The average sale price of a life science facility is $645 per square foot, 150% higher than the overall office average.
Other sectors may be struggling amid rising interest rates and inflation, but sales and supply data for the booming life sciences sector have not yet shown cracks.
A new report from Commercial Edge reveals that the average sale price of a life science facility in 2022 clocks in at $645 per square foot, 150% higher than the overall average of $258 psf for general office buildings. Buildings suitable for conversions also command higher prices: DivcoWest, for example, bought a 138,400-square-foot property in South San Francisco from Johnson & Johnson for $164.5 million — a price of $1,188 per foot — and “immediately” began converting the building into lab space.
Developers are rushing to build space fast enough to even approach demand levels as well. Just under 22 million square feet of life science projects are underway nationally, led by Boston with 27 projects totaling 8.4 million square feet. San Diego follows at number two with eight properties at 2.9 million square feet, then San Francisco (10 properties, 2.6 million square feet). Tertiary market are also emerging as viable contenders, with PNB and Montgomery Street Partners recently announcing they’ll develop the first speculative life science property in Boulder County, Colorado, with the 365,000-square-foot Coal Creek Innovation Park. And in the bedroom community of Maricopa outside Phoenix, S3 Biotech is developing a 2.5 million-square-foot campus that includes life science, medical office and sports science facilities. According to CommercialCafe, in 2021 life sciences employment was highest in Boston (23,900 jobs), New York (18,100) and San Francisco (14,200), while the metros with the most STEM workers last year were New York (515,540), Washington, D.C. (364,140), Los Angeles (342,870) and San Francisco (289,960). Growth in the life sciences sector has spread beyond those cities typically regarded as “flagship markets,” according to CBRE: Nashville leads the US in terms of percentage growth of life sciences jobs while Houston offers a high percentage of PhDs and an affordable quality of life. According to the firm, growth in life sciences professions ticked up by 79% since 2001 to hit 500,000 nationally.
How a Recession Impacts The Life Sciences
With inflation rapidly accelerating, worries persist that the economy is headed for a recession. Big Tech has already either frozen or drastically curtailed hiring, leaving many left to wonder how other industries will be impacted. Life sciences, like plumbing or consumer staples, possess a unique quality in that it has a constant demand. People are always getting sick or requiring healthcare. Nevertheless, the trepidation you and your company may have about the state of the economy in the next 12 months is real and deserves some thought. Having been in business for over two decades, Snowfish has weathered the 2008 recession, various economic ups and downs, and, more recently, the coronavirus recession.
What Is A Recession?
Economists classically define a recession as two consecutive quarters of negative growth. However, the National Bureau of Economic Research (NBER), the agency that classifies recessions, has changed the definition. According to NBER, a recession is “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” During a recession, an economy’s Gross Domestic Product (GDP) declines, unemployment rises, and inflation decreases. According to Paul Krugman and Robin Wells’ Macroeconomics, “the most important effect of a recession is its effect on the ability of workers to find and hold jobs.” In other words, recessions cause a dramatic spike in the unemployment rate. The coronavirus recession saw unemployment peak at 14.8% according to the Congressional Research Service. For firms, recessions cause profits to suffer and necessitate layoffs.
How A Recession Impacts The Life Sciences?
Despite healthcare products having relatively inelastic demand (not super sensitive to changes in price), the life science industry feels the impact of a recession in the form of declining R&D spending. Joshua Cohen, an independent life science analyst, points out in Forbes that “the biopharmaceutical industry experienced a precipitous drop in the compound annual growth rate of R&D spending in 2008 and 2009.” Likewise, new ventures and startups could experience a decline in funding. As the Financial Times points out, Y Combinator, a startup incubator, has warned its founders that the “safe move is to plan for the worst.” A decline in R&D spending means companies will develop less new drugs, impacting the profits of firms and patients’ quality of life.
Turning Lemons Into Lemonade
As for the market currently, IBB is a biotech ETF that holds 377 stocks. To date, the value has declined 27 percent. Although a recession spells trouble for the vast majority of industries, well funded life science firms gain unique opportunities to strengthen relationships with stakeholders and advocacy groups. A precipitous decline in the share prices of companies presents an opportunity for well-funded companies to acquire firms that have great products and relationships but are far less richly valued. Potential partners might have a strong relationship with key industry and advocacy groups, which should be part of the acquisition decision calculus. A recession also allows companies to build relationships with advocacy and stakeholder groups that might be feeling budget pinched since some of their partners and patients might be tightening their wallets. Based on our experience, advocacy and patient organizations are more likely to explore meaningful relationships when times become tighter.
Advocacy - A More Promising Alternative
Your product’s reputation is critical to its profitability especially in a recession. Partnerships with the right advocacy organizations allow you to reach more patients. Additionally, as we have written about previously, relationships with the right advocacy organizations signal that your product is high quality and effective. Snowfish has partnered with leading life science and medical device firms such as Abbvie, AstraZeneca, Sanofi, and Medtronic. We have completed 100s of projects in over 60 disease states. If you need help with your advocacy efforts, please send us an inquiry at email@example.com Alex Fishman is a business analyst at Snowfish. A recent economics graduate of the University of Virginia, Alex will be enrolling in a one year masters in finance in the fall.