By Kevin Wayer, president – government, education, infrastructure and life sciences industries, JLL, and Travis McCready, head of life sciences, industries Americas, JLL
After an unprecedented period of growth during the pandemic, life sciences activity normalized in 2022.
The life sciences industry has not been immune to the macroeconomic challenges plaguing the global economy, but these short-term challenges won’t be a roadblock for the incredible growth predicted over the long term.
The long-term outlook for life sciences is bright, marked by increasing attention on health and wellness, breakthrough therapies and advancements in modalities. In 2023, companies will push ahead toward that future, and there are five key trends that will shape market activity and drive progress forward in the life sciences industry.
1. Big pharma will fuel M&A activity
There is an industry-wide race for intellectual property and ownership of leading biotechnology innovations. To get it, big pharma is aggressively acquiring start-ups with promising scientific advancements. The trend is expected to drive substantial M&A activity this year.
Small companies with liquidity issues will be the top targets for big pharma buyouts.
This activity will build on the M&A and co-development partnerships that emerged in 2022 but may not necessarily translate into demand for more real estate at the onset as facilities will be absorbed into existing footprints. Longer-term, these capital events will support further development of promising research and development efforts, supporting growth within the industry and expansion in the future.
Additionally, last year saw a rapid rise in fortunes of contract manufacturing organizations (CMO) and contract development and manufacturing organizations (CDMO) as biotech shifted these decisions toward outsourcing, and there is no reason this won’t continue in 2023.
2. Investment increases in manufacturing innovation
New technologies are fueling scientific advancements and creating opportunities for innovation. The use of robotics, automation technology and small-batch processing are becoming ubiquitous as the industry evolves, and life sciences companies are targeting facilities and real estate that are outfitted to support these needs.
In 2023, life sciences organizations will make critical investments in real estate upgrades and improvements to create tech-ready and future-ready spaces that enable the adoption of emerging tools.
3. Capital will target innovation
In 2021, unprecedented venture capital (VC) investment into life sciences broke all previous records and set a high bar for activity. Funding in 2022 was 24.7% lower year-on-year, due to a confluence of headwinds that impacted costs, supply chains and the ability to plan.
However, there is still pent-up capital yet to be deployed across the sector which will support activity as we enter 2023, including growth in international markets. In the U.S., the life sciences vacancy rate remains around 6% in the top clusters, illustrating a healthy supply/demand balance for real estate and stimulating long-term optimism for life sciences advancement.
Real estate capital will focus on strategies that support innovation through targeted investments in R&D efforts and lab facilities, particularly as the administrative function of companies moves to a hybrid work model and suppresses demand for office space.
4. Tenants return to core clusters
The shifting market fundamentals are serving to revitalize demand in core clusters.
Companies are looking for high-quality assets in established ecosystems that encourage innovation. In the US, Boston, San Francisco and San Diego will continue to be the leading centers for scientific advancement, capturing demand from mature users and driving leasing and investment activity this year. During the pandemic, life sciences demand also catalyzed the emergence of new clusters in cities like Raleigh, New York and Chicago, which have been essential to supporting early-stage start-ups.
In Europe, Oxford and Cambridge have an exceptionally rich provision of lab space alongside a deep funding environment, with London and Paris having deep talent pools and existing company base, dominating markets for life sciences research and development. Expansive life sciences stock and development pipeline in Amsterdam and Munich, or a booming start-up community in Berlin-Potsdam and Barcelona are positioned for fast growth.
The period of imbalance between supply of real estate space and demand of tenants in the market is largely over and as a result, to be successful, ecosystems and developers will need to focus on strategies and tactics for increasing demand. These emerging markets will continue to grow, too, with university systems and new market entrants driving that demand and new development in those cities.
5. Environmental goals remain a top priority
The industry’s laser focus on ESG and sustainability efforts will remain a top priority in the year ahead. In a recent study from JLL, 72% of life sciences organizations said they want the workplace to have a positive impact on the environment and they are willing to pay a premium for high-quality facilities with green credentials that can help meet sustainability targets and reduce environmental impacts. This year, companies will continue to refine goals and measurements to set appropriate and achievable targets that meet sustainability standards.
According to the Science Based Targets initiative (SBTi), over 70 international leaders in the pharmaceuticals, biotechnology and life sciences sector have already identified climate goals.
In 2023, life sciences organizations are finding balance. By focusing on high growth initiatives that will drive innovation while minimizing cost expenditures, this year promises to be transformative.