There were no surprises among the latest rankings in JLL’s Life Sciences Outlook report, which tracks geographic shifts in life sciences innovation, operations and facilities investments, and includes an analysis of markets actively investing in their life sciences sectors. Boston, San Francisco and San Diego once again occupied the top three spots as the leading U.S. life science clusters.

Companies located in those regions were also able to attract the lion's share of venture capital funding, which is one of the metrics JLL uses in its annual ranking system, along with such categories as market occupancy rate, employment concentration, employment growth, life sciences establishments concentration and average asking rent. Percentage weightings are assigned to each category to arrive at a final score for each cluster. The leading clusters consistently score highly every year in each of those designated categories. (See Top U.S. life sciences clusters, below.)

According to BioWorld data, of the $16.5 billion raised by global private biopharma companies last year about 40% of that total was generated by companies situated in the top three regions.

In 2019, the report also found that 11 of 14 cluster markets set or approached record VC funding levels, “a significant positive for the reinforcement of cluster market strength, resilience and security.”

Boston and San Francisco led the other clusters with respect to development, with 2.7 million square feet and 4 million square feet, respectively, under construction. San Diego has 1 million square feet in the pipeline. The availability of new facilities combined with the concentration of a talented workforce and leading academic institutions allowed the three clusters to command year-over-year rent growth in the high single and double digits, depending on the submarket, in 2020, JLL found.

Boston’s number one ranking is well-earned, with JLL recording that it has nearly 11 million square feet in existing lab inventory. Laboratory space is highly sought after, with 19 of largest biotechnology and pharmaceutical companies having a presence in greater Boston. For three years running, vacancy rates have been virtually non-existent in the region.

Emerging hubs

The key drivers of top cluster growth are being emulated by other regions. The report found that emerging hubs are looking to real estate to boost productivity in anticipation of the expected growth of the worldwide prescription drug market, which is predicted to surpass $1 trillion in the next two years.

Hot growth regions including New York, Los Angeles and Philadelphia all have increased their cluster scores since 2019, reaching new highs in venture capital funding and life sciences employment.

New York, for example, has more than 2 million square feet of existing lab inventory, with about double the area being made available during the next five years.

Impact of pandemic

JLL sees that the increasing pace of development of COVID-19-related vaccines is beginning to energize demand in pharma-heavy New Jersey, a trend that is likely to spread to more markets during the rest of the year.

Nevertheless, the need to accelerate COVID-19 R&D is not without its challenges, with life science companies having to adapt to pandemic workplace rules in much the same way that more traditional workplaces have been required to do.

As a result, Roger Humphrey, executive managing director at JLL Life Sciences, said that

“lab spaces are being modified to satisfy social distancing. Companies are addressing the potential impact to productivity by splitting shifts, enhancing cleaning protocols and expanding R&D capacity, which will increase demand for this type of real estate.”

It is also a little more difficult to allow employees, particularly research scientists, to work from home as they need access to sophisticated on-site equipment.

“The lab of the future/next-gen lab may well involve a bifurcation of space between research and administrative, with the latter more likely to be remote or at a different location,” Humphrey explained. “In some cases, larger space requirements may be indicated to accommodate social distancing. For this reason, a shift rather than a reduction of space will likely be preferable in the long run.”

Companies may also look to more leasing for flexibility and more outsourcing of administrative functions.

Down the road, “the ongoing maturation of artificial intelligence (AI), digital clinical trials, machine learning and computational science should expand the possibilities [for companies] going forward,” the report predicts.

COVID-19-related tailwinds

The introduction of the federal government’s Operation Warp Speed initiative is aiming to deliver 300 million doses of a safe, effective vaccine for COVID-19 by January next year, as part of a broader strategy to accelerate the development, manufacturing and distribution of COVID-19 vaccines, therapeutics and diagnostics.

JLL notes the scope and scale of the program is a “significant tailwind for life sciences real estate demand, both directly for manufacturing and GMP space and indirectly by ensuring continuity of production for the new products developed in labs.”

In addition, the supply chain disruptions caused by the pandemic is supporting a move to reshore manufacturing, which the report says would be a structural change for the industry.

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