Intelligent Investment
U.S. Life Sciences Real Estate Investment Trends
Decade of Continued Growth Earns Sector Top Alternative Asset Status
June 11, 2024 29 Minute Read
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Introduction
The U.S. life sciences real estate sector has significantly grown over the past decade, becoming a top alternative asset for institutional investors. Advances in biotechnology, pharmaceuticals and medical devices have resulted in the need for high-quality research and development (R&D) laboratories and manufacturing facilities that meet complex requirements. The surging demand for more of this high-quality life sciences real estate is fueling property acquisition and new development in many U.S. markets.
This report explores the life sciences real estate investment landscape, including the key players, performance metrics and notable trends that continue fueling its growth. It is split into four parts:
- “The Investor Landscape” details how institutional, international and large private investors have allocated capital to the sector.
- “Investment Performance” assesses how the sector has performed relative to other commercial real estate types and investors’ expectations of future performance.
- “Investment Characteristics” explains how investors are structuring partnerships and weighing key considerations such as target markets and environmental, social and governance (ESG) goals.
- “Sector Outlook & Investment Implications” identifies the key trends that will drive growth and resilience in the life sciences sector moving forward.
Methodological Note: Throughout this report, data from the broader research and development (R&D) subtype of office and flex properties is used when lab facility data is unavailable or insufficient.
“Core” markets are Boston-Cambridge, the San Francisco Bay Area and San Diego. “Secondary” markets refer to the next 10 largest markets as measured by inventory, which are New Jersey, Washington, D.C.-Baltimore, Philadelphia, Raleigh-Durham, Seattle, Los Angeles, Denver-Boulder, New York City, Houston and Chicago.
Insights from the Life Sciences Roundtable Q3 2024
A panel of CBRE experts explored key findings from recently released reports on U.S. life sciences talent and real estate investment.
Figure 1: Life Sciences Growth Has Far Exceeded General Economic and Office Indicators (Index Q1 2016 = 100)
Source: Bureau of Economic Analysis, Bureau of Labor Statistics, CBRE Research, CBRE Strategic Investment Consulting, Q1 2024.
Executive Summary
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Life sciences real estate is one of the leading alternative assets for institutional investors.
Alternative assets have grown from less than 1% to over 6% of institutional holdings over the past decade, with life sciences real estate leading this growth. Life sciences assets now comprise more than one-third of the value of alternatives in institutional real estate portfolios, surpassing all other alternative assets.
8% R&D share of total office/flex property sales in 2023, compared to 1% in 2003
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Investors are attracted to its superior returns and lower volatility than other asset types.
Over the past decade, the life sciences real estate sector has achieved better risk-adjusted returns than other major asset types. Additionally, life sciences assets are uniquely suited to help meet ESG goals, a key consideration for investors.
12.2% Average annual total returns over the last 10 years for institutional holders of life sciences assets, compared to 7.3% for institutional holders across all real estate asset types
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Joint ventures have been an effective way for more investors to increase their capital allocations.
Institutional investors with limited sector experience have leveraged strategic partnerships such as joint ventures to allocate more capital to life sciences real estate. These partnerships combine an institutional investor’s capital and financial expertise with an experienced operator’s subject-matter expertise, limiting risk and maximizing returns.
30% Share of life sciences sales in 2022-2023 that involved a joint venture buyer
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Industry investment remains steady despite recent capital markets challenges.
Despite venture capital (VC), debt and equity offerings slowing over the past few years, strategic alliances, M&A and grants have largely sustained total capital value. Ongoing investment should boost tenant demand and confidence among real estate investors.
$583 Billion Total volume invested in life sciences companies in 2023
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Favorable trends are expected to drive further growth and new interest in this real estate sector.
Long-term structural demand drivers such as the aging population, climate change and emerging technology are spurring innovation in the U.S. life sciences real estate sector. Strong public and social sector support should bolster the life sciences industry over the next decade.
$500 Billion+ Expected outlays to the NIH from the federal government from 2024 to 2034, according to the U.S. Congressional Budget Office
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