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Record FDA Approvals Will Boost Life Science Investment in 2024


Headshot of JLL's Grant Scheunemann
Scheunemann believes the lack of transaction volume in 2023 contributed to pent-up demand for capital recycling, but once the Fed starts cutting interest rates, a record amount of liquidity will be deployed in the sector. Image courtesy of JLL

Life sciences investment activity achieved great success in 2023, with Interest rate fluctuations The main culprit. But there are signs of a resurgence.

Many new drug modalities that have been in development for more than two decades are now showing clinical efficacy, and there have been a record number of FDA approvals of new treatments. This should lead to an increased need for production, testing and manufacturing facilities.

Commercial real estate executive He interviewed Grant Scheunemann, Executive Director of Life Sciences at JLL, to learn more about the investment prospects in this sector.

To what extent has interest rate volatility affected the sector?

Schunemann: Interest rate volatility throughout 2023 severely impacted life sciences real estate investing and was the largest contributor to a nearly 60 percent year-over-year decline in national transaction volume. the The second largest banking failure in US historySilicon Valley Bank has also provided significant headwinds specifically to the life sciences ecosystem, as it has been the premier lending institution for early and mid-stage life sciences companies.

Various investment opportunities were put on the market in 2023, but ended up being withdrawn not due to a lack of willing buyers, but a lack of willing sellers at the valuations at which offers were made. In other words, the main driver of muted investment in life sciences in 2023 was the large gap between bids and asks.

Do you expect a significant increase in new investments, given the record number of FDA approvals expected?

Schunemann: The record number of US Food and Drug Administration (FDA) approvals in 2024 is an incredibly encouraging sign for the life sciences sector and is positively impacting real estate investor sentiment. Even more important is the possibility that the Fed will cut interest rates several times throughout 2024, and if that happens, it will open the way for new real estate investment in life sciences, and benefit from the record amount of liquidity waiting to be deployed. Given the low transaction volume in 2023, there is significant pent-up demand for capital recycling and existing life sciences holders will look to optimize their portfolios.

How can investors capitalize on this potential increase in demand for the life sciences space?

Schunemann: Real estate investors remain bullish on life sciences because science never sleeps. Although real estate transaction volumes suffered in 2023, exemplary breakthroughs in science occurred throughout the year, and the industry is poised for the next growth phase of the cycle. Institutional capital recognizes that it is not a matter of if, but when, tenant demand will increase significantly beyond current levels, and they are positioning themselves to capitalize on future opportunities.


Read also: Attract life sciences tenants in core markets


What exactly are some recent discoveries? Which developments have the potential to stimulate an increase in investments in this sector?

Schunemann: In JLL’s Trends to Watch for 2024 report, we highlight three exciting new approaches that we believe will drive activity in 2024. Currently, the top areas of focus for 2024 are obesity treatment and artificial intelligence. Demand for GLP-1 has unleashed a wave of investment in this field with many research programs now looking to unleash the next generation of obesity treatments following its tremendous successes. Novo Nordisk And Eli Lilly.

After the JPMorgan 2024 conference, it seems that all anyone can do is talk about artificial intelligence. We are in the early stages of its deployment in the life sciences, but its enormous potential is enormous, and could unleash enormous efficiencies across the life sciences spectrum.

Are there any markets we should pay special attention to this year?

Schunemann: Life sciences companies in bostonSan Francisco and San Diego continued to secure the bulk of venture capital funding, with 67 percent of the capital invested in companies within these regions, according to PitchBook data. Look for this trend to continue, as new company formation and growth is expected to be stronger in these leading life sciences markets.

Secondary and tertiary markets will continue to grow as well, with funding for life sciences companies – both public and private – continuing to rebound throughout 2024.

The JLL report itself notes a shift toward local analysis of real estate metrics. How does this affect investment decisions?

Schunemann: when Investing in life sciences real estateIt is crucial to evaluate the details and complexities of the building on an individual basis. The location and surrounding area are important, but the flexibility that a building offers for multiple types of uses, and its ability to accommodate a high level of robust infrastructure, are even more important factors to evaluate. These elements cannot be viewed from a general point of view.

More M&A activity is on the horizon in the life sciences space. What are some potential implications of this trend?

Schunemann: Yes, M&A is expected to remain strong in 2024. During the first two months of 2024, we have already seen 27 M&A deals completed, representing more than $24 billion. With more than $50 billion in revenue coming out of patents each of the next six years, major pharmaceutical companies are strategically looking to early, mid- and late-stage companies to acquire and fill their drug pipelines. One positive effect of this recent activity is that it has led to price validation in the market, something we have lacked for most of 2023.

What challenges will life sciences investors have to face in 2024?

Schunemann: This year may be a transitional year, as demand is expected to grow. It may take some time to absorb the additional space in today’s market, but there will still be pockets of success in great submarkets and great buildings as the broader market recovers.



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