Life Sciences: Report explores the key role of employment

In general, it drives space demand, but it also affects the real estate in other ways

By Murray W. Wolf

As in most commercial real estate sectors, the prospects for the life sciences real estate (LSRE) space largely hinge on employment trends. In simple terms, more workers equals more space demand.

But trends in the life sciences employment, or “talent,” market are more nuanced and can offer other meaningful clues as to when, where, why and how an LSRE recovery might take place.

Notably, despite some short-term hiccups, researchers are finding not only a continuation of steady life sciences employment growth, they are also seeing other reasons for optimism:
■ Both established life sciences clusters and emerging markets continue to grow.
■ A sizable list of probable U.S. Food and Drug Administration (FDA) approvals of new medicines seems poised to absorb the millions of square feet of new LSRE space in the pipeline.
■ Demand for medical technology (medtech) space and manufacturing facilities is playing a bigger role.
■ Incubator space, some of it owned by venture capital (VC) firms, is accelerating life sciences industry growth and demand for life sciences space.

Those were some of the findings of the newly released 2024 U.S. Life Sciences Talent Trends report from CBRE Group Inc. (NYSE: CBRE).

Last Wednesday, June 5, CBRE presented a virtual media briefing summarizing its findings and providing additional insights from its LSRE specialists across the nation. Ian Anderson, senior director, research and analysis and head of life sciences research, and Taylor Lee, associate research director, kicked off the webcast.

The report has been expanded to cover more markets

Mr. Anderson explained that the main objective of CBRE’s annual life sciences talent trends report “is to identify where the most attractive pools of talent for the life sciences industry exist,” which is perhaps “the most important component for growth in this industry, where it locates, where it flourishes.”

He also explained that the intended audiences of the report are three groups: life sciences companies; investors, developers and lenders; and public stakeholders and city leaders.

“So we created this report first for our what we would call occupier clients, or just generally life sciences companies who occupy space around the country. And it’s used as a guide for them as to where the best places are for them and their businesses to grow, thrive and expand in future years,” he said.

“The report is also oriented towards investors of commercial real estate, developers of commercial real estate and lenders to find out where the best places to invest are in this growing industry, obviously with the reasoning that where the best talent exists are also going to be the best opportunities for growth in this industry.

“And the third main audience we have created this report for are public stakeholders and city leaders around the country who want to take advantage of this secularly growing industry, which continues to increase in size and how competitive they are and their municipalities to attract future investment and jobs in this industry.”

Next, Ms. Lee noted the new feature of the report for this year. The report has been expanded to cover 100 U.S. markets; it’s been expanded to include manufacturing and medical technology (medtech) as well as R&D talent; larger, regional life sciences ecosystems have been recognized; and smaller, emerging markets have been identified.

“We went from 74 markets the last two years we’ve done this report to 100 now,” she said.

“We also expanded our analysis beyond R&D talent, so in the past we’ve really focused on what’s going on in the lab, the scientists, to now include both biomanufacturing and medtech. So biomanufacturing – think the people who are actually taking … your medications that you would get at a pharmacy and making them, packaging them, getting those out. And then medtech, major companies; think Medtronic (NYSE: MDT), Abbott (NYSE: ABT). I always use pacemakers as an example of medtech…

“We also looked at larger regional life sciences ecosystems this year. So, as you know, we generally break things up by MSA (Metropolitan Statistical Area). But just because you cross an MSA line doesn’t mean that the life sciences stops there. So, we looked at some larger ecosystems across states. And then, finally, we identified some new smaller, emerging markets this year.

Four primary findings

Mr. Anderson then described four primary findings of the report:
■ Talent attraction remains a challenge and should persist.
■ Boston-Cambridge, Mass.; the San Francisco Bay Area; San Diego; Washington, D.C.; and Raleigh-Durham, N.C., are top markets for research and development (R&D) talent.
■ The top markets for manufacturing talent are New York-New Jersey, Chicago, Philadelphia and Houston.
■ The top markets for medtech talent are Los Angeles-Orange County, Calif., and Minneapolis.

