Overview
The life sciences market was not immune to macroeconomic trends in 2022. The rising cost of capital, slumping stock market, geopolitical tension, and decades-high inflation all weighed on the industry. General investor sentiment, across asset classes and industries, shifted to a risk-off mindset that clearly affected venture capital (VC) funding and the IPO market. After a blockbuster 2021 in which more than 100 companies went public, only 23 did so in 2022, less than the number offered in Q1 of 2021. Many of 2021’s IPOs ended 2022 trading for well below their launch price.
VC investors are still sitting on large sums of uninvested capital, which will keep life sciences companies going. Young biotech and pharmaceuticals companies are spending more conservatively in order to extend their runway between funding rounds. This is causing slower leasing in many markets, and vacancies increased year-over-year. While at first blush a rising vacancy rate is concerning, context is important here. Some markets, such as Boston, operated with a 1% vacancy rate in 2021, which was unsustainable, discouraging business growth and stifling innovation. A more normalized vacancy rate is welcomed by occupiers, who are finding wider availability of ground-up purpose-built and conversion product, as well as second-generation space on a direct and sublease basis.
The tremendous investment in the life sciences in recent years comes with a clear need for the talent so incredibly important to this industry. Other fast-growing industries can hire recent college grads en masse, but the expertise needed in life sciences takes time to be acquired. More training programs at colleges and universities and international migration and recruiting are helping to fill some of these talent gaps. While graduates matter, holders of advanced degrees, particularly PhDs, are truly driving scientific breakthroughs.
What hasn’t changed are the underlying fundamentals of the life sciences industry. As the U.S. population ages, there is an increasing need for medical care and discovery. And continued technological advancements are opening the door for customized or individualized care and treatment for patients. The life sciences industry is inherently volatile: lifesaving and life-changing discovery takes time and substantial capital investment, and is in and of itself, uncertain. Life sciences companies are seeking to create brand-new therapies.
The higher cost of capital is weighing on investment sales, though life sciences are still seen as the top alternative asset class, attracting pension funds and other institutional investors who’ve carved out a portion of their office allocation for life sciences. This is boosting its liquidity even during an overall slowdown. Continued office-to-lab or cGMP conversions are expected as the office market rebalances.
This report provides an overview on the major life sciences clusters across the U.S. and those now emerging. Their size and scale vary, as shown in the individual market sections as well as in the data supplement section at the end of this report. Life sciences as an industry, and its spaces, are still defined relatively loosely. In the well-established market clusters, those definitions are more clear, but in emerging markets, definitions of life sciences, healthcare, medical device, and health tech are more ambiguous. This allows for industry specialization, and eventually, these nuances could lead to competitive advantages in certain types of science and discovery.
Emerging Markets – Houston
The prominent institutions and professional talent continue to drive the expansion of healthcare, biotechnology and life sciences sectors in the nation’s fourth-largest city, Houston. Proud to claim the largest medical complex in the world, the Texas Medical Center (TMC), Houston, provides a natural springboard for creating new life sciences companies with discoveries through the 61 TMC institutions that provide clinical healthcare, research, and education. The TMC aspires to nurture cross-institutional collaborations, creativity, and innovation. However, that is just the starting point in this nine-county metro area with more than 1,760 life sciences companies, cutting-edge hospitals, medical facilities, and research institutions, with a workforce of more than 320,500 people in the related fields.
The TMC Innovation Institute provides a campus for numerous life sciences-focused incubator and accelerator programs. The National Institutes of Health (NIH) provide funding alongside the TMC Venture Fund, venture capital, and private equity investors seeking key scientists and medical researchers in this center of medicine and related science. Some of the more notable projects around the city include TMC3, a 37-acre research campus that is part of the Texas Medical Center, and Levit Green, which will have 270,000 square feet of laboratory, research, and office space.
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