2023 March Life Sciences Update

Building the Labs of Tomorrow

The life sciences research, development, engineering and manufacturing of the next decade will largely take place in the facilities under construction today. How science is done and how scientists utilize workspaces has evolved significantly in the last decade and will continue to evolve as technology and artificial intelligence (AI) are increasingly integrated into processes. Preparing for the next generation of science and scientists means that existing facilities will continue to evolve, and that those under construction will need to anticipate future needs, including emerging technologies, sustainability requirements and workspace preferences of employees. To meet increasing demand, new inventory has been added to the sector at an accelerated pace. The life sciences CRE sector has grown significantly in the last decade. In the U.S., total inventory grew over 34% in the last seven years and 19% in the last three years. This growth outpaces inventory growth of other major, more mature CRE sectors over the same period. Striking the balance between explosive demand and new space is critical for a niche sector that will continue

to grow, albeit likely at a more moderate pace over the next few years. Growing pains are expected as the sector tries to find this equilibrium. The U.S. life sciences development pipeline has more than doubled in the last three years and currently stands at nearly 32 million square feet (msf) as of year-end 2022. It has also grown from 6% of total inventory in 2019 to its current level at 17% of total U.S. inventory. Prevailing economic headwinds mean keeping an eye on rising risk factors will be critical to the health of the sector. The overall market vacancy rate has ticked up 70 bps to 9.2% YoY. Sublease space has also ticked up, rising 60 bps YoY, but remains relatively constrained at 1.6%. Additionally, of the 25 msf due to be completed in the next two years, only 28% is pre-leased. Most of the space currently under construction is speculative, meaning a significant amount of space could enter the market vacant. Tenants that delayed their plans due to the uncertainty in 2022 may find a more tenant-favorable environment in 2023 and 2024.

U.S. Inventory Growth by Property Type

U.S. Rising Risk Factors

40%

16%

35%

34.3%

30%

12%

25%

8%

20%

19.0%

15%

16.1%

4%

10%

8.9%

8.4%

5%

3.7%

0.5%

0%

2.3%

0%

2015

2016

2017

2018

2019

2020

2021

2022

Life Sciences

Office

Industrial

Retail

Vacancy

Sublease

Construction as % of Inventory

3-Year Growth (2019-2022)

7-Year Growth2015-2022

Source: Cushman & Wakefield Research, Costar

Source: Cushman & Wakefield Research

4 / CUSHMAN & WAKEFIELD

LIFE SCIENCES UPDATE | 2023 MARCH