01 September 2023
How to Invest in the Life Science Sector in 2023
The life science sector has slowed in 2023, but the long-term outlook remains positive. A slowdown in venture capital funding has been driven by rising interest rates, the collapse of Silicon Valley Bank, and general economic uncertainty. However, life science properties trade at a premium, the supply pipeline is robust, and recent breakthroughs in mRNA and CRISPR will drive billions of dollars in investment from both private and public sources.
Sales Activity Has Cooled
Sales activity has cooled across the board in 2023, the life science sector included. After totaling more than $6 billion in 2022, there were just $386.6 million in lab space sales this year through the end of July. However, the properties that have sold have traded at an average of $770 per square foot, nearly four times higher than the $196-per-foot national average for all office buildings.
Supply Pipeline Remains Robust
In the previous decade, life science comprised less than 5% of all office construction. In the last two years, it has accounted for more than a quarter of starts, with over 23 million square feet of lab space beginning construction since 2022. The life science development boom was in full swing even before that. Since the start of 2021, 16.3 million square feet of new life science facilities have been delivered. By comparison, between 2010 and 2020, 23.9 million square feet were completed.
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Near-Term Supply Glut Possible
In the near term, a supply glut may be on the horizon. On top of the space delivered in the last few years, more than 33.5 million square feet of new life science space are under construction, including owner-occupied properties. However, any risk of oversupply would be concentrated in just a few markets, as the life science sector remains clustered in select cities, foremost among them Boston, where 12.4 million square feet are under construction. San Francisco (5.6 million) and San Diego (4.5 million) are also established life science markets seeing large amounts of new supply underway. The next largest pipelines are in emerging markets Philadelphia (2.2 million), Houston (1.4 million) and Seattle (1.1 million).
Long-Term Outlook Remains Positive
We expect the life science sector to continue expansion in the future, albeit not at the blistering pace seen in the last few years. Recent breakthroughs in mRNA and CRISPR will drive billions of dollars in investment from both private and public sources. A recent report from Pitchbook and the National Venture Capital Association showed that while the first half of 2023 saw the lowest amount of VC funding since 2019, investment this year will surpass any year before 2018.
Overall, the life science sector is facing some headwinds in the near term, but the long-term outlook remains positive. The sector is driven by strong demand for new therapies and technologies, and recent breakthroughs in mRNA and CRISPR are expected to accelerate innovation and investment.
Download full report Here: National Office Report August 2023
What does this mean for investors?
Investors who are interested in the life science sector should focus on companies that are developing innovative therapies and technologies. They should also look for companies that are well-funded and have a strong management team.
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What does this mean for businesses?
Businesses that are active in the life science sector should be prepared for the near-term challenges, such as the potential for a supply glut. However, they should also be aware of the long-term opportunities, such as the continued growth of the sector and the potential for new breakthroughs.
Gallagher & Mohan can help you navigate the complex life science investment landscape. We have a team of experienced professionals who can help you identify the right opportunities, conduct due diligence, and manage your investment. Contact us today to learn more about how we can help you invest in the life science sector.
Here are some specific ways that Gallagher & Mohan can help with the investment process:
Identifying opportunities: We have a deep understanding of the life science sector and can help you identify the most promising investment opportunities.
Conducting due diligence: We can conduct thorough due diligence on potential investments to help you make informed decisions.
Managing your investment: We can help you manage your investment throughout its lifecycle, providing you with ongoing support and advice.
If you are interested in investing in the life science sector, I encourage you to contact Gallagher & Mohan today. We would be happy to discuss your specific needs and how we can help you achieve your investment goals.
