Life Sciences Real Estate: Opportunity in the Midst of a Pandemic

Clarion Partners: As COVID-19 has disrupted nearly all aspects of life and economic productivity since early this year, hopes have been focused on the development of a new vaccine.

THE HEALTH ECONOMY

In recent years, purpose-built commercial space for life sciences research and development (R&D) has been an outperforming alternative property type more frequently pursued by real estate investors. Clarion Partners believes life sciences industry clusters are creating more prosperous U.S. cities, while occupancy and rent growth trends have been robust for property owners. A few powerful economic and demographic factors are driving a significant acceleration of capital investment into the life sciences sector.

  • An Aging Population. Seniors account for a rising share of the U.S. population. The cohort now represents about 16% of Americans and has been forecasted to grow to over 20% by 20301. At the same time, average life expectancy increased from 72.6 years in 1975 to 78.9 years in 2019. On average, seniors spend over $19K per annum on healthcare2.
  • Rising Health Care Spending. Over the next decade, national health care spending is projected to grow at an average rate of 5.5% per year and is likely to rise as a percentage of U.S. GDP to about 20% by 2028, up from about 18% in 20203.
  • The Coronavirus Epidemic. The global COVID-19 pandemic will likely be a boost for life sciences funding and fuel new medical and drug treatments for commercialization. This follows three consecutive years of Food and Drug Administration (FDA) novel drug approvals from 2017 to 2019 well-above the long-term average.
  • More Synergy between Health Care and Technology. At the same time, there are more and more crossovers between health care and technology innovation. This synergy has spurred tremendous growth across the U.S., which has been hyper-concentrated in certain high-cost markets and is now spreading to new growth centers.4


DEFINITIONS

Gross Domestic Product (GDP) is an economic statistic which measures the market value of all final goods and services produced within a country in a given period of time.

A global pandemic is the worldwide spread of a new disease. The World Health Organization declared COVID-19 to be a pandemic when it became clear that the illness was severe and that it was spreading quickly over a wide area.

COVID-19 is the World Health Organization's official designation of the current novel coronavirus disease. The virus causing the novel coronavirus disease is known as SARS¬CoV-2.



WHAT ARE THE RISKS

Past performance is no guarantee of future results. Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.

U.S. Treasuries are direct debt obligations issued and backed by the “full faith and credit” of the U.S. government. The U.S. government guarantees the principal and interest payments on U.S. Treasuries when the securities are held to maturity. Unlike U.S. Treasuries, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the U.S. government. Even when the U.S. government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities.

ENDNOTES

  1. Moody’s Analytics. Q2 2020.

  2. Centers for Medicare and Medicaid Services. 2020

  3. Congressional Budget Office. Note: Forecast based on 2018-27.

  4. Brookings. The Case for Growth Centers. December 2020.