The last few years catapulted the life sciences industry to record levels of demand. Though the sector isn’t immune to short-term, macroeconomic challenges, science doesn’t stop, and the life sciences industry is still on a clear path toward long-term growth, according to JLL’s 2022 Life Sciences Research Outlook & Cluster Rankings, which explores the current state of the industry and identifies trends affecting current and future demand for lab space. Additionally, through advanced cluster modeling, JLL Research introduced a new market ranking tool that provides occupiers guidance on market opportunities and investors information on the momentum and resilience of each cluster.
Current industry fundamentals are slowing, as public capital retrenches and startups focus on capital conservation, but these are short-term challenges, and the flow of private capital remains well above the historical trend. Novel therapies, innovative new modalities, increased adoption of advanced technologies and the demand for health and wellness will drive investment and growth for the foreseeable future.
“The long-term potential of the sector remains materially unchanged since 2021,” said Travis McCready, Head of Life Sciences, Americas Markets. “Innovation is happening at a more rapid pace than ever before, the fruits of research into cell and gene therapy are just now being harvested, and revenue growth has taken off in the past five years as the sector becomes larger, an atypical growth track. Additionally, three of the largest annual revenue increases in biotech R&D over the past 20 years have occurred in the last five years, as the sector accelerated into a new age of innovation.”
The supply landscape has shifted in the past 12 months. Demand was reaching its peak in the middle of 2021 with new lab space growth, but this dynamic created pressure in many lab markets where vacancies decreased while rents grew. Now, demand remains above historical levels and space is still scarce with vacancy below 6% across the top clusters in aggregate.
When it comes to funding, private capital remains resilient for growing biotech companies and startups, which have raised $21.5 billion through August 31. That is nearly $2 billion more than what they raised during the same timeframe in 2020, and although 2022 is 38% below the capital flow during the peak of 2021, the still historically high flow of venture capital stands a bulwark against the choppiness facing the sector.
The top life sciences innovation communities
To identify the strongest innovation communities, JLL Research looked at the key components of a successful life sciences ecosystem: access to talent, funding that leads to commercialization and real estate infrastructure to support further growth.
Boston (1), the San Francisco Bay Area (2) and San Diego (3) continue to reign as the top three markets for life sciences commercial real estate, and these top clusters have evolved over several decades. Emerging markets like Salt Lake City (10) and Minneapolis-St. Paul (12) are focused on the future and growing their industry infrastructure to attract life sciences and biotech industry growth. This convergence of science and technology is happening within innovation communities across several markets, with pockets of growth emerging in markets like Houston (13), Los Angeles (17) and Pittsburgh (11), among others.
“Innovation communities take decades to evolve,” added Amber Schiada, JLL Head of Life Sciences Research. “The world-class ecosystem that defines Boston’s life sciences cluster, for example, is not easily replicated. Universities, institutions, governments and industry players across the U.S. are investing in the development of new and expanded innovation clusters with increased focus on expanding our capacity for breakthrough scientific developments.”
Introducing the Life Sciences Cluster Composition Matrix
Looking at the modeling in another light, JLL Research created the new Life Sciences Cluster Composition Matrix, which recognizes the nuances within each market and provides a comprehensive view of the life sciences market landscape. While it is based on the same dataset as the traditional cluster ranking model, it considers more than 40 variables across 33 markets and offers a view of the strength of each market’s human capital – talent and workforce development – and physical capital – commercial real estate supply and funding sources. Both human and physical capital are critical in sizing up opportunity for scaling startups or established life sciences companies.
“Talent, funding and commercial restate infrastructure are quantifiable market indicators, but our view on what defines opportunity is not meant to be one-size fits all, but rather one-size fits most,” said Roger Humphrey, President, Life Sciences Work Dynamics. “This is a new and groundbreaking way of looking at how our innovation communities can inform location choices for growing companies or for startups where to scale, for example.”
While the top markets garner the lion’s share of leasing, funding and real estate investment, they do not have a monopoly over it. To varying degrees, most markets have ways in which they stand out and where additional momentum or investment is required. Markets like Orange County and Dallas have the talent and ideas, but lag in physical infrastructure and funding, indicating markets ripe for growth if given thoughtful development. Large markets like Los Angeles County and New York City today far exceed the funding and infrastructure given their lower levels of talent concentrations and innovation, per our model, but will likely continue to build scale as growing companies tap into these talent pools over time.
Looking ahead, 2023 looks to have the same dynamic as 2022. JLL anticipates larger biopharma companies to play an outsized role in funding and acquisitions, as they have capital to deploy, and we expect belt-tightening to continue into next year, but as the biotech indices may have hit a low point in early summer, so a long, slow recovery in valuations may already be underway.
JLL’s vision is to reimagine the world of real estate, creating, finding, locating and operating safe and amazing spaces. JLL’s Life Sciences team of 3,000+ experienced professionals are a safe pair of hands to help biotechnology, pharmaceutical, medical devices organizations, investors and developers achieve their ambitions. JLL brings deep understanding of location analytics, project management, research advisory, financial incentives, transaction management, capital markets, real estate strategy and technology, facilities management, regulatory compliance and quality, and more. Our solutions help fuel innovation, enhance efficiency, improve financial performance and attract and retain top talent. Our team is trained and certified to operate within office and critical, regulated environments of lab and manufacturing space. To learn more, visit us.jll.com/lifesciences.
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JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $19.4 billion, operations in over 80 countries and a global workforce of more than 102,000 as of June 30, 2022. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com.