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Effects of Venture Capital Funding on Life Sciences CRE in 2024




 

The life sciences real estate sector has experienced high volatility since the start of the COVID-19 pandemic. Early signals point toward a recovery to pre-pandemic funding levels for research and development (R&D) — the main driver of life sciences real estate performance.


The global biotechnology and pharmaceutical industries first experienced a boom in series A venture capital funding in 2021. Following the market freeze in 2020, COVID-19 sparked investor interest in medical research. The non-US subcategory of funding reached a high of over $5 billion in Q3 2021. Quarterly funding trends proved volatile in 2022 and 2023 — but followed an overall downward trend. The most sizable series A transaction in 2023 was $859 million for Allomics Therapeutics, a China-based startup. (1)



 (1)

 

Total US venture capital funding for the life sciences industry followed similar market patterns. Late-stage companies experienced a less significant drop in funding from 2022 to 2023 than early-stage companies. The largest US venture capital transaction of 2023 was Aspect Biosystems, at $2.7 billion in 6th round funding. (1)

A combination of financing availability, interest rates, and industry trends led to these drastic swings in VC funding. While the Federal Reserve has maintained a more hawkish stance on monetary policy than markets anticipated at the start of 2024, venture capital funds have dry powder to deploy. Private equity firms have reached a record-high global figure of $2.59 trillion in dry powder as of December 2023 — a total that aligns with PE dry powder growth trends over the last decade. The life sciences sector poses an opportunity for distressed pricing in a typically stable sector with a high growth potential.


The life sciences real estate sector is intrinsically tied to the greater life sciences industry, and post-2021 laboratory space is now distressed due to vacancy. New deliveries of Class A laboratory space have contributed to this vacancy, and rents fell slightly in Q1 2024. The average vacancy rate for the top 12 life sciences markets is now 14.8%, a 170-basis point hike from the previous quarter. This construction can be attributed to 2021’s optimism for the sector. (2)(3)


Allocation of funds toward life sciences investments reached an unsustainable high in 2021, but 2022 and 2023 represented an overcorrection. Life sciences spaces include office space in addition to wet lab space; however, scientific research can never be fully remote. An aging population and increasing median lifespan position the healthcare industry, and thereby the pharmaceutical and biotechnology industries, for long-term growth. New optimism was demonstrated in Q1 2024 when biotechnology firms across the US and Europe reached a five-quarter VC funding high of $6.8 billion. (4) Life sciences real estate may not rebound within the next year, but vacancy and rental rates will likely improve within the next three years as funding returns to the industry.

 

  1. Cushman & Wakefield. (2024). Life Sciences Funding in View & 2024 Outlook. https://www.cushmanwakefield.com/en/united-states/insights/life-sciences-funding-in-view

  2. Hammad Asif, M., Sabater, A. (2024). Private equity firms face pressure as dry powder hits record $2.59 trillion. S&P Global Market Intelligence. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/ private-equity-firms-face-pressure-as-dry-powder-hits-record-2-59-trillion-79762227

  3. CBRE. (2024). Demand Increased for US Life Sciences Real Estate in Q4, But Wave of Construction Completions Added to Vacancy Rate. https://www.cbre.com/press-releases/demand-increased-for-us-life-sciences-real-est ate-in-q4#:~:text=in%20the%20top%2013%20life,of%20labs%20this%20year

  4. Wu, G. (2024). Private biotech funding rises as venture capital firms deploy cash. BioPharma Dive. https://www.biopharmadive.com/news/venture-capital-biotech-private-funding-first-qu arter-2024/712485/#:~:text=Drugmakers%20in%20the%20U.S.%20and,most%20acti ve%20quarter%20in%202023

 

 

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