Life sciences real estate investment, a bright spot in the office market, is slowing from a record pace
Following a record year for investment in 2021, the pace of life sciences property acquisitions and capital market activity slowed in the first half of 2022, according to new research.
Brokerage firm Newmark has found that a decline in venture capital and a mixed outlook is leading to a decline in deals and funding. The results are consistent with trends seen by industry executives and his CoStar analysts.
Growth in the life sciences sector was one of the few bright spots in the US office market, but the move is important as the pandemic has hampered the move towards flexible working arrangements. But now, according to new data, the capital flows that have spurred medical and biotech startups and boosted real estate investment are weakening.
Life sciences real estate investment fell about 34% from January to June to $7.7 billion compared to the first half of last year, according to Newmark data. Life’s venture capital funding in this area fell 18.5% year-on-year to his $20.8 billion in the first half of 2022, reflecting a decline in his science investments.
The pace of life sciences fundraising activity has also slowed. Newmark said he had a fund target of more than $3 billion announced in the first half of this year, down from $7.1 billion in the first half of last year.
Elizabeth Ptacek, Senior Director of Market Analysis at CoStar Group, told Newmark’s report: “While we believe the sector will continue to attract investment capital and assets will continue to trade, it is not surprising that the pace of activity has slowed, especially given the volatility in financial markets and rising debt costs.”
Despite lower investment activity, prices for life sciences and R&D facilities remain at record highs, reaching $564 per square foot in the first half of the year, according to Newmark, fueling investor demand. is emphasized.
“Although the bid pool is thinner compared to 2021, investors are still attracted to lab assets, partly due to the supply-demand imbalance that still exists in the largest cluster markets,” New said. Mr Mark said.
Newmark reports that the life sciences sector remains well-positioned for future growth as occupancy and expansion risks that impact traditional office tenant demand do not appear to exist in lab space. did.
Several cities with particularly large tech, biotech and healthcare presences, such as Austin, Texas. San Diego, California. and Tampa, Florida — saw above-average rent growth and a faster-than-national recovery in office employment since the fourth quarter of 2019. According to CoStar Advisory Services.
CoStar analysis shows that, on average, since 2019, areas with the highest concentration of office space used by technology, biotech and healthcare companies will have more favorable vacancy rates and stronger net absorption rates, or More tenants move in than move out.
“However, the sector is not entirely immune from the negative impact that has affected virtually all asset classes in the first half,” said the Newmark report. Some retrading activities. ”
The concept of “re-dealing” in commercial real estate refers to the practice of buyers renegotiating for a lower purchase price after initially agreeing to a higher price.
“A slowdown in venture capital funding will have a disproportionate impact on tenant demand, impacting early-stage companies that are unable to raise sufficient funding for later venture rounds,” Newmark said. “This setback could also affect less well-capitalized companies and recently-listed biotech companies, which could curtail future leasing activity.”
Other real estate brokers besides Newmark say the life sciences sector may not be able to sustain the pace of 2021 in the near term.
After spending the past 28 years at Cushman & Wakefield, Greg Bisconti joined rival JLL in April to lead the San Diego-based Life Science Tenant Representation Group. He thinks it’s natural to slow down after such strong growth.
“I think 2021-2022 has been the end of a life sciences market anomaly, fueled by record funding, record investment, record IPO activity and unfettered growth in the sector. he said. told CoStar News in an interview. “I think this will be a much-needed setback, or recovery, from unsustainable growth.”
In July, Los Angeles-based Kilroy Realty, a major West Coast office owner, Pausing development of two projects As Reese weakens. Approximately 125,000 square feet of creative office development is pending. 1633 26th Street Approximately 180,000 square feet of life sciences and office campus located in Santa Monica Santa Fe Summit in San Diego.
The top buyers of life sciences properties in 2022 will be a mix of existing top owners, such as Alexandria Real Estate Equities, as well as emerging companies, such as Canada’s Pension Plan, City of Ontario Employees’ Retirement Plan, and institutional groups such as CBRE Investment Management. I’m here.
Alexandria completed about $3.6 billion in acquisitions this year, on par with last year, according to CoStar data.Alexandria also reported Strong second quarter leases Despite an otherwise unstable economy.
The Pasadena, Calif.-based company oversees a nationwide biotech property portfolio of more than 41 million square feet and saw second-quarter revenue up more than 26% year-over-year, supported by rent growth. said to have increased.
Last week, Ontario’s retirement plan reported a 6% return on investment for the fiscal year ending June. Among this year’s highlights, pension funds cited investment activity in life sciences.
The Retirement Plan has announced a strategic partnership with the Navy Yard of Philadelphia. It plans to own and develop up to 3 million square feet of life sciences facilities over time and acquire 13 of his life sciences portfolios in San Diego. After the end of June Bohlen Institute office building into a fully dedicated life sciences facility in downtown Seattle.
This year’s fundraiser includes: $2 billion commitment To expand the life sciences business outside of New York City from Taconic Investment Partners.