JLL’s 2022 Life Sciences Research Outlook & Cluster Rankings, which explores the current state of the industry and identifies trends affecting current and future demand for lab space, ranks Boston, the Bay Area and San Diego as the top three life science clusters and Denver 15th on the list.
Additionally, through advanced cluster modeling, JLL Research introduced a new market ranking tool that provides occupiers guidance on market opportunities and investors information on the momentum and resilience of each cluster. Current industry fundamentals are slowing, as public capital retrenches and startups focus on capital conservation, but these are short-term challenges, and the flow of private capital remains well above the historical trend. Novel therapies, innovative new modalities, increased adoption of advanced technologies and the demand for health and wellness will drive investment and growth for the foreseeable future.
“The long-term potential of the sector remains materially unchanged since 2021,” said Travis McCready, head of Life Sciences, Americas Markets. “Innovation is happening at a more rapid pace than ever before, the fruits of research into cell and gene therapy are just now being harvested, and revenue growth has taken off in the past five years as the sector becomes larger, an atypical growth track. Additionally, three of the largest annual revenue increases in biotech R&D over the past 20 years have occurred in the last five years, as the sector accelerated into a new age of innovation.”
The top life sciences innovation communities
To identify the strongest innovation communities, JLL Research looked at the key components of a successful life sciences ecosystem: access to talent, funding that leads to commercialization and real estate infrastructure to support further growth.
Boston (1), the San Francisco Bay Area (2) and San Diego (3) continue to reign as the top three markets for life sciences commercial real estate, and these top clusters have evolved over several decades. Emerging markets like Salt Lake City (10) and Minneapolis-St. Paul (12) are focused on the future and growing their industry infrastructure to attract life sciences and biotech industry growth. This convergence of science and technology is happening within innovation communities across several markets, with pockets of growth emerging in markets like Houston (13), Los Angeles (17) and Pittsburgh (11), among others.
“Innovation communities take decades to evolve,” added Amber Schiada, JLL head of life sciences research. “The world-class ecosystem that defines Boston’s life sciences cluster, for example, is not easily replicated. Universities, institutions, governments and industry players across the U.S. are investing in the development of new and expanded innovation clusters with increased focus on expanding our capacity for breakthrough scientific developments.”
Introducing the Life Sciences Cluster Composition Matrix
Looking at the modeling in another light, JLL Research created the new Life Sciences Cluster Composition Matrix, which recognizes the nuances within each market and provides a comprehensive view of the life sciences market landscape. While it is based on the same dataset as the traditional cluster ranking model, it considers more than 40 variables across 33 markets and offers a view of the strength of each market’s human capital – talent and workforce development – and physical capital – commercial real estate supply and funding sources. Both human and physical capital are critical in sizing up opportunity for scaling startups or established life sciences companies.
“Talent, funding and commercial restate infrastructure are quantifiable market indicators, but our view on what defines opportunity is not meant to be one-size fits all, but rather one-size fits most,” said Roger Humphrey, president, Life Sciences Work Dynamics. “This is a new and groundbreaking way of looking at how our innovation communities can inform location choices for growing companies or for startups where to scale, for example.”
While the top markets garner the lion’s share of leasing, funding and real estate investment, they do not have a monopoly over it. To varying degrees, most markets have ways in which they stand out and where additional momentum or investment is required. Markets like Orange County and Dallas have the talent and ideas, but lag in physical infrastructure and funding, indicating markets ripe for growth if given thoughtful development. Large markets like Los Angeles County and New York City today far exceed the funding and infrastructure given their lower levels of talent concentrations and innovation, per our model, but will likely continue to build scale as growing companies tap into these talent pools over time.
Looking ahead, 2023 looks to have the same dynamic as 2022. JLL anticipates larger biopharma companies to play an outsized role in funding and acquisitions, as they have capital to deploy, and we expect belt-tightening to continue into next year, but as the biotech indices may have hit a low point in early summer, so a long, slow recovery in valuations may already be underway.
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