What fundamental changes have you witnessed in the life sciences industry in 2022?

It has been a very volatile 18 months from a real estate perspective. Life science is an industry where one expects an angle of decline of growth that is very shallow, with modest changes over a long period. Over the past two years, however, the sector has been buffeted by macroeconomic shocks, significant increases in the cost and the availability of institutional capital, and the post-Covid-19 hangover. Whereas previously the industry was focused on ensuring there is enough supply capacity in terms of commercial leasable space to map to the growth and demand for space across the US, in 2022 we started to see many markets reach supply-demand equilibrium.

We also witnessed a greater number and diversity of vibrant life science markets emerge. While Boston, San Diego, and San Francisco remain the leading US markets, we are encouraging clients to think in terms of 20+ markets in the Americas that are significant. Each one of those markets is doing a good job of supporting life sciences with varying levels of concentration. This is a different way for the industry to think in terms of where to invest, where to build infrastructure, where to find great science, and where universities are creating great science that will be translated into commercial assets.

With Big Pharma’s high R&D revenues in mind, how do you picture deal-making in 2023?

It’s estimated that R&D revenues held by the 20 largest pharma companies currently amount to nearly US$1 trillion in cash, and there is high anticipation to see this capital deployed to bolster the companies‘ external innovation. This will be a key signal of growth and opportunity for the sector. The expectation was that 2022 would be the year of lift-off, but for many reasons that did not occur. We have started to see some activity, however, the banking crisis and an abysmal Q1 for VC seem to be extending deal-making expectations into 2024. We have also witnessed a growing spirit of conservatism from dealmakers as they push for more clinical data and clinical assets before receiving subsequent, larger funding rounds or investments. These conditions combined are forcing biotechs to do more with less, particularly when it comes to real estate and infrastructure.

Which regional markets do you see as emerging life sciences hubs?

Things have slowed, but not stopped in terms of activity in emerging markets. Large investors are still looking for the most predictable markets, with high concentrations of entrepreneurship, innovation, commercial assets, and skilled workforce. As a result, the smaller markets where those attributes exist in lower concentrations are seeing a bit of a slowdown in their ability to attract large investors. I remain bullish on emerging markets like Boulder, Chicago, Salt Lake City, Dallas/Fort Worth, LA, and Seattle because they seem to have stable rates of these innovation inputs from within their respective markets that continue to invest in life sciences development. These markets have learned that trying to become the next Boston is neither the point nor the ultimate indicator of success; it is more about developing the local capabilities that are properly scaled and right-sized for their market.

As ESG topics gain prominence, is the industry pushing towards building more sustainable facilities?

We just arranged a US$310 million financing for the first all-electric life sciences campus in California. When you look at the scattershot of asset types that make up industrial space, and the environmental sustainability of those, unfortunately, commercial lab buildings tend to be the second dirtiest of all industry types. That is not a surprise based on the energy utilization of these buildings, and the amount of water and chemicals required in labs. There is no lack of will amongst large pharma to implement sustainability goals, and we are finding that large pharma is adopting more sustainability practices which will hopefully move the industry forward toward understanding how to have sustainable operations.

What will be the growth priority for the life sciences division of JLL?

One area will be biomanufacturing. There has been tremendous growth in innovation in the number of clinical assets in regenerative medicine and RNA therapeutics entering the regulatory pipeline, and this is driving demand for biomanufacturing infrastructure worldwide.