“The first one is that talent attraction – securing top talent for this industry – remains a challenge,” he said. “The labor market continues to be surprisingly resilient, and even in the near term, we’re expecting this this challenge should persist.

“The second main takeaway is that our report again identifies this year the top 25 markets for talent pools for life sciences research and development talent, and at the top of this list is Boston-Cambridge, the San Francisco Bay area, San Diego, the Washington DC-Baltimore region and Raleigh-Durham, just to name a few of those top R&D hubs.

“Another takeaway is that we have also identified the top 25 ideal markets for life sciences manufacturing, and they reside in some of the larger metros in the United States including New York-New Jersey, Chicago, Philadelphia and Houston. And then the final main takeaway is that we’ve also analyzed the top 25 markets for medtech, medical devices, and those rankings are dominated by two of the traditional industry leaders in this subsector, Los Angeles-Orange County and Minneapolis-Saint Paul.

“We also found some surprising results in attractive talent pools residing in Salt Lake City and Pittsburgh.”

Referring to a graph that showed that the second quarter (Q2) 2024 unemployment rate for science workers in less than 2 percent and the lowest among seven major occupations, Mr. Anderson said, “Many of us know that growth has slowed in the industry, labor markets are somewhat softening. But data also shows, for example, this chart here, that unemployment rates remain historically low, especially for occupations in the life sciences-physical sciences industries.

“And so even though we are expecting a moderation in economic growth in the US economy this year, we are not expecting any material increase in … these unemployment rates. And, as a result for the near term, the data suggests that it’s going to continue to remain an issue for many of our clients to try and secure this talent.”

Next, Ms. Lee displayed a chart showing the mix of 25 occupations in life sciences, ranging from scientists and engineers to packaging and filling machine operators. Then, she displayed a U.S. map showing the top-rated life sciences clusters in terms of one or more of three categories: R&D, manufacturing and medtech.

“So, looking at just the leading U.S. life sciences markets overall, based on all three of our subsectors, you can see the ones you would expect: San Francisco, San Diego, Boston,” she said. “But, then also you have some smaller markets that maybe weren’t expected: Minneapolis-Saint Paul, Madison (Wis.), Chicago, Salt Lake City… So we really saw a wide range of markets that have some really good life sciences talent.”

She continued, “So, top ranked for R&D are the ones that we have noted here, again: Boston, San Francisco, San Diego. But also Seattle, Denver-Boulder, Raleigh-Durham and Washington DC showed really strong marks for manufacturing.

“Maybe most surprising was Madison. We also saw kind of more in that Texas range, so Dallas, Houston, and then up to Philly, New York, New Jersey and Chicago as well.

“And then, for the medtech talent, like Ian mentioned at the beginning, LA-Orange County and Minneapolis-Saint Paul really … by and far took the cake. But then also really strong talent pools in Salt Lake City and Pittsburgh as well.”

Life sciences ecosystems are getting bigger

Next, Mr. Anderson noted that although life sciences markets tend to be grouped by MSA, “we identified these larger perhaps more realistic life sciences ecosystems that exist around the United States… In reality, many times these markets benefit from adjacent markets closer to them that they may not obviously be a part of the same MSA.

“So, for example, if you look at a place like Colorado, as you’ll note there in the middle of the map we note the Colorado Ecosystem, and of course that ecosystem is not five individual distinct isolated life sciences markets, but in fact they all benefit from each other.

“For example, Denver-Boulder benefits from some of the emerging talent coming from Fort Collins as well as some of the existing talent in Colorado Springs, et cetera, and they all work together, have benefited from each other, synergies and talent spillover,” he continued.

“Similarly, you look to the West Coast and the Northern California ecosystem, is much larger actually than just which many may traditionally just call the San Francisco Bay area. So, for example, San Francisco and San Jose and Oakland benefit from the talent coming out of UC Davis and Santa Cruz to the south.

“And likewise, on the East Coast, we show that the Greater Boston… market benefits from some of the talent overflow out of Providence (R.I.), Worcester (Mass.) and even Springfield, Mass.

