The rapid technological development and advances in medical sciences, the aging US population, coupled with the COVID-19 pandemic, has led to rapid growth in the life science industry. This growing momentum has made the sector attractive to commercial real estate investors, as there is an increasing demand for life science spaces. This post discussed life science real estate, the benefits of investing in this sector, and the future outlook for life science real estate.
What Is Life Science Real Estate?
The life science industry comprises many medical fields, including pharmaceuticals, genomics, medical devices, nutraceuticals, biomedical technologies, digital health care, and more. Life science real estate involves investing in life science spaces and renting them out to companies in the life science sector.
Difference between Life Science Space and Regular Office Space
Although life science properties often look like regular office properties, the physical characteristics of both spaces are different. First, life office buildings are more expensive to build and operate, with construction costs ranging from $350 – $1325 per square foot. Second, life science properties have about 10 – 20% higher ceilings than regular offices.
Third, the floor load capacity of life science buildings is 50 – 100% higher, as they are reinforced to support heavy research equipment. Additionally, life science buildings require higher electrical, heating, and cooling capacity. These additional requirements of life science spaces, coupled with the limited ability to convert traditional office buildings into life science buildings, make this property’s average rent much higher than typical office spaces.
Benefits of investing Life Science Real Estate
The life science industry has been growing tremendously in the last few years. A report by Cushman & Wakefield in 2020 showed that investment in the sector increased from $3.7 billion in 2008 to $17.4 billion in 2019. According to Grand View Research, the life science sector grew by 16% from 2019 to 2021. In addition, it reveals the industry is expected to grow at a rate of 7.5% to 8.4% in the next five years.
Aside from the high growth rate, the life science real estate sector seems to be resilient to recession. For example, When the overall S&P 500 dropped by 33.9% during the 2020 economic downturn caused by the COVID-19 pandemic, the life science real estate sector declined only by 21.8%. Moreover, shortly after this decline, the industry bounced back and hit its COVID-19 all highs within a few months.
Additionally, life science real estate has a lower vacancy rate than traditional office buildings. While the national vacancy rate for office buildings is about 15%, the life science rate is around 9%, with some markets having as low as 2%. Furthermore, life science real estate pricing has more than tripled in recent years.
What is the future outlook for the Life Science Real Estate sector?
The life science real estate sector is expected to maintain its growth as the need for life science industries continues to increase. The population of senior citizens in the US is growing, and it is expected to reach 73 million by 2030. This means there will be greater demand for digital health care, pharmaceuticals, medical devices, and more.
In turn, the demand for life science real estate spaces will continue to rise, especially in states like Florida, which has a high population, big economy, universities, hospitals, and other factors the sector needs to thrive. Investors who put their money in markets like the Florida life science real estate are sure to rake in a lot of profits in the long run.