Bio­phar­ma and medtech mar­kets ad­vance to­ward equi­lib­ri­um: 2024 life sci­ences clus­ter analy­sis

What are the fun­da­men­tal build­ing blocks of ma­jor life sci­ences clus­ters in the U.S.? Which mar­kets are home to the best tal­ent pools? What macro forces are dri­ving life sci­ences de­ci­sion-mak­ing? We an­swer these ques­tions and more for life sci­ences com­pa­nies, in­vestors and de­vel­op­ers in the 2024 Life Sci­ences Re­al Es­tate Per­spec­tive and Clus­ter Analy­sis.

De­spite ex­pe­ri­enc­ing a pro­longed slump, bio­phar­ma and medtech re­al es­tate fun­da­men­tals point to re­cov­ery and long-term growth ahead. The cen­tral ques­tion that re­mains is when, not if, the sec­tor will be­gin its re­cov­ery, re­turn­ing to the ro­bust growth seen over the past two decades.

In ad­di­tion to ex­plor­ing top clus­ters for bio­man­u­fac­tur­ing, medtech, tal­ent and AI, the 2024 Per­spec­tive high­lights key growth dri­vers for Cana­da and LATAM, and de­lin­eates 10 crit­i­cal ob­ser­va­tions about the cur­rent state and fu­ture out­look of the U.S. life sci­ences re­al es­tate mar­ket:

1. 1. What has changed in a year?

In the past year, the pre-ex­ist­ing sup­ply-de­mand im­bal­ance has in­ten­si­fied in most ma­jor lab mar­kets, forc­ing rents down near­ly 9%, which is where they were in the first quar­ter of 2022. We project this sup­ply su­per cy­cle will end with­in the next six to 12 months, de­pend­ing on the mar­ket, and will then be fol­lowed by a pe­ri­od with lim­it­ed new sup­ply and re­pur­pos­ing of old­er as­sets that will boost re­cov­ery.

1. 2. In­ter­est rates are the “ca­nary in the coal mine”

Biotech is an in­ter­est-rate-sen­si­tive sec­tor. For de­mand to re­cov­er, in­ter­est rates will need to come down. There is a strong cor­re­la­tion be­tween biotech eq­ui­ty val­ues, ven­ture cap­i­tal fund­ing and re­al es­tate leas­ing ac­tiv­i­ty, and low­er rates should lead to im­proved pub­lic val­u­a­tions and in­creased VC in­vest­ment, ul­ti­mate­ly dri­ving de­mand for lab space.

1. 3. Ven­ture fund­ing has mor­phed and so has de­mand

While over­all life sci­ences ven­ture fund­ing is up 34% in 2024, the na­ture of fund­ing has changed. Ear­ly-stage fund­ing for pre-clin­i­cal as­sets has de­clined while mega rounds of over $100 mil­lion now rep­re­sent 60% of ven­ture in­flows, up from 40% a year ago. This con­cen­tra­tion of fund­ing in lat­er-stage com­pa­nies is tem­per­ing re­al es­tate de­mand.

1. 4. Ten­ants ex­tend de­ci­sion-mak­ing and then take less space

With less growth cap­i­tal avail­able, ten­ants are tak­ing longer to make re­al es­tate de­ci­sions. The me­di­an time on mar­ket for ten­ants in Boston, the Bay Area and San Diego has in­creased 67%. When deals are signed, ten­ants are tak­ing less space rel­a­tive to their fund­ing lev­els com­pared to two years ago. One po­ten­tial head­wind in re­al es­tate de­mand are el­e­vat­ed lev­els of ac­qui­si­tions.

1. 5. Large phar­ma seeks to op­ti­mize, not max­i­mize

Ma­jor phar­ma­ceu­ti­cal com­pa­nies are fo­cused on op­ti­miz­ing their re­al es­tate hold­ings rather than ex­pand­ing. Of the 30 large phar­ma re­al es­tate moves tracked in H1 2024, 67% re­sult­ed in a re­duc­tion of space. How­ev­er, phar­ma lead­ers ex­pect in­creas­es in head­count, foot­print, and lo­ca­tions by 2030.

