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Report: Life Sciences Sector is a Small Portion of the Commercial Real Estate Market, but its Growing Fast

Colliers, Portland, San Francisco Bay Area, NIH
Courtesy of Colliers

By Meghan Hall

The life science asset class was once considered a “niche” market, but during the course of the pandemic the industry has been thrust into the spotlight. While life science is still a smaller segment of the overall commercial real estate sector, in markets like the San Francisco Bay Area and Seattle, life science is still the subject of constant conversation. And, according to a fourth quarter report released by Colliers, it is a segment that is quickly growing.

Colliers’ most recent analysis looked at several Northwest life science markets, including the Puget Sound, Portland, Sacramento, and the greater San Francisco Bay Area. Across these markets, there is currently about 49.7 million square feet of inventory; the largest cluster of space is located in the San Francisco Peninsula, which has 16.3 million square feet of life science-designated commercial real estate.

San Francisco’s East Bay submarket has the next largest cluster of inventory, at 11.46 million square feet, followed by the Puget Sound, which has 7.75 million square feet. Silicon Valley and San Francisco have 5.46 million square feet and 5.24 million square feet, respectively. Sacramento’s life science cluster is smaller, at 2.29 million square feet. Portland was the smallest market evaluated, with about 1.2 million square feet of life science space. 

According to Colliers’ Allyn Thorpe, the markets have a number of factors in common that have helped their local clusters thrive and expand. 

“Life science as a whole usually has a confluence of items,” said Thorpe. “It has a really strong talent pool…and then they also have a really good infrastructure which is the life science lab building [itself] and supportive things like access to funding. [The industry] is also usually a pretty dense area to foster a strong environment of innovation.”

Colliers notes in its report that funding from the National Institute of Health is the “backbone of the life science ecosystem.” By the end of 2021, San Francisco had received $999.9 million in NIH funding; the Puget Sound had received $649.7 million. Portland received a healthy $562.1 milion, Sacramento procured $393.5 million, and the San Francisco East Bay collected $279.6 million in funding.

Even more notable has been recent private and venture capital funding. The San Francisco Peninsula alone received more than $10 billion throughout 2021. San Francisco itself received nearly $8.9 billion in private and venture capital funding. The Puget Sound received $1.7 billion, and Portland received $123.3 million.

With money flowing in, the number of tenants and tenant requirements are also continuing to increase. As of the fourth quarter of 2020, there were 50 active tenant requirements across the markets studied, amounting to 3.2 million square feet. The requirements reflect a 25 percent increase in total tenants and a 7.4 percent increase in total square footage from the first half of 2021. Tenants were focusing their searches for space in Silicon Valley, which had 1.73 million square feet of requirements, as well as the Puget Sound, where there were 629,000 square feet of active requirements in the market.

45 leases were also recorded, totaling 3.1million square feet. 37 new leases were signed, accounting for 81.6 percent of all leasing volume, according to Colliers.

“The main thing that stood out to me was that most of the lease transactions were considered new deals,” said Thorpe. “Whenever our occupiers are choosing to ink new space over their current ones, that is usually an indicator to real estate professionals that there is confidence in the market.”

Landlords and investors are also taking note. There are currently 27 projects under construction in the Northwest markets, of which 33.3 percent are pre-leased. The projects totla about 6.3 million square feet of space. An additional 22.45 million square feet has currently been proposed and is working its way through the entitlements process.

“Life science is a small subset of the market as a whole but they are growing,” noted Thorpe. “We’re watching a growth rate of about 12.7 percent…[in terms of] what is under construction as a percentage of total inventory.”

While the industry faces some challenges ahead, including land and even labor constraints, the life science sector is expected to continue on its upward trajectory.

“I think it’s going to continue to grow,” said Thorpe. “Obviously worldwide there has been a huge focus on life science as a whole, and I think investors are going to want to take advantage of returns in this arena.”