Tech Talk: The Hope of the Life Sciences Market
It’s a harrowing, but hopeful time for the life sciences real estate sector. While we must face the reality of today’s market, we can look forward to better things to come and do what’s necessary to be prepared when the tide changes for the better.
Bad Mood Rising
Interest rate hikes affected every real estate market, and life sciences was one of the sectors that felt the most impact. The frenetic pace of deals and capital investments that flourished when interest rates were miniscule suddenly ground to a near-halt when the rates climbed into the 6%-8% range. Boards of directors grew skittish about funding new endeavors, and construction slowed to a crawl.
On the Upswing
Despite the recent dip for life sciences, there are signs of life; the long-term trends are positive. We’d just like to see the rebound happen a bit faster and stronger.
Positive long-term factors include continuing high demand for life sciences innovation and space; employment numbers continue to grow; and after a couple of down years, the global merger and acquisition (M&A) market for biotech is bouncing back.
To that last point, McKinsey says, “Pharma and MedTech companies have exceptionally strong balance sheets. They are taking a hard look at new technologies, artificial intelligence, and digital to build and expand their capabilities.” The consulting firm said that life sciences M&A grew 23% globally in 2023 from depressed levels the previous year, a development that we’re beginning to see take hold in California this year.
Much of this renewed interest is coming from venture capital firms who stockpiled capital that they are now beginning to deploy now that the market is in a negative net absorption rate. It is a cautious revival, however, as fund investments have been smaller than in past years.
Prepping for the Rebound
What is the best way for life sciences companies and facility owners to prepare for the changing tides that lower interest rates are likely to bring?
- Consider smaller projects. One recommendation is to break projects into smaller pieces – 5,000 to 10,000 square feet instead of a full footprint – while maintaining ADA and code compliance.
- Focus on flexibility. Adaptability and flexibility are a key to drawing in long-term tenants. Technology is helping to give designers greater capability to design individualized layouts for each tenant opportunity. Take advantage of this.
- Implement multi-tenant strategies. By employing the two strategies above, facility owners and managers can secure multiple tenants more efficiently and effectively.
- Design beyond the lab. Design firms need to give clients the amenities and environment they need to entice new employees to join and to keep existing employees satisfied and in place. This means creating spaces that align with the lifestyle and culture of the organization, which is driving a design trend favoring amenities suitable for a luxury hotel or apartment building.
Life sciences companies and facility owners experience a rare hit, but all indications are that better days are right around the corner. Now’s the time to position the organization to capitalize.
.
Jessica Schmitzberger, RA, NCARB, is a Project Director and Operations Manager for Taylor Design. She collaborates with others to develop a strategic plan for the continued growth and success of the firm.
