By Kate Snyder
Across the country, the life science sector is grappling with what the future of the industry could hold. A supply wave of lab space is hitting markets across the U.S., particularly in the Bay Area, and although demand for lab space has slowed, there is reason to believe it’s in a position to bounce back, according to a recently released report from JLL. At the same time, life sciences clusters are emerging in various markets across the country, with West Coast cities and regions all making the top ten for 2023.
While the Bay Area and Boston have long been the dominant centers of life sciences excellence in the U.S., new markets are showing signs of significant growth and potential. In addition to the Bay Area, both San Diego and Seattle were recognized as top life science clusters for the past year.
The report, “2023 Life Sciences Industry and Real Estate Perspective,” shows that despite the downturn, there are reasons to be optimistic, with large pharma using AI in its research and development and small molecule drug design getting precision boosts from new techniques. Fresh approaches to treating metabolic diseases have arrived, including blockbuster drugs for the treatment of obesity. Significant advances were made in the treatment of neurodegenerative diseases, including ALS, spawning a vibrant, rapidly growing neurotechnology sector.
Travis McCready, head of life sciences markets in the Americas for JLL and chair of the JLL Global Life Sciences Advisory Board, highlighted challenges the industry has experienced and ways it has changed in the past year.
“Especially for this sector, we believe it is necessary to cultivate a deeper level of understanding of what makes a healthy and vibrant life sciences ecosystem and the critical role that real estate plays in fostering that ecosystem,” McCready said in the report. “We have added new elements and new insights into the U.S. ecosystem’s performance. No matter the metric, though, the 2023 report shows that market conditions in the life sciences this past year have been particularly volatile and have tested the mettle of even the most seasoned, experienced life sciences real estate professional.”
Several key takeaways are identified in the report. Demand for space is poised to return as capital sources grow more confident in coming months. According to the data, $25.5 billion in venture capital was raised in the past 12 months, more than the pre-COVID-19 annual record despite current headwinds. The industry’s growth and record-breaking deployment of venture capital in 2021 suggests a quicker bounce back compared to previous downturns. Job demand in the life sciences sector has returned to record highs, also indicating a potential increase in demand for lab space in the coming quarters.
Notably, however, the supply wave hitting the country is not evenly distributed, according to the report. Of the 37 million square feet of investor-owned lab space under development in the U.S., 63 percent is in either Greater Boston or the Bay Area. But while the national pipeline figure is three times that of 2019, and the approved and proposed pipelines remain large, it is almost assured that the peak pipeline is in the past. Already, labs under development have fallen by two million square feet since the end of 2022, and project completions are likely to outweigh project starts for some time.
West Coast cities were also featured in the top medtech markets, according to the report. The top five regions for 2022 medtech manufacturing employment include the Bay Area and Orange County. The same regions were part of the 2018-2022 total healthcare devices and supplies venture capital funding.
For the Bay Area’s medtech market, key areas of focus include robotic surgery devices and AI-based diagnostics and analytics. Intuitive Surgical occupies over one million square feet with 847,000 square feet of construction underway and 364,000 square feet proposed in Sunnyvale. Agilent Technologies is another big occupier with 395,000 square feet of space in Santa Clara.
In Southern California, the greater Los Angeles area is a hotbed of innovation in the medtech sector, with biopharma, artificial intelligence, aerospace, agtech, foodtech and cleantech industries. Notable companies like Edwards LifeSciences, Medtronic, Boston Scientific and others have a presence in Orange County.
The Bay Area was also featured as a top biomanufacturing market. A few large biomanufacturing companies in the Bay Area include Gilead, Personalis and Alexza Pharmaceuticals. The proximity to academic research centers and suppliers makes the Bay Area in a good position to translate innovation into manufactured products.
Overall, the life science industry’s resilience and adaptability coupled with its ongoing advancements are poised to shape its future. While the sector is experiencing a period of challenges and growth, with emerging markets complementing traditional hubs like the Bay Area and Boston, the report suggests optimism for a rebound, and increased venture capital investment and record job demand indicate potential for recovery. McCready emphasized that change is the most significant constant in the industry.
“There are literally dozens upon dozens of advances made in the past 12 months alone, each that will have a significant downstream effect on the vitality of our business,” McCready said in the report. “One can reliably expect that science, and the nature of scientific discovery, will constantly, inexorably evolve.”
