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Demand for Life Sciences Space Outpacing Construction in Top U.S. Markets

12/13/21

This report provided by CBRE

Demand for new life sciences lab space is outpacing speculative construction in the top 12 U.S. life sciences hubs as the industry rapidly expands amid a global race for new drug development, according to a new report from CBRE. With the U.S. vacancy rate for existing lab and research development space at a record low of 4.9%, average asking rents are skyrocketing in the top 12 markets, jumping 7.5% in September compared to March 2021.

Life sciences companies collectively sought nearly 23.8 msf of new lab space across the top 12 U.S. life sciences markets in this year’s third quarter. That exceeds the amount of lab space under spec construction – meaning space being built without a tenant already signed – by nearly 2.8 msf. That gap has widened steadily since last year; Even as construction has ramped up considerably, growth in demand continues to outpace it.

In Greater Los Angeles, increasing developer interest, an influx of venture capital investment -- outside of the three largest markets that receive 70% of all venture capital funding, Los Angeles ranked #7 with $350 mil in the third quarter of 2021 -- continued NIH funding and home-grown STEM talent collectively led to more demand for lab/R&D development throughout the region. The region currently ranks as the ninth-largest life sciences employment hub with 46,000 jobs in the segment in 2020. That compares to 69,000 in San Diego and 129,000 in San Francisco.

Leasing volume in Greater LA continues to climb as more and more companies look to expand and new companies grow and/or move out of incubators. This heightened interest in life sciences has led to one of the fastest-growing new real estate ventures: lab coworking. LabLaunch, BioLabs and HATCHspaces all have facilities in bioscience hubs of Greater Los Angeles.

“Founders have the confidence that they can grow a life science company in LA,” said Los Angeles-based Senior Vice President Andrew Riley. “The city has caught the interest of the real estate development and venture capital community. Not to mention, the talent continues to improve and is ripe for the picking. We’re even starting to see companies from out-of-state explore what lease opportunities exist in the L.A. market; a great sign for sure.”

Top Lease Transactions Greater Los Angeles (not all-inclusive)
Date Tenant Size (SF) Submarket Use
Q2 – 2021 XENCOR, INC. 129,543 Tri-Cities/Glendale Lab/R&D
Q3 – 2021 Impact Bio USA 26,229 San Fernando Valley Lab/R&D
Q2 – 2021 Neogene Therapeutics 20,000 West LA Lab/R&D
Q2 – 2021 Instil Bio 16,646 Conejo Valley Lab/R&D
Q3 – 2021 Capsida Bio 8,133 Conejo Valley Lab/R&D
Q2 – 2021 Nouvelle Labs, Inc. 6,337 West County Lab/R&D

Demand for lab space in Greater Los Angeles increased by 7% percent in the past six months with 20 tenants currently seeking space. There are currently three properties under construction in the region including a mixed-use conversion and a ground-up project in the San Fernando Valley at 18422 Oxnard Street. A two-building flex property is being renovated for R&D use in the Conejo Valley, and in West Los Angeles, HATCHspaces partnered with NexCore Group for their third project together, a 100k sf wet-lab and office building.

Life sciences companies collectively sought nearly 23.8 msf of new lab space across those 12 markets in this year’s third quarter. That exceeds the amount of lab space under spec construction – meaning space being built without a tenant already signed – by nearly 2.8 msf That gap has widened steadily since last year; Even as construction has ramped up considerably, growth in demand continues to outpace it.

“Life sciences labs have quickly become a highly sought-after property type for both tenants and investors,” said Ian Anderson, CBRE’s Americas Head of Office Research. “This intense demand for lab space is the natural result of a global push for new medicines begetting strong funding and hiring in the life sciences sector.”

Many factors are fueling the life sciences market, including global demand for vaccines for COVID-19 and viruses like it. Initial public offerings for life sciences companies in the U.S. are on pace for a record year of raising roughly $13 bil. Venture-capital funding for U.S. life sciences companies exceeded $30 bil, the most on record, in the 12 months ended in September. Job growth in U.S. biotech and research & development sectors registered a 12.1% gain in September from a year earlier.

Those factors have boosted the lab-space market in U.S. life sciences hubs to varying





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