The life sciences sector is rapidly advancing, driven by innovations in cell and gene therapy, the development of sustainable laboratory solutions, and the incorporation of AI technologies to enhance drug discovery and development processes. In CBRE’s latest report, Life Sciences Construction Benchmarks & Trends 2024 , their findings discovered that life science project costs have increased by 20%-25% compared with pre-pandemic levels, due in part to the costs of inputs and overall inflationary trends. The industry is constantly exploring optimal ways to leverage commercial space to meet the increasing demand for life sciences laboratories, while also navigating the challenges of building requirements and high costs. In conversation with Matt Gardner, Head of Life Sciences, Americas, CBRE Advisory, he breaks down these trends from CBRE’s latest report and the biggest trends to keep in mind as the industry continues to grow.
Read his insights below to learn more:
In the executive summary of the report, it’s mentioned that the percentage of lab/R&D space being converted from other uses has decreased drastically over the past 24 months. What factors are contributing to this conversion decline?
The conversion trend is declining, as in the short-term with the view of new construction, and I think that’s a healthy thing, because we’ve come back to typical absorption rates that will help take some of the pressure off. The factors for this decline are that small cap biotech had a difficult headwind in raising capital, and it’s led to conservative decision making in the industry. That also means that the life sciences companies themselves have slower absorption. There’s a big sunk cost in wet labs and those costs are expensive. Life sciences companies must invest in three things – people, products and places, and when they raise capital they need to consider all those components. A product on average takes 14 years to get through clinical trials to an FDA application. Given this timeline, depending on the new product, you might go through two economic cycles to deliver a single product, and clinical trials often fail. This proves to be particularly challenging in commercial real estate as long-term space commitments can be costly. The Deloitte 2024 Global Life Sciences Sector report also describes these economic pressures given the “growing demand for expensive specialty medications.”
Fit-out costs and tenant improvement allowances (TIA) have increased significantly from pre-pandemic levels. Could you expand on the key factors driving the surge in costs?
Looking at other people’s construction index figures, they’ve gone up 20% to 30% for costs of materials and inputs. I think that’s a factor for everybody. One of the things that we have more in common with other deep tech sectors like data centers is that we are power thirsty. For example, if you are in biotech production or cold storage, you need to make sure you have redundancy and you know where your power systems are from the first day. I would say that nationally there’s been an issue that we’ve caught up with where there was a shortage on things like transformers. While this shortage has been resolved for the most part, the cost of these inputs have also increased. For instance, we use stainless steel tanks in production a lot, and that cost has also gone up. This is most likely due in part to the increased demand for steel in 2024, as the American Iron and Steel Institute reported recently that the “total and finished steel imports are up 2.4% and 2.6%, respectively, year-to-date vs. 2023.”
How does sustainability play a role in the life sciences industry?
Life sciences users are going through the same transformations as many industries - planning for net zero in their energy balance and greening of their processes. The greening of lab supplies and research is relatively advanced, for example.
We see the industry having an internal struggle with something we call single use material. The biggest stainless-steel tanks that we use for big drug production might be 16,000 liters. We have other companies approaching this with single use, which means the tank stays fixed, but they insert a plastic bag that you can dispose of after the process. This has led to many internal conversations about the sustainability of using plastic bags, especially since the plastic bags are incinerated after a batch is made. In the life sciences industry, we need to think hard about the full lifecycle of all these things.
One of the points from the report was that vivariums, cleanrooms and gene/therapy labs are especially costly to build. Could you elaborate on the reasons behind these costs and what specific factors increase the price in these types of labs compared to more conventional spaces?
The factors of these high costs are the highly specialized nature of the internal finishing steps. For instance, the requirements for redundant power and HEPA filtration for air handling systems increases your costs every step of the way. In addition, semiconductors that cannot have particulates interfering in the air handling systems can’t have any outside contaminants when you’re making a drug that goes into the human body. These systems must be extremely “pure,” especially when thinking about the air quality and all the internal factors, which are more expensive to build as a result. Not to mention, the labs are all regulated by the FDA, which poses an additional challenge.
What major trends are likely to shape the future of the life sciences industry?
More drug development companies are investing in AI to support their drug discovery systems and models. One company in particular, Recursion Pharmaceuticals, is leading this trend in Salt Lake City, where they’ve built a super-computing center. According to a report by Nvidia, their findings believe that Recursion is “one of the largest biological datasets on Earth.” Another trend that’s interesting to watch is the beginning of the new drug era of cell and gene therapies. That will mean that the industry will move closer to a point of care. If you’re taking your unique immune response out of your body as a patient and putting it in a system to make it more powerful and put it back in you, that system has to be close to the hospital. That suggests that we will see an increase in concentration around major urban centers everywhere and major treatment centers in different kinds of disease. This all connects to conversions because if you have a large hospital complex and you haven’t had a biotech cluster, you might see some of those buildings around those big healthcare centers face interesting opportunities to convert to life sciences.
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