Life Science Growth Spreads Across US: CBRE

HOUSTON – (By Michelle Leigh Smith for Realty News Report) – Houston failed to rank in the Top 10 of the nation’s hottest life science talent clusters even as the sector is spreading beyond traditional flagship markets, like Boston, says a new report by CBRE.

CBRE’s new analysis of “The Search to Sustain an Industry Boom” ranked America’s hottest life sciences research market talent clusters, with Houston coming in 13th. Major population centers like Boston, Washington, D.C., San Francisco, New York and San Diego ranked in the top five, followed by Raleigh, Los Angeles, Philadelphia, Seattle and Chicago.

Houston, which has the largest medical center in the world, ranked behind Minneapolis/St. Paul and Denver.

Matt Gardner, CRBE America’s Life Sciences Leader previewed the firm’s first Life Science report last week in a webinar.

Houston Has Huge Share of PhDs

The study looked at educational trends and found whereas the larger metro areas tend to have more institutions, the share of PhDs from Houston is very high, in fact, off the charts. The data reflects that New York and New Jersey grant the biggest number of PhDs in biological and biomedical sciences but some of this is due to the higher populations.

Biotech Sector has Grown at its Fastest Rate Ever

Job growth in life sciences professions – from bioengineers and biochemists to microbiologists and data scientists – expanded by 79 percent since 2001 to roughly 500,000. In comparison, the overall U.S. job growth rate in that span was only 8 percent. That surge in life sciences jobs boosted mainstay markets such as Boston and San Francisco as well as emerging hubs including Nashville, Salt Lake City and Houston.

Houston’s TMC – The Texas Medical Center (Or Should It Be “Texas Medical City?)

Scott Carter, Senior VP of Healthcare and Life Sciences for CRBE in Houston, said, “Everything is bigger in Texas and hopefully that will help us in recruitment. Before that, we’ve found it surprising that people didn’t understand size and scale of Houston as it relates to the Texas Medical Center (TMC) and how hot the Austin market is. Texas is the 10th largest economy in the world, home to 24 Fortune 500 companies, with the largest workforce, including 5,000 life science companies and it’s growing rapidly.  The TMC, which we’re now calling “The Texas Medical City,” sits on 1,400 acres. If you were to put the TMC into U.S. business districts, it would be the eighth largest.  It has the eighth largest GDP in the country ($28 billion).  There are 10 million annual patient encounters, second only to NYC. We have 2,000 clinical trials.”

Scott Carter

“In looking at the physical real estate, we didn’t have any lab research space in the city that was not in one of the major hospital systems,” said Carter. “Now, we have more than 1 million SF of speculative development. That shows we have the anchor tenant of TMC so now we’ve got to start providing space for these researchers to grow.”

In addition, many Houston institutions have robust public funding and increased private capital, not to mention an established global economy with distribution advantages, as the Port of Houston is the largest Gulf Coast container port, handling 70 percent of U.S. Gulf Coast container traffic. It is also the largest Texas port with 97 percent market share in containers. Millions of square feet and billions of dollars of life science development projects are under construction or planned, including TMC3,  Levit Green,  Texas A&M’s Innovation Plaza, and The Ion.

Carter says the quality of life in Houston, is also highly conducive. “We have no zoning, so within the TMC campus, we have nice mixed-use component with residential, music venues, set in a helix park setting so it should play right into recruitment.”

CBRE: Millions of Square Feet of Demand Beyond the Current Supply

CBRE, which is one of the largest commercial real estate firms in the world, assessed the markets considering at the number of life sciences jobs and graduates, life sciences’ share of each market’s overall job and graduate pool, its number of doctorate degree holders in life sciences, and its concentration of jobs in the broader professional, scientific and technical services professions. Another factor reflecting the sector’s growth: the number of U.S. graduates receiving degrees in biological and biomedical sciences reached nearly 164,000 in 2020, twice as many as 15 years earlier. Even with that influx of talent, the unemployment rate for life, physical and social sciences was less than 1 percent as of April 2022. The analysis produced CBRE’s inaugural ranking of the leading markets for U.S. life sciences talent.

New CRBE research shows there is significant demand for more lab space, says Kris Hudson, with CRBE. “The issues are directly related to the unemployment rate, which are at a historical low.  There are millions of square feet of demand beyond the current supply. The top line, the fundamentals in the industry remain incredibly strong.  A look at clinicaltrials.gov illustrates the tremendous uptick in new products in the pipeline.  From that point of view, the key point is a real estate strategy that must be based on a talent strategy.  This represents a slight change in our view across the US. There’s been a belt – the big biotech markets San Diego, Boston, and the Bay Area and this area is at a new embarking point, experiencing a widening of the lens.  Top 20 areas represent an opening of the view. Industry leaders are having to think which markets will be next and a direct linkage to where the science is being studied, prior to the launch.”

Identifying the Most Favorable Talent Pools as Life Science Growth Spreads

Research team leader Ian Anderson said, “The objective of our 2022 Report is to identify the most favorable talent pools in order to support the industry’s continued growth. We focused on function in order to use the report as a guide to access other industry objectives.”

CRBE found the highest concentrations of life sciences researchers (led by Boston), which registered the most percentage growth in research talent from 2015 to 2020 (led by Nashville), and which have the highest shares of biomedical and biological PhDs in their life sciences workforces (including Houston, Raleigh-Durham and the San Francisco Bay Area).

