Life Sciences Outlook | 2016
The overall cost of operating within the life sciences industry is rising due to increased lab rents in top-tier clusters, R&D costs and higher wages for skilled employees.
Life sciences real estate vacancy rates remain unfathomably low in top clusters like Boston and the Bay Area, and asking rents continue to rise. Meanwhile, secondary markets like Denver are seeing an uptick in leasing activity, and as vacancy rates slide these clusters are quickly becoming supply-constrained as well.
So how are firms adapting their operating strategies to remain competitive in this fierce environment? We’ve identified four key industry themes to keep an eye on.
Driven by fierce competition for space and labor, tenants are putting more emphasis on site selection and amenities, which play a key role in attracting talent and capital.
Low vacancy is a trend in almost every cluster, but how demand is being accommodated varies.
While location is a theme for development, it's at the forefront of talent attraction, development and retention. Life sciences firms are recognizing what it takes to hire and acquire skilled workers.
This is where clusters unquantifiably benefit tenants. Highly concentrated with life sciences establishments and the individuals that come with them, these communities present an opportunity to recruit employees with minimal disruption to their personal lives. Additionally, proximity to higher education institutions is crucial.
With the practice of strategic tax-inversion coming under scrutiny of the U.S. Treasury Department, tax-incentivized shortcuts are no longer a viable cost-savings option. In addition to high operating expenses, Big Pharma is projected to lose $17 billion this year in patent expirations. These factors and more have contributed to the world's largest companies struggling to grow revenue, and it's forcing companies to reassess their approach.
Multinationals have turned to "business swaps"—the divestment or acquisition of a business line or asset for the purpose of driving revenue. This trend of strategic M&A activity is contributing to the disposition of life sciences properties.
Traditionally, institutional real estate investors have looked past life sciences properties, however, this is rapidly changing. Why?
Leading life sciences clusters boast self-sustaining ecosystems that house world-class universities, high concentrations of life sciences professionals and top-notch research centers.
With institutional-quality tenants, low vacancy rates and a resilient, global industry, life sciences real estate will continue to attract the attention of core investors. And this investment brings good things to the companies that utilize the space.
We once again scored top markets based on their life sciences employment, number of establishments, funding and patent generation.See how clusters across the United States stack up.
Download our complete report for a deep dive into these themes, clusters and submarket conditions.
Executive Managing Director
Director of Research