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Report: Life Sciences Sector Shifting into High Gear

JLL, San Francisco, Seattle, Los Angeles, San Diego
Courtesy of Louis Reed

By Meghan Hall

The life sciences sector has been around for decades, but only recently has the industry become a focal point for venture capitalists and real estate investors. Over the past year and a half, a number of factors have helped shift the life sciences sector into high gear. Legacy markets including The San Francisco Bay Area and San Diego have seen explosive growth, while emerging markets like Seattle are well poised to follow suit. According to a recent report released by JLL, industry growth and demand for life sciences product are creating new opportunities across a number of different markets.

“This year we looked at 46 markets across the U.S. and Canada and focused on the components that drive a life sciences cluster ecosystem as it relates specifically to lab real estate demand,” explained JLL Senior Vice President and Director of Research, Amber Schiada. “In previous years we’d produced an overall score, but this year we wanted to provide insight on talent, industry depth, innovation, and lab real estate dynamics.”

JLL found that there were a number of drivers influencing the rapid expansion of the life sciences industry and its associated commercial real estate market. Industry growth has been driven by increased consumer demand for human health and therapeutics-related products. Additionally, becaused medical advancements have lengthened lifespans, there is now a greater demand for consistent and specialized healthcare. Demographics are also expected to add to the equation; currently, people aged 55 and over make up for more than half of U.S. healthcare expenditures and yet only represent about 29 percent of the population. As subsequent and larger demographics age, demand is expected to grow.

JLL also notes that while there are several thousand known diseases worldwide, therapies have only been developed for about 500. Additionally, technological advancements are contributing to fields such as biologics and more efficient modalities. By 2026, worldwide pharmaceutical sales are predicted to reach a compound annual rate of 7.4 percent. This equates to about $1.4 trillion in sales and is a “significant” increase, according to JLL.

“The acceleration of new technologies to aid in drug discovery is speeding up the process [of R&D]. Venture capital is targeting life sciences in a way we’ve not seen before, hitting new aggregate funding records across the country…” said Schiada. “The adoption of new technologies is also boosting company formation in areas related to artificial intelligence, supply chain and risk management (which is highly regulated in this industry), clinical trials, big data, and anything having to do with personalized medicine.”

Of the markets that JLL evaluated, a number of West Coast markets were ranked in the top ten. The San Francisco Bay Area was ranked second only to Greater Boston, while San Diego was ranked third. Los Angeles was ranked seventh, and Seattle-Bellevue took the tenth spot. Other highly ranked markets included Raleigh-Durham, Denver-Boulder, Philadelphia and New York-New Jersey. Clusters were ranked on a combination of local talent, industry depth, innovation an dlab real estate dynamics. 

“Talent is critical – the top clusters graduate more life sciences PhDs and have a denser pool of talent working in the industry than in other emerging geographies,” said Schiada. “The legacy institutions are irreplaceable and fuel this pipeline.” 

The Greater San Francisco Bay Area ranked fourth for talent but secured the number two spot due to an extremely high innovation score when compared to other markets. According to JLL’s analysis, the region ranked ahead of all other markets when it came to innovation. The depth of the life sciences industry in the Greater San Francisco Bay Area only trailed just slightly behind Boston’s. 

“The Bay Area is a top market because of its institutional depth and key anchors in the global pharma industry,” said Schiada. “The tech influence is a benefit, too. Talent, venture capital flows, and the world-class research institutions anchoring San Francisco, Palo Alto, and Berkeley will continue to drive growth here.”

In San Diego, the market was ranked third for talent due to its proximity to a wide number of educational institutions, including University of California San Diego and San Diego State University. With clusters in neighborhoods like Torrey Pines and the presence of major companies like Illumina, the metro was one of the top for industry depth. Los Angeles, while not ranked within the top five because of its less-centralized life sciences industry, is expected to continue to benefit from growth in San Diego and the San Francisco Bay Area.

“San Diego has so much momentum and is one of the most active clusters in the U.S. right now,” stated Schiada. “The lab development pipeline continues to swell, but that makes sense given the extremely tight market conditions there. Venture capital investment into life sciences companies has already exceeded the previous year’s total, fueling continued demand for lab space.”

The Seattle-Bellevue market was ranked tenth, and although smaller, has lots of promise, according to JLL. As tech has moved into the market, putting it on the map, life sciences companies have followed along. Its innovation score helped propel the market into the top ten, as did the market’s talent score. The market is home not just to the University of Washington, but other institutions such as the Bill and Melinda Gates Foundation, Fred Hutchinson Cancer Research Center and Juno Therapeutics, among others.

“Seattle/Bellevue is an exciting market because, even though it’s more of an emerging cluster, it’s well positioned to capture growth as the industry moves to employ more software and IT techniques in the R&D and supply chain process,” noted Schiada. “The depth of tech talent is a bonus for life sciences companies with a tech-forward approach to scientific research, and the startup community is buzzing with new growth.”

How the nation’s top life sciences industries continue to evolve remains to be seen as companies compete for space, talent and reputation. While the largest life sciences ecosystems continue to grow, they will no doubt have gravitational pull. However, JLL does acknowledge that the competition in these markets is fierce, and this creates opportunities for smaller clusters to emerge in the future.

“Few markets have the depth of lab inventory that the San Francisco Bay Area, San Diego, or Boston have,” said Schiada. “That’s changing as new developments and conversions pop up in new markets, but the top clusters will maintain the advantage due to the components mentioned earlier.”