CBRE Report: The Case for Life Sciences Resilience Focuses on Increases in Clinical Trials, Federal Funding, Employment

Several metrics point to the U.S. life sciences industry and the real estate that houses it proving resilient during the current economic slowdown, according to a new report from CBRE. Among those factors: a growing total of clinical trials for new drugs, persistent job growth, more federal funding, and ample cash reserves for the industry’s larger companies.

These factors and others will influence the rapidly growing market for life sciences real estate. CBRE forecasts that cumulative square footage of lab space in the largest 13 U.S. life sciences markets, already having expanded by 47% in the past five years, will increase by another 22% within the next two years to 220 million sq. ft. as projects currently under construction are completed. Nearly a third of that space under construction is pre-leased.

That’s not to say the life sciences sector is immune to the economic slowdown. Recent turmoil in the banking sector is likely to hamper venture capital funding this year for startup life sciences and tech companies. Initial public offerings by life sciences companies have fallen off. Job growth for life sciences professions slowed to a 4.1% gain in January 2023 from 6.4% a year prior. And U.S. lab vacancy rose to 5.7% in the fourth quarter from 5.1% in the third, though it remains low relative to many other real estate sectors.

Colorado Outlook

Colorado continues to see growth in life sciences employment and federal funding. The Denver-Aurora-Boulder region added nearly 2,500 life sciences jobs last year. National Institutes of Health investment in Colorado organizations has risen every year since 2016, reaching a record-high $477 million in 2022. There are nine life sciences developments under construction that will deliver over 830,000 sq. ft. to the market this year. Those projects are 72.3% pre-leased, the highest rate of preleasing among all major markets. And Colorado logged the 15th-largest lease by a life sciences company completed in the U.S. last year.

Market-by-Market Share of Largest 30 U.S. Life Sciences Leases of 2022

“Colorado’s life sciences industry is growing, though recent economic volatility has exacerbated a lack of urgency on the tenant side. We have nearly 500,000 sq. ft. of demand for R&D/lab space in Colorado, but it is taking longer to get deals done, and there is more scrutiny surrounding the decisions,” said Erik Abrahamson, senior vice president with CBRE’s Life Sciences practice in Boulder. “The good news is we may be approaching a turning point. As capital markets stabilize, more companies will be able to take action on their real estate needs.”

Increase in Clinical Trials

Other indicators, especially in drug discovery and development, point to more growth for life sciences. Globally, the number of clinical trials increased to 444,567 by March 2023, up 36% from 2020, according to the U.S. National Library of Medicine. In the U.S., the number of new Phase 2 and 3 clinical trials – when life sciences companies most often expand their operations – ramped up over the past decade to exceed 3,000 in each of the past three years.

“The life sciences industry and the broader economy have hit choppy waters in recent months, but the industry’s most important gauge – the product pipeline – signals sustained, underlying growth,” said Matt Gardner, CBRE’s Americas Life Sciences Leader. “Many metrics have receded from their 2020 and 2021 highs, but they’re still above their pre-pandemic levels. There is a lot of promising science in the works to propel this industry forward once the lending environment settles.”

Additional indicators: Annual funding from the National Institutes of Health has risen by 62% in the past decade, including an increase to $47.5 billion this year from $45.2 billion last. And U.S. life sciences companies had a cumulative $200 billion in cash reserves last year, a decline from the previous three years but still higher than 2018 and before. That capital could be a resource for mergers and acquisitions of smaller biotech companies.

To read the full report, click here.