Egli, senior vice president and leader of San Diego’s Life Science Practice. “Demand in the sector has continued to improve during the pandemic. Companies are currently seeking a total of 2 msf in the market, which is a historically high and causing an imbalance of supply and demand.”

The region’s standing reflects the 16 msf of life science inventory, scarce available supply, and a fast-growing high-tech sector that continues to blossom in the region. Additionally, average asking lease rates for lab space in the San Diego market have risen by 18.4% since 2019 as a result of high demand. San Diego secured a sizeable share of venture capital (VC) funding with over $796 mil invested in area biotech and pharma companies in the second quarter of 2020—the highest ever for the region. San Diego has also reported a 17% increase in demand for space from life science companies (the equivalent of 500,000 square feet of space) since March of 2020.

CBRE identified the top U.S. life sciences markets by assessing each market’s life-sciences job base, the size of its lab-space inventory, and the amount of funding it attracts from venture capital firms and the National Institutes of Health.

Largest U.S. Life Sciences Markets

1.) Boston-Cambridge

2.) San Francisco Bay Area

3.) San Diego

4.) Washington, D.C.-Baltimore

5.) Raleigh-Durham

6.) New Jersey

7.) Philadelphia

8.) New York City

9.) Seattle

10.) Los Angeles

11.) Chicago

12.) Orange County, CA

13.) Denver-Boulder


CBRE determined its list of emerging life-sciences markets through a slightly narrower set of criteria. Those markets are (in order): Pittsburgh, Houston, Austin, Detroit, Phoenix, Dallas-Fort Worth, St. Louis, Atlanta, Portland and Minneapolis.

Overall, the life-sciences industry is building on its momentum. Venture-capital investment in the sector grew to a rolling annual total of $17.8 bil in the second quarter, the largest amount on record, according to the PwC/CB Insights MoneyTree survey. Employment in U.S. biotechnology research and development professions exceeded 220,000 in July, extending a decade-long growth trajectory.

Investors continue to consider lab and R&D space to be slightly more valuable on average than conventional office space, a trend that began in 2015. Lab-space vacancy is less than 8% in many top life sciences markets and rents are rising in most.

“While COVID-19 has presented significant challenges in the United States, the San Diego life sciences industry has shown its resiliency and strength through its commitment to health and research,” said Zack Holderman, senior vice president and co-leader of the Debt & Structured Finance platform for U.S. Healthcare & Life Sciences Capital Markets. “San Diego will show resilience and expansion, affording tenants, owners and developers ample runway to grow the life science market.”






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