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### Life Sciences Real Estate Investments: A Focus on Patience and Perseverance
Life sciences real estate encompasses properties and facilities that support medical device manufacturing, pharmaceuticals, and biotechnology. While this specialized sector has been around for some time, it gained significant traction among investors in the aftermath of the COVID-19 pandemic.
Although life sciences real estate has generated high risk-adjusted returns due to solid fundamentals, the journey has not been without challenges.
### Then and Now
According to CBRE’s Matt Gardner, the recent history of life sciences real estate has been somewhat turbulent. Before the pandemic, lab landlords followed a structured development approach. Campus developments were planned carefully, and construction only began once significant preleasing occurred. Developers looked for indicators of pent-up demand, such as a steady cycle of acquisitions or IPOs, the formation of new companies, and an increase in early-stage venture investments.
However, the pandemic triggered a surge in life sciences investments. New campuses broke ground before securing preleases, and landlords, along with their capital partners, took on the risk of vacant spaces in anticipation of future startups moving in. Gardner noted that many first-time investors entered the lab real estate market in 2021, only to face challenges as the number of IPOs for biotech and pharmaceutical companies declined, and interest rates rose.
The timing of new construction completions in 2023 and 2024 proved unfortunate, as an oversupply of available space coincided with falling venture valuations and a shortage of risk capital for biotech growth-stage companies. This resulted in low short-term absorption rates and an increase in subleasing, as biotech firms continued to secure their next rounds of funding.
### All is Not Lost
Gardner highlighted that the biotech cycle of development, testing, and approval typically takes 10 to 15 years. Consequently, research and development efforts from the past decade have contributed to a record-high product pipeline. He also noted that FDA approvals in 2024 were the third-highest on record, further reinforcing the sector’s long-term potential.
While investors have yet to establish a new equilibrium, many lab landlords today are holding back on new developments as demand gradually catches up with supply. Given the lengthy biotech research cycles and the uncertainty surrounding scientific advancements, patient capital is crucial when investing in life sciences real estate.
Gardner underscored that the life sciences sector has been growing since the 1970s. He emphasized that labs and other life sciences real estate assets remain attractive investments—provided sustainable growth measures are in place.
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