Boston, San Francisco Remain The Top U.S. Life Science Clusters
As dynamic and innovative as the life science industry can be, the ranking of top U.S. life science cities remains unchanged from last year.
While lab rents are high and availability is still extremely limited in the Greater Boston and San Francisco markets, the two cities have remained the top two life science clusters in the country for the second year in a row, according to JLL's “Life Sciences Outlook” report.
With the life science industry’s growing influence on the U.S. economy, life science clusters like Boston, San Francisco and San Diego have emerged. These areas have garnered significant public and private investment for their life science firms and have numerous universities and research institutions that serve as a talent pipeline.
Cities like Houston and New York City have tried to increase their appeal to the industry, and JLL's report recognizes their rising status. But the concentration of talent, funding and universities in New England and the Bay Area make the two cities a necessity for most top life science companies.
“What we’ve seen over several years is the top clusters continue to get stronger, and there is more aggregation in the industry in the top clusters,” JLL Director of Life Sciences and Healthcare Research Lisa Strope said.
The report evaluated markets on factors like employment concentration, venture capital funding and total lab supply. Rounding out the top five clusters were San Diego, Raleigh-Durham and Philadelphia, respectively. Greater Boston and San Francisco appear safely settled at the top of the rankings, as the markets combined accounted for two-thirds of the entire country’s venture capital funding. No other market received more than 5%.
More than $11B in venture capital flowed into the life science industry in 2017, and the report projects even more capital will flow into the industry in 2018. The Bay Area received $4.2B in venture capital funding and nearly $1B in funding from the National Institutes of Health funding over 2017.
New York City, which is investing heavily to attract more life science businesses, only received $309M in venture capital funding — though it did receive $1.6B in NIH funding due to its large concentration of academic medical centers. New York Mayor Bill de Blasio announced a $500M life science initiative in 2016, and it was reported in May that $100M of the funds would go toward building a new life science campus.
While capital is key to keeping life science clusters at the top of innovation, access to talent is just as important. The report indicates a lofty ranking tends to accompany areas with a higher concentration of universities. Boston being home to the likes of Harvard and MIT and the Bay Area featuring Stanford University and the University of California at Berkeley further cement their high rankings.
“The supply of the talent from those institutions is going to continue unabated, and [Boston and San Francisco] are high demand places to go to school,” JLL Executive Managing Director of Life Sciences Roger Humphrey said. “I see the talent supply continuing the growth. As long as they can continue to develop, I don’t see why Boston and the Bay Area don’t continue to dominate the clusters.”
This doesn’t mean there aren’t opportunities for other parts of the country.
While the top two markets may dominate in funding and talent, they also are notoriously space-constrained. Lab vacancies in Kendall Square, viewed as the hub of Greater Boston’s life science and technology industries, are routinely at 0%, and lab vacancies in South San Francisco hover around 2%.
This does present an opportunity for markets with more land to develop for life science tenants. The Texas Medical Center in Houston will break ground next year on a 1.5M SF campus devoted to pairing researchers and life science industry experts. Orlando is also home to the Lake Nona Medical City, a 650-acre health and life science campus.
But Humphrey stressed the companies in emerging markets might differ than the ones trying to get into areas like Boston and San Francisco.
“There’s a lot of capability in New Jersey, Philadelphia and the Texas Medical Center in Houston,” Humphrey said. “But those are going to be more for folks looking for cost-effective alternatives [to being] in the absolute largest and successful cluster[s].”