“And then, finally, we note North Central Florida.”

Mr. Anderson then discussed five emerging markets “that we thought showed an impressive amount of the right ingredients for future life sciences talent growth, or perhaps many of our clients may want to look to for emerging talent.” They included Santa Cruz, Calif.; College Station, Texas; Fort Collins, Colo.; Charlottesville, Va.; and Gainesville, Fla.

“All of these have significant research university institutions, all of them receive an attractive amount of funding from the National Institutes of Health (NIH) for healthcare and life sciences research,” he said. “And so these are five markets we are going to be keeping our eyes on in the future.”

Where can we look for ‘green shoots?’

After Mr. Anderson briefly recapped the “main takeaways” from the report, as mentioned earlier, the webcast shifted to a discussion of the report including several CBRE executives from different geographic areas who commented on the state of the life sciences industry in their respective markets.

The moderator was Matthew Gardner, a Sacramento, Calif.-based managing director for CBRE, who is also head of the firm’s U.S. advisory life sciences practice, which includes occupier and investor leasing as well as sales.

In addition to Mr. Anderson and Ms. Lee, the panelists included three other CBRE executives:
■ Gregg Domanico, vice chairman, life sciences, from San Francisco;
■ Dan Lyne, executive VP, from Chicago and
■ Ann-Stewart Patterson, executive VP, from Raleigh.

“We’ve seen the gains made during that historic bull run since 2015 hold,” Mr. Gardner began, “and so one of the things that we see is key to life sciences talent, on the whole, is that the industry grew and hired a great deal from 2015 to 2023… Of course, the gain has leveled off, but it continues to hold. So, if you take that and combine it with a picture of the total amount of research spending in the industry also holding, we see reasons to keep an eye on optimism, even while the general economic cycle is a cautionary tale for investment.

“So, Gregg,” Mr. Gardner said, “in an economy like this, where life science’s labor pool is holding steady, life sciences research spending is holding steady, but the overall economic cycle’s in a tough spot… How do we look for green shoots?”

Mr. Domanico replied, “You know, we saw a significant slowdown, kind of mid-2022, and it’s kind of stayed there.”

Noting that he pays close attention to levels of VC investment, he said, “The startup activity coming out of UC-San Francisco, UC-Berkeley and Stanford drive our industry. They always have. And so we’re starting to see VCs coming back into the market, funding startup companies, as well as the public markets are open.

“You know, as Ian mentioned in his report, obviously you need talent to grow companies. But, as important is you need money, you need capital. And so the capital’s been on the sidelines… But the good thing here in our region is that as companies kind of retrenched, maybe put some space out on the market, there’s been some M&A (mergers and acquisitions) activity.

“All of those people were able to find jobs,” Mr. Domanico continued. “We’re still having a tremendous job market here in the Bay Area… So that’s very positive, the VCs coming back into the market.

“The other interesting thing is, I think, in Northern California, we’re in a growth mode now. We have several companies in late-stage clinical trials,” he said, noting that as they achieve FDA approval, “those companies will go from… 200 to 300 people maybe today, to 1,000 people.”

Citing the Bay Area life sciences success stories of Genentech Inc., an independent subsidiary of F. Hoffmann-La Roche AG (OTC: RHHBY), Gilead Sciences Inc. (Nasdaq: GS) and Exelixis Inc. (Nasdaq: EXEL), he said, “They doubled, tripled, quadrupled in size in a five-year time period after FDA approval.

“So we expect that tremendous growth to happen here in Northern California,” Mr. Domanico observed. “But you’re right, there’s always the demand for talent, and companies are competing at a high level and trying to steal from the big guys, and that that’s always been the case for the last… 25, 35 years I’ve been doing this. But the outlook is positive, the slope is positive.”

“Thanks, Gregg,” Mr. Gardner said, “and I couldn’t agree more about the… catalysts for that growth, especially when the FDA calendar’s full of potentials.”

