Increased funding plus employees that need an office makes the Life Sciences real estate sector resilient in a global pandemic.
The life sciences industry has become one of the most talked-about sectors as the entire world races to find a vaccine for COVID-19. In the first six months of 2020, investors have spent more than $16 billion on life sciences, while the National Institutes of Health (NIH) continues to increase its grants. In 1994, NIH gave out $11 billion in grants, and by the end of 2019, that number jumped to $39.1 billion – fueled by COVID-19-related therapeutics, antibody tests, and vaccines. Additionally, the aging U.S. population needing life-sustaining care, wellness-conscious millennials, and a prescription drug market on track to reach $1 trillion by 2022 has also played a part.
In an effort to continue research, development, and production, life sciences companies, owners, and operators of laboratories and office space are fast-tracking the use of current and new technologies.
The Importance of Technology
Over the years, technology has improved the R&D landscape of life sciences by significantly reducing costs. Connections between tech and biotech are creating more targeted drug development, replacing the previous time-consuming theories. Nowadays, interaction simulations can be run at the click of a button, and clinical trials can be done quicker and cheaper through technology efficiencies. Artificial Intelligence (AI) has become so valuable in finding links in the ever-growing global data resources. Also, it has created more platforms and business opportunities for biotech companies to utilize.
These days, many work-from-home policies are hard to apply to the work done in labs. So, life sciences companies have relied on scheduling and remote communication tech to coordinate calendars for on-site employees to conduct activities that cannot be done at home. Calendar tools with features that allow all employees access to real-time scheduling software have also become more widespread. And some companies have even sped up the integration of cloud-based platforms into ongoing research. This movement toward remote research tools has been inspired by the pandemic, allowing researchers to analyze data from home and focus during their time in the lab.
The pandemic has forced pharmaceutical companies to confront new challenges to traditional methods when conducting clinical trials. Many life sciences companies have had to ramp up fast, integrate virtual engagement into their clinical trial protocols, all while using telehealth technologies to connect with trial participants more widely than ever before.
In fact, in March 2020, the U.S. Food and Drug Administration issued guidance bolstering clinical trial sponsors to “evaluate whether alternative methods for safety assessments (phone contact, virtual visit, alternative location for the assessment…) could be implemented if necessary. Some industry experts this transition to more tech-focused engagement would have taken many more years without the momentum ignited by the pandemic.
Additionally, COVID-19 has had a monumental impact on how technology is used in today’s drug development and drug applications. Many life sciences companies are increasing the use of AI in the search for a vaccine and identifying existing drugs that may be repurposed for therapeutic solutions. AI can make data collection and analysis so much more efficient in clinical trials and can be used to synthesize data too fast to determine drug candidates’ safety and efficacy.
Today, with a significant focus on health and wellness, life science companies expand with large investments from financial and corporate venture capital groups. As a result, investment capital is surging into the life science market. The U.S. is the leader for investment by a lot, with China right behind it, having had some large investment rounds. While the life science market is healthy, other industries are in distress. As we all know, retail is in trouble, and corporate offices are struggling, especially in the wake of COVID-19. With the increased telecommuting, the future of the office sector is uncertain. So, life sciences have become a focus in the real estate industry, making it attractive to investors looking for an opportunity.
There is a lot of VC money being invested in life sciences, so these companies are well-capitalized. This sector has traditionally weathered economic challenges well. Think tech crash of the early 2000s and the Great Recession as examples. Since life science companies like to invest in their premises and stay long term, rents are higher, making life sciences a really attractive investment opportunity right now. Rents are continuing to increase, with sustained growth in most areas, and that growth has been consistent over time, making for a smart investment.
Key Issues to Watch For
To manage the impact of the COVID-19 pandemic, owners and managers of properties that house life sciences offices, manufacturing, and laboratory space have been able to apply many of the pandemic-related solutions that they have used elsewhere. Given that many labs are typically single-tenant buildings, landlords can cater to unique concerns. However, life sciences tenants can be less experienced than others, presenting landlords and property managers with an opportunity to add value by providing tenants with advice on the solutions they have seen work effectively across the buildings they own and manage, such as sanitization and touchless technologies.
Long term, some see the pandemic and corresponding focus on the design and repositioning of spaces for tenants as a continuing driver toward developing healthy buildings. The users of life science office and lab space are more than likely to be some of the most highly-educated consumers of real estate in any market. For them, the management of space in a sustainable way has become an expectation instead of a plus. Moving forward, competitive advantage will be the integration of health and wellness facilities and technologies as we enter the post-COVID-19 “new normal.”
Where Do We Go From Here?
Looking into the future, as the life sciences boom continues in the real estate industry, owners and operators must be aware of how they and their tenants can harness the right technology to address the obstacles from the pandemic. To successfully market spaces to biotech, pharmaceutical, and medical device companies, real estate developers must be mindful of this challenge, as their users are likely to be more tech-savvy than the average real estate consumer. On the other hand, owners of older spaces hoping to reposition them as an office or lab space must convince potential tenants to integrate innovative technologies as effectively as developers of new modern spaces.
As real estate owners, investors, and operators move into the post-COVID-19 world with a focus on life sciences, they will need to demonstrate to the market that they have a keen understanding of current issues and solutions applicable to life sciences tenants and how the right technology can solve them.
Louis Lehot is the founder of L2 Counsel. Louis is a corporate, securities, and M & A lawyer, and he helps his clients, whether they be public or private companies, financial sponsors, venture capitalists, investors or investment banks, in forming, financing, governing, buying and selling companies. He is formerly the co-managing partner of DLA Piper’s Silicon Valley office and co-chair of its leading venture capital and emerging growth company team.
L2 Counsel, P.C. is an elite boutique law firm based in Silicon Valley designed to serve entrepreneurs, innovative companies and investors with sound legal strategies and solutions.