Newmark reports this week that life sciences investment activity slowed 33.6% in the first half of 2022 compared to a year ago, while fundraising increased, albeit at a slower pace.

“Despite slowing investment activity, life sciences and R&D asset prices remain at record highs, reaching $564 per square foot in the first half of 2022,” said Newmark. said in the report.

“Although the bid pool is thinner compared to 2021, investors are still attracted to lab assets, in part due to the supply/demand imbalance that still exists in the largest cluster markets.”

Welcome to low vacancies, rising rates

Field reports can confirm that.

For example, David Vincent of Cadre, an investment specialist, told GlobeSt.com that demand for life sciences space remains particularly strong, giving investors an opportunity to buy into the real estate sector, where vacancies are low and leasing rates are rising. says he’s looking for it.

“We are particularly interested in the need to transform our offices into spaces suitable for the scientific community. Because rents can go up,” says Vincent. “There are numerous real-world examples of this trend, including the recent sale of a Washington, DC-based property named Key West Crossing. We sold it and achieved a net IRR of over 40%.”

Katie Bernhisel, director of life sciences advisory services at Raise Commercial Real Estate, told GlobeSt.com that companies with high capital efficiency remain attractive to investors. “Just because the economy slows down doesn’t mean science will slow down,” she said.

“Companies that had planned to compete in Series A have not changed their plans. Their focus is on milestones and speed to market Capital accelerates R&D timelines Life sciences growth trending even more upwards, albeit slower fundraising activity I have.

“This steady increase will have a positive impact on real estate, which is a key item on our balance sheet. We rarely have the opportunity to influence

Financing impacted by rising interest rates

Mark Goodman, principal at Mark Goodman & Associates, told GlobeSt.com that investment in life sciences has been off the charts since the outbreak of the pandemic and that is not a sustainable level of growth for any industry. increase. You’ll see it eventually start to taper off.

“Additionally, rising interest rates are making it harder for companies to find capital not only from VC firms, but also from traditional bank sources.”

“That said, investment in life sciences remains above pre-pandemic levels and is expected to remain strong. Chicago-based ARCH VC to fund early-stage biotech firm Recent announcements, such as the news that we have raised $2.9 billion to support the industry, prove that the industry still has room to grow.”

Slower funding from available debt

Cox, Castle & Nicholson partner Kevin S. Kinigstein told GlobeSt.com: We believe the life sciences investment market will remain relatively strong, especially compared to other real estate asset classes.

“There continues to be more equity available than life sciences projects to invest in, and despite macroeconomic concerns, we continue to see an influx of capital from sources that are not traditional life sciences investors,” Kinigstein said. said.

“However, investment activity has slowed relative to 2021 as available debt funding has slowed dramatically, and is likely to remain active only to the extent debt markets allow. ”

Luminous: Slowing demand in California

Bob Dougherty, chief investment officer at Luminous Capital Management, told GlobeSt.com that the past two months have witnessed a slowdown in leasing demand and investment appetite in the California biotech market.

“This, of course, coincides with the arrival of summer, which is often accompanied by an uptick in activity. Given the need for a correction, we hope that improved investor confidence will lead to a stronger market after Labor Day.

“While we don’t expect a return to heat in the fall of 2020-2021, venture capital and NIH funding levels are projected to end the year well above 2018-2019 levels. We had a pretty strong year in life sciences, real estate.

11 year lease in California

Bucking the trend, Harbor Associates announced that A2 Biotherapeutics has entered into an 11-year lease for a 75,994 square foot site in Agoura Hills, California. This site will serve as A2 Bio’s new global headquarters.

Long-term leases are an example of the demand for space by life sciences and biotech companies across the country, Haber said.

According to CBRE, by the end of 2021, office-to-lab conversions in the 12 largest U.S. life sciences markets, including Los Angeles, will grow 49% year-to-date to reach 9.9 million square feet.

Life Sciences Leads Boston

Yardi Matrix’s Doug Ressler told GlobeSt.com that Boston’s new supply pipeline remains strong despite headwinds facing the office sector and gateway markets.

Boston’s biggest project under construction is a tower that began before COVID-19 disrupted the office industry. Examples include the 1.4 million square foot mixed-use Winthrop Center and the redevelopment of the 1 million square foot One Post Office Square.

“Since the pandemic began, new supply in Boston has been driven by the life sciences sector,” said Ressler. “More than 40% of his total office square feet under construction are in buildings designated as life sciences spaces, and that percentage jumps to 55% for projects that begin construction after the start of 2021.”