1. 6. Grow­ing share of all sec­tor VC dol­lars head­ing to AI/ML com­pa­nies

Ar­ti­fi­cial in­tel­li­gence and ma­chine learn­ing are be­com­ing in­creas­ing­ly im­por­tant in bio­phar­ma, with the po­ten­tial to yield bil­lions in an­nu­al sav­ings. AI/ML ven­ture fund­ing in life sci­ences ex­ceed­ed the 2023 full-year to­tal in just the first six months of 2024. It now rep­re­sents 12% of all life sci­ences ven­ture fund­ing, of­fer­ing am­ple op­por­tu­ni­ty for growth for the sec­tor.

1. 7. This down­turn is dif­fer­ent than any oth­er this cen­tu­ry

The cur­rent mar­ket down­cy­cle is marked­ly dif­fer­ent from pre­vi­ous ones ex­pe­ri­enced by the sec­tor. Va­can­cy rates in near­ly every ma­jor mar­ket are at record highs much ear­li­er in the cy­cle com­pared to past down­turns, pri­mar­i­ly dri­ven by a mis­matched sup­ply cy­cle.

1. 8. The re­turn to mar­ket equi­lib­ri­um will vary wide­ly by ge­og­ra­phy

When the life sci­ences re­al es­tate sec­tor re­cov­ers, it will not do so uni­form­ly across all mar­kets. Fac­tors like ex­cess sup­ply de­liv­ered dur­ing the down­turn pre-ex­ist­ing ten­ant base, and qual­i­ty of land­lords will in­flu­ence how quick­ly dif­fer­ent sub­mar­kets re­turn to equi­lib­ri­um. Es­tab­lished clus­ters with strong fun­da­men­tals are like­ly to re­cov­er faster.

1. 9. If we re­sume a pre-pan­dem­ic trend­line, the sec­tor will fall short of ab­sorb­ing the over­sup­ply

We will see the speed of re­cov­er­ies con­tin­gent on some mix of lo­ca­tion, spon­sor­ship and as­set qual­i­ty. Met­rics like biotech eq­ui­ty val­ues, ven­ture de­ploy­ment, sci­en­tif­ic leaps and rev­enue gen­er­a­tion will all in­ter­play in the com­ing years to de­ter­mine what is the ac­tu­al need for lab R&D space across the coun­try.

1. 10. If we re­sume a pre-pan­dem­ic trend­line, the sec­tor will fall short of ab­sorb­ing the over­sup­ply

De­spite near-term chal­lenges, there are nu­mer­ous rea­sons to ex­pect long-term growth in the life sci­ences sec­tor. These in­clude con­tin­ued growth in FDA ap­provals, in­creased patent in­no­va­tion, pro­ject­ed growth in glob­al phar­ma­ceu­ti­cal sales and record lev­els of ven­ture cap­i­tal dry pow­der wait­ing to be de­ployed.

While the cur­rent state of the sec­tor may feel chal­leng­ing, the re­port em­pha­sizes that the long-term out­look re­mains pos­i­tive. Es­tab­lished clus­ters with strong fun­da­men­tals and high-qual­i­ty as­sets are ex­pect­ed to lead the re­cov­ery.

For in­vestors, de­vel­op­ers and oc­cu­piers in the life sci­ences re­al es­tate sec­tor, the key take­away is to re­main pa­tient while po­si­tion­ing for the even­tu­al up­swing. Un­der­stand­ing lo­cal mar­ket dy­nam­ics, fo­cus­ing on qual­i­ty as­sets in es­tab­lished clus­ters and keep­ing an eye on emerg­ing trends like AI/ML in­te­gra­tion will be cru­cial for suc­cess in the evolv­ing life sci­ences land­scape.

Ac­cess the 2024 Life Sci­ences Re­al Es­tate Per­spec­tive and Clus­ter Analy­sis to dis­cov­er which bio­phar­ma, medtech and bio­man­u­fac­tur­ing clus­ters are thriv­ing.

These top clus­ters are just the tip of the ice­berg. JLL’s pro­pri­etary method­ol­o­gy uti­lizes a va­ri­ety of da­ta points to eval­u­ate top mar­kets. Reach out to Travis Mc­Cready, Head of Life Sci­ences, Amer­i­c­as Mar­kets and Chair of the Glob­al Life Sci­ences Ad­vi­so­ry Board at JLL to ex­plore these clus­ters fur­ther and dis­cov­er oth­er ge­o­gra­phies that made our list.

Source: JLL Re­search, 2024 Life Sci­ences Re­al Es­tate Per­spec­tive and Clus­ter Analy­sis