May 17, 2022
The COVID-19 pandemic marked commercial Life Science real estate for much-needed growth. This sector played an important role in the suppression of the pandemic, speeding the evolution of life science centers for a more collaborative future. For years, the US has led the globe in pharmaceutical R&D spending, and despite the increased spending on R&D, the specialized facilities required to facilitate this research have been undersupplied.
Life science companies, the tenants of these properties, are experiencing issues finding suitable space to continue to develop new products. For that reason, the value has grown and will continue to grow well into the late 2020s. Demand for life science properties across U.S. markets has grown by 34% since mid-2020, as the essential nature of this research and development cannot be replicated remotely. Many investment funds have taken notice of this burgeoning life science industry and the new demand behind it.
This strong demand has benefited and will continue to benefit real estate investment trusts (REITs) who have invested in these properties creating the life science REIT subcategory, and we believe three trends will add further support from here.
Here are a few reasons to consider investing in the emerging sector of life science REITs.
There is going to be a bigger need for medical care, especially as the population gets older.
An aging population increases demand for research for diseases that have hereto been considered death sentences or simply incurable. As medical technology moves forward in a variety of areas, there will be a baseline expectation of treatment and research, blended with a baseline willingness to spend on this treatment and research, and less of a tolerance for the lack of existence of certain treatments.
One authority explains, “Life science, it’s a big growth market. It’s a growing need. It benefits from the same healthcare trends, the aging population specifically, that are helping the rest of real estate. In simple terms, older people take more medicine. There’s going to be more of a need to develop therapeutics and deal with conditions that affect the elderly more as the population ages.”
The data in the charts below illuminates this trend. As the senior population grows, demand and spending is projected to grow considerably. These graphics represent the growing population of seniors and how much each age group is spending on healthcare.
Life-sciences spaces reflect one of the few industries that can’t depend on remote work in order to be efficient. Medical research requires physical space and room for equipment in order to operate, and more pharmaceutical companies and biotech firms will need more space in order to do more research. So, as the demand rises, there will be an increasing premium on this class of commercial real estate.
One authority explains, “Life sciences tenants range from pharmaceutical and biotech companies to medical research and medical device firms. Demand for life sciences spaces across U.S. markets has grown by 34% since mid-2020, as the essential nature of this research and development cannot be replicated remotely.”
There is an increasing amount of venture funding flowing to the ag tech industry, and this funding will expect life-science research to expand along with Agtech.
As more projects are put into place, more research space will be necessary. According to one authority, “According to current estimates, 690 million people (about 9% of the world’s population) suffer from hunger. To alleviate global hunger, the UN states that “increasing agricultural productivity and sustainable food production are crucial.” The Agtech industry received $26 billion in venture funding in 2020, more than double the amount invested in 2017.”
The overall capacity for Life Science research is growing, and thus the spaces required for its growth are increasing in their demand. One source explains, “ Today, the approximate market cap of publicly-traded REIT-managed life sciences real estate is about $30.4 billion. The investable universe for life sciences real estate is estimated at $100 billion, which is growing rapidly.”
In the largest U.S. life science clusters (Boston/Cambridge, the San Diego area, and the San Francisco Bay area), laboratory/research & development rents increased about 10% from mid-2020 through the first part of 2021.
This kind of marked increase is a direct indication of demand, and being put upon life science real estate by the surrounding economy. Large cities like the ones listed understand the growing value of life science research and are positioning themselves to become desired destinations for this type of work as national demand grows. This will push forward the value of life science real estate in a circular way.
Some investors prefer to achieve portfolio diversification through emerging asset classes such as international markets or new technologies. Life sciences offer an attractive option for portfolio diversification as they are grounded upon a demonstrated increase in demand within the last few years, and no immediate market events that may serve as jeopardy. With a fast-growing aging population in great demand for new medical technologies and treatments, this is a great option for portfolio diversification.
One authority explains how life science REITs fit into an overall-increasing stock market, “While healthcare spending in the U.S. peaked at $3.8 trillion in 2019, it declined by 2% in 2020 due to the COVID-19 pandemic. However, it started growing again in 2021 and is on track to top $6 trillion by 2028.”
Healthcare spending is increasing as a struggling economy has rebounded, and research for healthcare is increasing in tandem. Subsectors of the overall healthcare market tend to follow the larger trends of the market, not often deviating. As demand for treatment increases, demand for research on ways to modify and improve these treatments will increase, meaning that the desire for space to conduct this research will only grow. Life sciences will trace the trends of the overall trends of disease prevention and vaccines, and so on.
NOYACK intends to be the first mover in the evolution of logistics infrastructure by acquiring and modernizing assets that stand to benefit from emerging trends in Mobility, Micro-Fulfillment & Life Sciences.
Our 30-year investment in relationships with builders and property owners generates discounted pricing opportunities for NLI and our investors. Our unique structure allows NLI to grow through our proprietary UPREIT Exchange Program with property owners and forward-commitment program with developers.
NOYACK Logistics is the simplest, most effective way to build life science REITs into your investment portfolio. Learn more here.
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December 20, 2022
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