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Contributor • Featured

Continued Growth in Life Sciences Fuels Development

December 28, 2021

by Suzanne Duca and Taylor Stucky

The life sciences market has never been stronger. With 2021 wrapping up, how will the market fare moving into 2022? While many ponder whether or not we are in a bubble brought on by COVID-19, our data points to this not being the case. With revolutionary technology, advances in discovery and innovation, and an aging population in need of better medical care, the life sciences are more pertinent and accessible than ever.

In the third quarter, demand for lab space in Boston-Cambridge surged to a record of 23.8 million sq. ft. of tenant requirements, outstripping unleased, speculative construction. Thirty-three percent of the 21.4 million sq. ft. of speculative lab/R&D space under construction is already pre-leased with the majority in Boston-Cambridge. Over 50% of the projects expected to deliver by the end of 2022 in Boston-Cambridge are pre-leased. In the last three years, Boston-Cambridge’s lab inventory has more than doubled, reaching 42 million sq. ft. Across the U.S., many office and industrial facilitates are being converted to life science to keep up with demand. There are 3.2 million sq. ft. of lab conversions underway in Boston-Cambridge alone. In 2021, investment in life sciences lab/R&D properties skyrocketed. As the need for lab/R&D space appears to have no near-term end in sight, developers and investors have been paying a premium for office properties slated for life sciences conversion compared to conventional office properties.

With average U.S. lab/R&D vacancy below 5%, space available cannot keep up with the demand from eager tenants. In Boston-Cambridge, lab/R&D vacancy fell from 2.5% in the first quarter to 1.1% in the third quarter of 2021. Conventional office vacancy in the market was markedly higher at 12.7%. In addition to decreasing vacancy rates, eight of the 12 top U.S. markets saw increased rents from March 2021 to September 2021 as companies expanded and young companies moved out of incubators and into their own spaces. Asking rates in the top markets reached nearly $95 NNN per sq. ft. per year.

Suzanne Duca

As space is being consumed, U.S. biotechnology R&D jobs are growing at their fastest recorded rate. Life sciences is now a leading source of U.S. employment growth, with biotech R&D employment growing faster than even the technology sector. This growth is fueled by historic levels of funding. Venture capital funding posted a new high of over $32 billion for the fiscal year. Seventy life sciences IPOs generated $10.8 billion as of October 2021 – more than double the funding of three years ago – with more than $13 billion projected by the end of 2021. Seventy percent of U.S. venture capital funding went to Boston-Cambridge ($10.7 billion), San Francisco Bay Area ($6.7 billion), and San Diego ($5.1 billion). Funding is expected to continue this upward trajectory into 2022.

Taylor Stucky

Robust fundamentals moving into 2022 and continued interest from developers, landlords, venture capital companies, and tenants suggest another strong year ahead for the life sciences sector.

Suzanne Duca is director of research, and Taylor Stucky is senior field research analyst at CBRE.

forecast HPNews Jan'22
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