Under the microscope Our 2024 outlook for life sciences

The life sciences real estate landscape in the United States is on the brink of exciting changes this year. The industry is being influenced by shifting funding dynamics, research breakthroughs using AI, a new wave of agricultural technology, workplace evolutions, strategic new revenue streams and so much more.

These trends highlight an industry on the cusp of transformation, driven by technology and market shifts. We asked our experts to dig in on what makes this a unique year for life sciences. Read on to see their insights.

1. Funding alternatives

Alternative funding sources emerge due to a drop off in venture capital and private equity funding into the life science sector over the last 18 months. This shift is due to the increased cost of capital and some uncertainty surrounding an exit strategy due to economic headwinds. Venture capital and private equity funding in Q1 2024 was up 23% compared to Q1 2023 with $12.3 billion invested into life science companies with a location in the US. However, an uptick in licensing agreements is happening and the prospect of a new baseline being set in the IPO market is expected to provide more life science companies funding through a direct offering or via a special purpose acquisition company (SPAC). As Kathy Gigac, Principal and Managing Director, puts it, “Innovation will always find a way when the need exists. With the increased cost of capital, coming up with new creative approaches to open those funding avenues is critical to this sector of the market.”

2. Beyond benches and beakers

Science and technology will blend in ways never seen before. Best evidenced across biotechnology companies, artificial intelligence (AI) is becoming a larger component within research and development (R&D) operations, increasing the speed and scope to which new therapies and bio-solutions can be researched. According to Jeanne MacLellan, Principal and Boston Life Science Project Management expert, “As computational Data Science (CDS) becomes more intertwined with traditional bench research, we are seeing a greater emphasis on collaboratively integrating these teams. Understanding how these teams need to interact with each other is key in early decision making, leading to a better understanding of the impacts to space and budget.”

With heavy computing becoming a larger component within R&D operations thanks to AI, digital automation, and machine learning, workplace strategy will become more varied in terms of the amount of traditional lab space needed versus computing space. Investors will need to better understand the amount of power they can tap within their building to see if computer-driven R&D operations are feasible or if they can only provide traditional wet lab space. Tim Hogan, Principal, shares, “The incorporation of AI and machine learning within R&D operations will create more complex space requirements that have a larger focus on the appropriate computing and labor needs to operate it. This will result in some life science companies leasing more non-traditional R&D locations such as office and flex space while tapping new segments of the workforce that are currently in less demand within the life sciences world, compared to Big Tech.” Looking specifically at the Bay Area in California, Tim goes on to share that, “A strong base of software engineers, AI specialists, and computer programmers bodes well for life science companies taking an AI-based approach to research.”

3. You are what you eat

Historically, the life sciences industry has predominantly focused on human biology. Now, through advances in science and stronger demand from the agricultural and consumer goods sectors, health and nutrition are being linked together more strongly than ever. According to Will O’Daly, Associate, “The Bay Area is home to some of the most forward-thinking agriculture & food tech organizations in the country. In recent years, companies like Impossible Foods, Beyond Meat, Eat Just, Good Eggs, THE EVERY Company, have helped accelerate the expansion of life science developments in California and beyond.” So from plant-based meat to agricultural technology, more ‘unusual suspects’ are expected to diversify the demand landscape for lab and manufacturing space—$1.7 billion in public investment was injected into the AgTech companies in 2023 via IPOs and secondary offerings.

4. Oversupply, lower rents

Across the United States, an excess of lab space is emerging as a key theme in 2024. Due to overbuilding in key life science clusters such as Boston, San Francisco, and San Diego—76% of construction is taking place in Greater Boston, the Bay Area, and Southern California—coupled with an increase in sublease space, life science occupiers will have the opportunity to navigate a market that for the first time is trending in their favor from an availability and pricing perspective. U.S. Life Science Market Intelligence Lead, Tucker White, describes how, “Developers of lab space will have some hard decisions to make in 2024 if they have not started construction already. A significant portion of proposed lab space will likely end up needing to pivot to other asset types.”

5. Extended lead times

“Despite COVID becoming less of a concern and some delivery time commitments improving, the impact in the supply chain is still being felt by suppliers and end users,” says Steve Lacerte, Principal, Life Science Project Management. Inefficiencies and bottlenecks within the global supply chain are coupled with newer, advanced components of labs and bio-manufacturing spaces, putting further strains on the time it takes to deliver a workplace. Life science companies will need to factor this in across their real estate strategies, engaging project management professionals early on, to ensure timely deliveries of space. Steve goes on to share, “This risk to schedule is changing the project design process to include more up-front engineering, using the best available information to be able to develop the specification packages for long lead items to meet project deadlines. Involvement from architects, engineers, construction management, and the project manager at the beginning of the project is the best way to develop confidence in your schedule and delivery.”

6. Larger labor pool

Due to a frenzy of layoffs within the sector and a decrease in life science-related job postings, competition for labor has decreased, which will make it slightly easier (and perhaps less expensive) to hire professionals this year. However, the fight for critical research personnel will remain fierce with occupiers continuing to favor R&D locations near top academic science and engineering programs. ”VC/PE firms pumping the breaks on further funding into their portfolio companies has resulted in many life science companies having to right-size their employee base, and in some cases declare bankruptcy, says Patrick Kelley, Principal. “While this has created a large injection of available labor in the short term, highly skilled talent will find a home relatively quickly. The larger impact this has on real estate is related to available lab supply being added to the market via sublease opportunities. These sublease opportunities will compete directly with new lab construction, providing occupiers with more immediate opportunities to expand compared to ground-up construction that is still being built.”

7. M&A whirlwind

Companies with promising science and compatible operations will be looked at as prospects for large pharma and biotech companies. 2023 marked the highest year since 2019 for M&A activity in the life sciences sector with $197 billion in aggregate deal volume. To replace potential revenue losses brought on by patent expirations and to expand new revenue lines that appease shareholders, public life science companies are expected to step in where VC and PE funding left off—by partnering, funding, and in many cases, buying smaller to mid-size companies. “Despite record capital raises by life science venture funds in 2023, the deployment of this capital was minimal due to a high interest rate environment and uncertainty around exit strategies via the public markets. This will continue to result in small- to mid-sized life science companies finding it extremely difficult to access capital critical to maintaining operations,” says Kevin Malloy, Principal. “As a result, larger biotech and pharmaceutical companies are expected to participate heavily in the M&A activity and expand drug discovery pipelines with the acquisition of smaller companies.”

Wherever you find yourself challenged by change this year, our professionals can help. Reach out to consult with us about your real estate needs.

Tucker White

- U.S. Life Science Lead, Market Intelligence | Boston & Philadelphia Manager, Market Intelligence
- Research

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