Red-Hot Life Sciences Real Estate Investment Market Poised for Further Growth

Investment in U.S. lab and R&D properties has grown by 111% since 2018, with the bulk of that growth occurring in 2021 (+62% from 2020), which exceeded the previous peak year (2007) by 108%. Investment volume growth of at least 10% is forecast for 2022, based on historical trends, the current pipeline and intelligence from CBRE Capital Markets professionals.

The sector’s surge in investment is similar to that of other “hot” commercial real estate sectors like industrial and multifamily, underpinned by strong supply and demand fundamentals.

Figure 1: U.S. Life Sciences Lab/R&D Investment Volume

Source: Real Capital Analytics, CBRE Research, Q1 2022.

Among the most active investors are the top five owners of U.S. life sciences real estate (Figure 2): Alexandria Real Estate Equities, BioMed Realty (Blackstone’s life sciences arm), Healthpeak Properties, Ventas and Longfellow. Alexandria Real Estate Equities reported more than $900 million of acquisitions in January alone and expects more than 8 million sq. ft. of active development throughout the year.

Figure 2: Top Five Owners of U.S. Life Sciences Real Estate

*Includes properties under construction for development and redevelopment. Includes all life sciences space uses.
Source: Various company reports, CBRE Research, Q1 2022.

A shortage of existing inventory for purchase, robust demand and soaring property prices have led most life sciences real estate investors to pursue development opportunities. All but two of the top 20 life sciences owners are engaging in new development. Alexandria Real Estate Equities remained the most active life sciences developer as of Q4 2021 (3.9 million sq. ft. in the country’s top life sciences markets). Longfellow Real Estate Partners has also accelerated its development activity, particularly in Raleigh-Durham.

A number of new life sciences markets are emerging to meet robust demand and many new developers have been drawn to the sector. Between Q2 2020 and Q4 2021, the number of life sciences developers in the top 12 life sciences markets rose to 64 from 45, with construction rising to 29.5 million sq. ft. from 16.2 million sq. ft. over the same period. One of the most active new developers is IQHQ, with roughly 1.6 million sq. ft. under construction in Q4 2021.

With lab vacancy rates near record lows, this new development activity should give more space options to occupiers and more opportunities for investors in this booming sector.

Figure 3: Life Sciences Lab/R&D Development in Top U.S. Markets

Source: CBRE Research, Q1 2022.