JLL Report: COVID-19-Related Vaccines Stimulate Life Sciences Real Estate Market
JLL published its JLL 2020 U.S. Life Sciences Outlook, which ranks and tracks the progress of life sciences markets, particularly in how they relate to real estate development. The report this year also takes into account the COVID-19 pandemic, which has hindered some aspects of the biopharmaceutical and life sciences industry, but not necessarily the life sciences real estate market or venture capital funding.
Not surprisingly, three specific geographic regions remain dominant for life sciences, the Greater Boston Area, the San Francisco Bay Area and the San Diego Metro Area. Those three captured 70% of all venture capital investment in 2019. In addition, Boston and San Francisco accounted for 2.7 million square feet and 4.0 million square feet of construction, respectively.
Rounding out the top 10 are Maryland; Raleigh-Durham Metro Area; Philadelphia Metro Area; New York Metro Area; Los Angeles/Orange County; Seattle Metro Area; and New Jersey. New York, Los Angeles and Philadelphia have all moved up the rankings, hitting new highs in venture capital funding and life sciences employment.
“Each cluster has a different specialty and occupies its own point along the maturity spectrum, providing a diverse range of options for investors and occupiers alike,” said Roger Humphrey, executive managing director of JLL Life Sciences. “But they do share a major commonality. Each cluster features a highly-educated workforce and ties to the research community, which in turn attracts a steady stream of multi-sourced investment that creates a need for institutional real estate.”
The report also tries to answer three fundamental questions:
• How do we foster innovation through real estate?
• How do we heighten productivity?
• How do we adapt to more acute consumer and patient needs?
The report notes, “Life sciences employment has been steadily growing in the major cluster markets, a positive for innovation potential. However, real estate development occurs on a much slower timeline, and finding space that is appropriately equipped for large-scale research, development and production is crucial to success. For this reason, industry innovation depends on quick and efficient access to Good Manufacturing Practices (GMP)-compliant facilities.”
The answer to the second question, regarding productivity, leans into the problem of how the COVID-19 pandemic has affected the life sciences, noting that “first and foremost,” life sciences facilities are workplaces. “As such, they have had to adapt to pandemic workplace rules in much the same way that more traditional workplaces have, but with the added challenge in many cases of having to ramp up significantly to contribute to anti-COVID pharmaceuticals, making safe and appropriate adaptation indispensable.”
The industry has adapted by creating alternating shifts, increasing social distancing on site and allowing tele-work when possible. But remote work is much more limited for research scientists than traditional offices. The report suggests that “the lab of the future/next-gen lab may well involve a bifurcation of space between research and administrative, with the latter more likely to be remote or at a different location. In some cases, larger space requirements may be indicated to accommodate social distancing (as well as enhance the ability to hire and expand to capitalize on quickly changing industry conditions).”
The final question, “How do we adapt to more acute consumer and patient needs?” notes that the industry in general has the benefit of “both cyclical and structural tailwinds with respect to consumer demand.” With a focus on COVID-19, they point out that although any treatments or vaccines are highly anticipated, COVID-19 has spread far more healthcare ripples, “increasing the acuity of many underlying conditions,” which has broadened demand for additional therapeutics. It has also dramatically driven innovation and growth in the diagnostics space.
The report projects COVID-19 will drive many new products on the market, hopefully many that are curative rather than therapeutic. The bottom line is they expect increasing marketing potential and overall growth, which will, of course, drive the demand for life science-focused real estate development and investment.
“Conditions are ideal for maximum profitability arising from innovative new pharmaceuticals and medical devices,” said Audrey Symes, Research Director, JLL Healthcare and Life Sciences. “Meaningful advances within the life sciences industry, such as machine learning, are creating new sources of workflow and thus real estate demand. This combination of simulative factors sets up the life sciences industry to expand at an unprecedented pace, both in terms of manufacturing and patient demand.”
The report also goes into significant depth on each life sciences cluster, including trends in VC funding, life sciences jobs, ownership share and details on what VC firms and life sciences companies are most active in those regions.
For example, they note that in Northern/Central New Jersey, Thor Equities Group acquired a Jersey City site for $95.4 million and is repositioning the 337,890-square-foot former office building for pharmaceutical and life sciences tenants, and that Quest Diagnostics is continuing to build its 250,000-square-foot laboratory at ON3, the former Roche Clifton/Nutley research campus, which will house more than 1,100 employees.
Of the COVID-19 pandemic’s effects on the industry, the report says, “Though it has experienced COVID-19-related operational challenges, the life sciences industry is one of relatively few to benefit from pandemic-related tailwinds. Along with its direct effect on life sciences activity, COVID-19 has also rendered other underlying conditions more serious, intensifying already-strong consumer demand for products enabling longer, healthier lifespans. The past several months will play an essential role in maximizing the efficiency and results of life sciences real estate.”