JLL Publishes 2023 Life Sciences Industry and Real Estate Perspective

Maddie Holmes

Courtesy of JLL

The 2023 US Life Sciences Industry and Real Estate Perspective from JLL covers an in-depth look at industry and market trends.

The report dives deep into past and future industry research themes, CRE investor and life science company opportunities, top biopharma market analytics, and more.

Lab Design spoke to Maddie Holmes and Andrew Quirk from JLL about the findings from the JLL research.

The report is available here.

Q: Could you please introduce yourself professionally?

MH: My name is Maddie Holmes. I am the life sciences research lead on JLL’s National Industries Research team.

Q: If you could summarize your main findings from the report, what would they be?

MH: In coming quarters, lab space demand is poised for a rebound as capital sources grow more confident. Record fundraising by top life sciences venture capital firms underscores the certainty of their dry powder being deployed into future investments. Mega deals for companies with robust clinical data are projected to continue, driving investment gains in 2024. Although the market is observing a surge in new lab space, completion of ongoing projects is expected to outpace new starts, thus reducing the pipeline. While top markets may experience downward pressure on rents and occupancy in the short term, an industry recovery is anticipated. All in all, despite challenging times there are ample opportunities for investors and tenants alike.

Q: Why will demand for lab space return when venture capital ramps up? How will there be an increase in venture capital?

MH: Venture capital funding is a leading indicator of real estate demand. The top 20 VCs focused on life sciences have collectively raised over $22 billion in 2021 – about four times that of a typical year. It can take five to six years to fully deploy those funds, so it’s a matter of “when” not “if” these funds will be deployed to life sciences startups.

Q: Why were public markets closed to biotech companies? How will their opening impact the industry?

MH: Public markets have been in hibernation mode across industries based on the current interest rate environment. The valuations, however, of biotech companies have been particularly poor because of their longer runway to revenue/profit. It’s also likely this is a period of correction as the segment was overheated in 2020-2021. Public markets opening back up to biotech companies will allow for more growth in the industry.

Q: Could you explain how the demand for space has changed, and what it is like now?

MH: As funding dynamics shifted downward due to movement in interest rates and economic uncertainties, so did demand for lab space in most of the largest life sciences markets across the U.S. As of Q2 2023 however, the decrease in demand has plateaued, and in coming quarters we will likely start seeing demand growth. Additionally, the majority of existing demand is fueled by smaller users, who, unlike mid-late-stage companies who can make do with what they already have, are in critical need of bench space.

Q: What common traits do the thriving life-science markets (Greater Boston, SF Bay Area, San Diego, Greater D.C. & Baltimore, Raleigh-Durham, New Jersey, New York City, Boulder & Northwest Corridor, Philadelphia, and Seattle) have in common?

MH: These life sciences clusters all have access to talent, venture capital funding, research institutions, and lab incubators to support startups, clinical hospitals, commercialization, and more.

Q: How can lab designers capitalize on the changing dynamics of the biotech and life science markets?

AQ:

Andrew Quirk, senior director of project and development services at JLL.

In the coming quarters, the biotech and life science sectors will slowly regain momentum. This will have a significant impact on the spaces where research is conducted and how it is conducted. The continued landmark advancements in scientific discoveries directly corelate to the need for advancing the physical spaces where these discoveries take place. 

Although there may be a glut of space in some markets, it is not the case everywhere. Also, the longer existing space sits unused on the market, the greater the potential need for revising unused space to stay current with market demand. Lab designers will need to capitalize on this opportunity and forge new pathways in design and turn to new tools to assist in the process. They will also need to do so quickly as competition to lease or sell space increases.

While the life science industry has widely accepted artificial intelligence (AI) for scientific use, there remains a significant opportunity for lab designers to embrace AI to help inform best-in-class opportunities that specifically enhance design elements and features that support the science. As with research, AI helps to facilitate scientific discovery and new models of medicines, such is the case with design. Designers can review scenarios that provide higher levels of satisfaction from users and make it a far more attractive investment.   Leaning on informed design decisions will avail market opportunity and attractiveness to prospective tenants in what may be a crowded space when sector investments and market demand eventually return. It will be a clear differentiator when selecting space.

In general, designers will need to continue to embrace flexible and customizable layouts that also do not require sizeable investments. There is also an increasing need to continue to foster the life sciences ecosystem while advancing science, technology, and innovation.  Designers will also be looked at to provide immersive designs where prospective users can see the space virtually and tour the facility. This will help both buyers and sellers of space in the marketing and visualization of the built environment.  The designers that utilize technology to best articulate and demonstrate the built environment will be an asset to the industry and can help to position space above other competition. With the prediction that leverage will be with the user/tenant in the coming quarters, attractiveness and flexibility of space will be paramount in positioning real estate in the market.

Visualization can come in the form of immersive visualization labs, where a BIM model is utilized at a large scale in a specialized setting and users can interact with and better experience the future state of an environment. This can also be experienced through immersive headsets and to a lesser extent on a laptop or tablet.

As market pressures continue in the short term, now is the time to re-evaluate real estate and what the future potential is. Lab designers will be in high demand to provide differentiation.

Q: Is there anything you would like to add or mention?

MH: Our report highlights the evolving and diversifying landscape of the life sciences market. We emphasize the dynamic nature of these markets and the opportunities they present. As the industry continues to expand and innovate, there are emerging markets that offer immense potential for growth and development. With that, there are a myriad of exciting opportunities available to investors, entrepreneurs, and stakeholders within these sectors.