Making a case for ‘mega regions’

Mr. Gardner then addressed Ms. Patterson, “Raleigh continues to attract an outsized amount of new investment from the industry around the world. You continue to see sort of headline-making, large-scale announcements by some of the multinational leaders moving into the region, and the talent is there to support that… Is there a secret to Raleigh’s production of this talent, or is it more than just Raleigh that’s happening here?”

Ms. Patterson replied, “I think that the focus on our market and the confidence in coming to our market, whether it’s from an investor or a user, is that we do have a tremendous amount of talent in our market coming out of the university systems,” including the University of North Carolina (UNC) at Chapel Hill, Duke University and North Carolina (NC) State University.

“But, additionally, we have what you could call an ecosystem with the universities out of Virginia,” she continued, citing the University of Virginia (UVA). “I think, very similar to the Bay Area, we have a lot of companies in our market that are hiring,” she said, “We’re having interest from other markets coming in.”

“So… that is almost like a case for mega regions,” Mr. Gardner said, “that any individual region isn’t an island in and of itself when it comes to talent. But the talent is somewhat mobile, especially in this kind of post-COVID era where it can move where it wants to be.”

“That’s right,” Ms. Patterson replied, “and I think that… with the larger companies coming into our market and announcing several billion dollars of investments and job creations, we’re having people follow them from other markets as well, and so we’re getting talent coming in from the Midwest and from the Northeast in addition to what’s coming out of our university systems.”

“We’ve heard from Ian, Taylor and now Ann-Stewart about some of the critical nature of these academic anchors to all these regions that show the kind of most resilience, and the most promise in life sciences,” Mr. Gardner said, addressing Mr. Lyne. “Why is the academic anchor so important to especially in life sciences?”

Mr. Lyne replied, “You just can’t overstate the importance that the universities are playing in all this, not just in emerging markets, but in established markets. The phenotype of your overall academic researcher has changed dynamically over the past decade. They aren’t just sitting inside the curriculum of the university, they have multiple companies that they’ve either founded or they sit on the board of. It’s a part of their DNA as well – pun intended… Universities have to play in that world. They have to go out of their way to attract those individuals in order to also attract the student type that they want…

“I’ll give an example of that, just because I’m based in Chicago,” he continued. “Shana Kelley is a renowned biomedical engineer, CalTech trained, got her PhD there, Canadian born. Northwestern University went very hard to go and recruit her to the university four or five years ago. They were successful, and in doing that, again, Shana brings with her the companies that she has been working with and on, so you have both a base for postdocs and universities to go and do research with those companies as well, or the option to do that and, moreover, you also have those companies attracting talent from out of our market into the Chicago market, which wouldn’t have otherwise been coming there.

“And then to compound that effect on the talent, the talent pool, the University of Illinois, University of Chicago, Northwestern were able to win one of the coveted Chan Zuckerberg Biohub Awards. So now Shana Kelly has been appointed the head of the of the Chan Zuckerberg Biohub.. So she’s both giving opportunities for the universities to expand into jobs into the market, but she’s also attracting new talent to the to the region. It cannot be understated the role that some of these major academic rock stars are playing in the ecosystems.”

Absorption has started to pick up

Following up on earlier comments about “mega regions” or even “super regions” for life sciences, Mr. Gardner asked Mr. Anderson, “I wondered if you had perspectives on why we’ve sort of entered this era where talent is more fluid… not necessarily confined to any given metro.”

“A couple of these are kind of megatrends,” Mr. Anderson replied. First, he said, the continued growth of the life sciences industry and its “voracious appetite” for talent has prompted companies to look beyond the local and regional academic institutions upon which they have historically relied.

“You need to find talent wherever you can,” he said.

In addition, he said, “Obviously, times have changed, and labor markets are tight. People have a little bit more say about where they want to be, when they want to be there, just in the new age of hybrid work. But it also gets back to tight labor markets, too. Labor… holds many of the cards today in dealing with management.”

Ms. Lee added, “The other thing I would maybe note is that while some of this is newer, I think that there’s probably been more interconnectedness than a lot of us have realized going on this entire time, and we’re just really seeing it now as people are willing to look beyond their metro.”

