Life Science Real Estate Market Research and Analysis: Clustering & Agglomeration Economies

Abstract

With the development and advances in life science over the past 10 years, this real estate market has seen rising demand for space due to the development of new drugs and diagnostics on a worldwide basis, particularly in the San Francisco Bay Area. The challenge for life science start-up companies are rising costs of tools to carry out experiments, need for proper security equipment, and limited availability of working spaces. Small companies are facing significant challenges to developing and delivering new products and drugs to market. As stated by Cushman and Wakefield (2019), people over 65 years old are forecast to double over the next 10 years, driving the urgency to create potential cures; this is projected to have a direct impact on profitability of life science businesses. Life science profit margins can be enhanced directly through the use of life science incubators. According to the Georgia Department of Public Health, COVID-19/SARS-CoV-2 (Severe Acute Respiratory Syndrome), also known as the Coronavirus Disease (2019), is a disease that was identified in Wuhan, China. This disease has spread rapidly throughout the world, and at this point has encouraged individuals to take multiple precautions throughout their daily life. According to the Center for Disease Control (CDC), just in the United States as of August 2020, there are over 5.8 million infections and 180,000 deaths, with no vaccines or drug treatments anticipated until 2021. With this new and unpredictable pandemic, declared by the World Health Organization (WHO) as of March 11th of 2020, significantly impacting the role of life science as a target investment property sector for the real estate industry. The pandemic will drive significant demand for life science space from the funding of new and legacy biotechnology companies, as they fight the disease with the development of new testing, vaccinations, and potential treatments. The pandemic is projected to attract significant capital to the analytic and life science sectors, as investors (venture capitalists) understand the importance of life science investments. However, there will be certain real estate sectors that will suffer, particularly the office sector as reflected in low and falling occupancy rates, negative net absorption, falling rents and values. This is an opportunity to convert existing and fully functionally obsolete and physically deteriorated space to the highest-best-use of life science campuses and incubators. This paper explores and defines the life science incubator concept, as well as the market opportunities, comparative advantage, employment, venture capital flows, and commercialization. Based on this research we recommend investment in life science real estate. The following section discusses the impact of COVID-19 on the life science marketplace.