Office space has taken a beating during the pandemic, and the continuing waves of new COVID-19 variants makes a mass return look more and more distant. But one sector in that segment is doing very well, indeed.
That would be the life sciences, where the rush for COVID-19 vaccines has only underlined what already has been a surge in demand for mission-critical space for collaboration, research, and production of countless flavors. Indeed, a new report from commercial real estate giant CBRE Group (CBRE -1.40%) said this industry is now seeing all-time highs in funding, job growth, demand for lab space, and new construction.
The report said the usual suspects continue to be dominant markets: Boston, San Francisco, and San Diego. But North Carolina's Raleigh-Durham, Philadelphia, and Washington, D.C., are quickly rising, CBRE said, and three Sun Belt markets are emerging now, too: Dallas, Atlanta, and Phoenix.
Beantown leads the boom, while vacancies vanish and rents rise
Just how fast is this space growing? Perhaps nowhere faster than the Boston-Cambridge market, where CBRE said lab inventory more than doubled from about 16 million square feet in 2016 to about 42 million square feet in the third quarter of 2021.
Government and university funding and jobs have long driven demand for lab and associated space in those traditional markets, but the emergence of the Sun Belt competitors really caught Ian Anderson's eye.
"One of the biggest surprises in our recent research has been the amount of employment growth in Sun Belt markets like Phoenix, Dallas and Atlanta," the CBRE senior director of research told the Commercial Observer. "These are three big metropolitan areas, but they're not conventional life sciences hubs. And yet, the data shows that life sciences employment in those markets is growing rapidly."
Nationally, employment in life sciences has become a leading source of new jobs, CBRE said, and biotech R&D employment within that sector has grown twice as fast as the sector itself in the past 10 years, CBRE said.
Biotech R&D has been driven by the vast drop in the price of sequencing human genomes, Anderson told the Commercial Observer, and in the past few months has been surging in employment at its fastest pace ever.
All these people need a place to work, too, and that's driven vacancy rates even below the much-publicized "no room at the inn" numbers -- 3% to 4% -- that industrial real estate investment trusts (REITs) like Prologis have reported. CBRE is finding a 1.1% rate for lab/R&D space in the Boston and New York City markets and rent increases in nearly every major life sciences location, including as high as 12% in San Diego.
Some REITs that can add life to your investing science
Real estate investors can do their homework to find great stocks to buy and hold in this segment, and a good place to begin is with Alexandria Real Estate Equities, a pioneer in this space whose portfolio closely matches the heat map for life sciences locations. Boston Properties, one of the largest developers and owners of Class A office space, is investing heavily in this sector, too. But don't be in a rush.
The report says that data trends and "sentiment from the field" point to the lab space market staying active over the next year. And because here at the Fool we like to look at investing for long-term growth, let's conclude with this 1997 quote the report provides from a pair of geneticists: "If the 20th century was the century of physics, the 21st century will be the century of biology."
One fifth of the way in, and amid a pandemic unlike we've seen in a century, those words ring true, and investors can take advantage by staking their claims in some of the great companies that are part of this trend as well as directly making savvy buys on properties -- retail, residential, and otherwise -- in and around these life sciences centers.