Mr. Gardner, referring to a slide showing a steady long-term increase in life sciences employment, said, “While we’re seeing this sort of skittish investment market, the resilience that I talked about is just very clear here – obviously a long bull run. But we’re maintaining at that overall employment level.” He asked Mr. Domanico about the implications for LSRE.

“You know, real estate is similar to biotech: You need capital,” Mr. Domanico replied. “Capital markets are kind of tight right now but, Matt, to your point, we have 8 to 10 million square feet of entitled projects that can be built and… we probably have 40 or 50 companies in late-stage clinical trials. If 20 or 30 percent of those companies get FDA approval, they’re going to grow dramatically, so we’ll see that absorption.

“So the answer to your question is, yeah, we’ve had a momentary blip where things have kind of flattened out, vacancies increased,” he continued. “But we’re seeing absorption start to happen again, and I think over the next couple years… we’ll continue to see that.

“So, yes, while there’s some vacancy now, higher than normal, I think it will get absorbed over the next 12 to 18 months, and I think we’ll get back to more equilibrium. And as these companies get FDA approval and start making money, they’re going to grow dramatically. So I think we’ll see that absorption continue for the foreseeable future.”

What are the real estate implications?

Mr. Gardner then asked Mr. Lyne for his take on the real estate implications of current market conditions.

“I want to stress again the importance in these ecosystems, of the startup community,” Mr. Lyne replied, “and how startup communities can access real estate plays, right? Because it’s not always easy to do that. And also do that in a space that allows you to collaborate across the board, right?

“So… the role of incubators right now is extremely important in the real estate universe, in large part because on the top end, you’re seeing Big Pharma, big med device companies – there’s a disassemblement that’s happening up there… It’s becoming harder and harder for them to access new technologies, other than just go walk the streets and knock on the doors, right?

“And at the same time,” he continued, “you’re seeing on the university side there’s a grant pressure that’s occurring. So they’re trying to find corporate partners, they’re trying to find other sources for income. Enter aggregators,” he said.

A VC aggregator is a platform that connects startups with investors, mentorship, networking events and industry insights. Mr. Lyne said some aggregators are going a step further by providing real estate – incubators to bring together communities of startups.

“Portal Innovations is… the fast-growing, interesting incubator across the country right now,” he said, referring to a VC firm that provides not only seed capital and expertise and introductions to other investors and partners, but also fully equipped lab space.

Mr. Lyne said Portal Innovations combines its real estate assets and physical space for startups with content and programming.

“That’s why they’ve had successful relationships built up with Novo Nordisk (NYSE: NVO), Astellas (OTC: ALPMY), AbbVie (NYSE: ABBV), and then Texas Medical Center, MD Anderson, University of Chicago, Georgia Tech,” he said. “You’re seeing them as that aggregator. The role they’re playing in physical infrastructure – literally bringing these teams together with content and programming – they’re lifting up communities and also exponentially increasing the opportunities for those corporate partnerships or new capital to come into play…

“Without real estate, without that opportunity, it doesn’t exist. So I think the role of incubators is having a very important time right now in our in our industry,” Mr. Lyne said.

“It’s also a great long-term indicator of the overall pipeline in the industry,” Mr. Gardner added.

Biomanufacturing is on the rise

Mr. Gardner then asked Ms. Patterson for her overall take on the talent report.

She said that the LSRE business has historically relied on the R&D market – lab space – “but I think we’re also growing in the biomanufacturing arena.”

She said from 2015 to 2020 there was a “life science biomanufacturing boom, where we had a lot of absorption from companies in the cell and gene therapy arena.” Despite “the correction that’s happening now, or the slowdown we experienced in ‘23 with demand,” she continued, investors have remained very bullish and have continued construction on new facilities, and I think that we’re going to see that going forward.

“I think we’ll stay on the map as an R&D market, but I think we might see in the future that we are also a biomanufacturing market as well,” she said. “So I think there’s a lot of optimism from companies users and investors/developers.” ❏