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### Life Sciences Real Estate Investments: A Focus on Patience and Perseverance
Life sciences real estate comprises 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 following the COVID-19 pandemic.
Despite strong fundamentals that have led to high risk-adjusted returns, the journey for life sciences real estate has not always been smooth.
#### 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 strategy. Campus developments were carefully planned, with construction commencing only after securing significant preleasing commitments. Investors and landlords analyzed market signals, such as a steady flow of acquisitions, IPO activity, and an increase in new company formations and early-stage venture investments.
However, the pandemic triggered a surge in life sciences investments, leading to an aggressive expansion mindset. Many new campuses broke ground without preleasing commitments, and landlords were willing to risk vacant space in anticipation of demand from emerging startups.
Gardner noted that numerous new investors entered the life sciences real estate market in 2021, launching their first lab investments. However, they soon faced challenges due to a slowdown in biotech and pharmaceutical IPOs, coupled with rising interest rates.
By the time these projects were completed in 2023 and 2024, they coincided with an oversupply of available space, a downturn in venture valuations, and a scarcity of risk capital for growth-stage biotech companies. As a result, short-term absorption rates remained low, and subleasing activity increased as biotech firms sought additional funding rounds.
#### Long-Term Prospects
Despite these challenges, Gardner emphasized that all is not lost. The biotech cycle of development, testing, and regulatory approval spans 10 to 15 years. Research and development efforts from the previous decade have contributed to an all-time high in the current product pipeline. Additionally, FDA approvals in 2024 were the third-highest on record, signaling continued innovation and growth.
Although investors have yet to reach a new equilibrium, lab landlords are now exercising caution by holding off on new developments until absorption catches up with supply. Given the lengthy timelines involved in biotech research and development, patient capital remains essential for those investing in life sciences real estate.
Gardner also highlighted the sector’s growth since the 1970s, emphasizing that labs and life sciences facilities can be attractive investments when safeguards are in place to promote sustainable growth rates. While the industry has experienced volatility, strategic long-term investment approaches can help navigate uncertainties and capitalize on future advancements in life sciences.
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