CBRE: Lab Vacancy Hits All-Time Low

“Quality and availability of labor are key considerations for any expanding industry, and that’s certainly the case for life sciences,” said Ian Anderson, CBRE’s Americas Head of Life Science and Healthcare Research. “Lab vacancy rates are tight in most markets, even amid strong construction activity. Expanding life sciences companies can now choose from dozens of U.S. markets depending on their labor and real estate needs.”

Lab vacancy rate hit an all-time low in the first quarter in March, the lowest rate on record. So, with all these trends unfolding, the CRBE report is a guide to navigate this market.

Top Talent Clusters in US

The study found high density of graduates in small clusters, Worchester, MA, New Haven, Albany and rapidly growing Nashville, with Vanderbilt University.

Taylor Stucky, looked at researchers by number of employees against percentage of the labor force and the cost of living. “Ideally, the most favorable markets are those with a high number of employees and a high density,” Stucky said. “In Los Angeles, the clusters are more spread out; San Diego is denser.

CRBE explored talent employed within science industries and found the incentive for sciences to seek less expensive talent may not be cost effective. It may be more beneficial to live in Houston, where money is going to go further.  The number of researchers is up higher than ever, the number of graduates is up, but it’s still hard for companies to find good talent. We found that salaries are higher than other occupations in the life sciences.

Another unexpected finding likely is relevant for expanding companies; Life sciences wages don’t vary geographically as much as those in many other industries do. Yet the market-to-market variance of cost of living means some markets are far more affordable for life sciences workers than others.

San Diego is No Longer a Secret

Ted Jacobs of San Diego’s CRBE office says, “San Diego is no longer a secret for investors in the life science space. Three years ago, that investment pool was much smaller, with ten bidding on properties then, and 60 now. There’s a potential in San Diego to grow our pipeline of development in excess of 6.5 million SF.  Rents will rise due to construction costs and supply chain issues. Your real estate now has to work harder for you.  In the return to the office, for executives, it’s all about attracting talent.”

Jacobs notes how San Diego spreads outside the University of San Diego corridor.  “You’re seeing it downtown with the spread to Carlsbad, and going east, to Scripps Ranch, broadening the opportunity for entrepreneurs to pick a location,” said Jacobs.

Boston – Urgency to Ramp Up Experiments with Venture Capital Funding

“Boston was surprising in that it is within 250 miles of New Haven, Albany and Worchester. “Worchester was a home to diagnostic and research organizations and has received a major influx of drug discovery companies,” said Cerise Marcela, a Senior Vice President with CRBE’s Boston Life and Science Consulting group.  “Keep in mind while new grads from the area are available, many companies want mid to senior level talent and this talent pipeline is a critical component to the growth. In greater Massachusetts, we see 5,000 to 20,000 SF tenants, much more velocity in this area, and more urgency to ramp up experiments with received VC funding. We see companies of the larger size expanding to clinical trials are holding on to current space to extend operational runway this year. Bigger pharma companies, with many of their employees returning to work, finally made real estate decisions with a goal to co-locate under one roof.”

Philadelphia’s Construction Boom

Philadelphia’s Valerija Beares said, “We’re seeing major investment in this market in context of capital over two months. Ten global investors have committed to Philadelphia. Most are joint venture investors with deep Philadelphia roots. We’ve traditionally had very conservative investor community.”

A positive trend is the construction boom – Beares said they have 9.5 million SF base. “Over next decade, we expect that to more than double,” she said. “Half of the conversions and construction are expected to deliver in the next 4 years. These are known and planned developments. We have five life science campuses that can develop approximately 1 million SF each.  Around 70 percent of that space will be lab, with the balance GMP. We were constrained on the incubator side but have seen a recent uptick which rounds out our life sciences ecosystem.

Why this major investment now? The differentiator is cell and gene therapy,” said Beares. “Two recent discoveries led to five new cell and gene therapies.  The other thing is we have a deep bench of talent due to our strong pharma labor base, and continued pipeline of talent to sustain the ecosystem.  The National Institute of Health funding contributes to Philadelphia’s strong ecosystem, poised for growth.”

Emerging Micro Clusters

CBRE’s Cerise Marcela notes that when they looked at Cambridge, the emerging micro clusters of Boston were noted. “We are starting to see small ecosystem start to form from Worchester, outside Boston, that’s an extension.”

Money Seeking Deals at a Record High

The amount of money still out there seeking deals is at a record high, said Ian Anderson. All of us knew there would be some kind of pullback, at some point, a little pull back is healthy considering where we are.

Which non-traditional Life Sciences markets have had greatest growth? 

Ian Anderson said that with the breadth of this taking place across the country, it’s hard to find a metropolitan area that doesn’t want to participate, it’s a matter of degree. “We know it’s extremely strong in Boston, San Diego, more than impressive growth in Philadelphia, Washington, Raleigh is remarkable. The non-traditional ones are in the Sun Belt. Miami, Dallas, Atlanta and Nashville show up impressively. One small up and comer is Salt City,” he said.


June 13, 2022 Realty News Report Copyright 2022

File:  Life Science Growth Spreads Across US: CBRE

Rendering: TMC3 sciences campus under construction in Houston. Courtesy TMC

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