Chapter 1
The Investor Landscape
U.S. Life Sciences Real Estate Investment Trends
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The landscape of U.S. life sciences real estate investors is growing and evolving.
Key Takeaways
- The U.S. life sciences investor landscape has traditionally been dominated by major national players and local owner/operators with specialized sector experience. Recently, this has broadened to include more specialist players, as well as institutional and public investors diversifying their portfolios with life sciences assets.
- Growing investor interest has led to a significant increase in sales volumes. Investment volume in R&D properties was 68% higher in the four years since the pandemic’s onset (2020 to 2023) than the four years before the pandemic (2016 to 2019). Meanwhile, overall office/flex investment sales declined by 17% between the two periods.
- International institutional capital has been increasingly active through direct acquisition and joint ventures with U.S. owners and operators. This influx of institutional and international investors, along with overall sales volume growth, shows the evolution of life sciences real estate from a niche to a more broadly appealing asset class.
Large institutional and private investors make up a growing share of life sciences ownership.
The life sciences investor landscape has traditionally consisted of a few major national players and local owner/operators with specialized sector knowledge.
Investible life sciences inventory has more than doubled since 2018, as measured by square footage across the 13 largest markets. Nearly all major owners grew their life sciences portfolios over the last five years, but the top three decreased their overall share of holdings as new and expanding entrants acquired and developed assets (Figure 3). New investors have mostly focused on the three core markets of Boston-Cambridge, San Francisco and San Diego. Some of these investors opted to reposition assets in the less saturated San Diego and San Francisco metros, while others committed capital to building new ground-up developments.
Joint ventures are common, particularly for large banks and other institutions that have not historically been major players in U.S. life sciences. In many cases, they form joint ventures with owner-operators and developers who have experience navigating the complex construction, operation and ownership requirements. As interest in this sector grows, more newcomers are expected. However, operational complexities and slower deal flow may limit entry in the short term. New entrants benefit from strategically partnering with experienced operators to gain local knowledge to identify opportunities.
Figure 2: Share of U.S. Lab Inventory Holdings, 2018 vs 2023
Source: CBRE Research, CBRE Strategic Investment Consulting, Q4 2023.
Figure 3: Top Holders of Lab Facilities in the U.S., 2018 vs 2023
Source: CBRE Research, CBRE Strategic Investment Consulting, Q4 2023.
Institutional investors are driving recent investment sales growth of R&D properties.
Investment sales of R&D properties soared from 2020 to 2023 as assets shifted from private to institutional owners.
Total U.S. R&D investment sales volume averaged $4.6 billion per year from 2010 to 2019, making up about 5% of total U.S. office and flex investment sales. Sales began to increase in 2019, but blossomed in 2020. From 2019 to 2020, non-R&D flex and office sales volume plummeted by 40%, while R&D property investment grew by 16%. Interest in R&D properties peaked in 2021, with annual investment sales surpassing $17 billion, or 12%, of the total office/flex sales.
During this period, institutional investors made up a large portion of the net buyers, while private and international investors were mostly net sellers. Cross-border capital flows are skewed by Brookfield Asset Management’s (based in Canada) $3 billion portfolio sale to BioMed Realty, a subsidiary of Blackstone (based in the U.S.), in 2021. Private owners, including many developers, tend to be net sellers when demand, and consequently prices, accelerate, allowing them to cash out for future developments or value-add projects.
Figure 4: R&D Sales ($) as a Share of Office/Flex Investment
Figure 5: Net Investment Flows for R&D Properties by Investor
Figure 6: Share of R&D Sales by Buyer Capital Type, 2020-2023
Source: Real Capital Analytics, CBRE Research, CBRE Strategic Investment Consulting, March 2024.
Figure 7: Breakdown of Alternative Sector Institutional Holdings (Share of Total Alternatives Value)
Source: Real Capital Analytics, CBRE Research, CBRE Strategic Investment Consulting, March 2024.
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