The U.S. biotech property sector could see a burst of activity in one of the first tests of the federal government's trade policies aimed at encouraging the return of manufacturing to the United States.
The potential for hefty tariffs on imported drugs and other cost pressures have helped induce 15 major pharmaceutical companies to announce manufacturing and research projects in the United States this year, with a total investment value of over $270 billion over the next five to 10 years, according to a report by brokerage JLL.
"We’re going to see a pace of growth that hasn’t been seen in decades," Greg Matter, vice chairman of JLL’s newly formed advanced manufacturing group, told CoStar News. "This was happening before the tariffs, and will continue after the tariff noise subsides as companies regionalize their manufacturing and derisk their supply chains.”
The 15 projects to reshore and expand facilities reflect a 185% jump in biomanufacturing demand over the past six months, based on the number of tenants and square footage needed in key life science markets, according to the report.
Biomanufacturing operations are expensive to build and operate, with planning, site selection, development and staffing large facilities often taking years.
"The need for large quantities of water, electricity, wastewater treatment and other infrastructure are constraints on development," Matter said. "But the biggest constraint is people — the need to recruit both frontline workers and scientists."
However, the new projects could build on a gradual increase in U.S. manufacturing development in recent years that includes major projects by semiconductor producers such as Intel and Taiwan Semiconductor Manufacturing Co.
While the vast majority of industrial real estate demand is still generated by logistics and warehouse businesses, manufacturing has increased to 18.8% of all industrial property demand this year, up from just 6.5% in 2018, Matter said.
New landscape
Roche in April said it will spend $50 billion over the next five years to expand its U.S. facilities to head off potential effects of planned tariffs on imported goods. The company said it aims to create more than 12,000 jobs at new and expanded plants in Indiana, Pennsylvania, Massachusetts and California.
In an even larger move, Johnson & Johnson said it plans to invest more than $55 billion to build four domestic manufacturing facilities and expand other sites over the next few years. The New Brunswick, New Jersey-based corporation plans to start with a planned $2 billion plant in North Carolina.
Novartis and Eli Lilly have also announced plans for U.S. manufacturing facilities after President Donald Trump said his administration is planning to impose tariffs on imported pharmaceuticals as part of larger efforts to boost domestic manufacturing. Specific figures have not been announced.
If built, the projects could bring a resurgence of domestic manufacturing in the U.S., now the world’s biggest importer of pharmaceuticals.
Life sciences companies are now more likely to incorporate reshoring into their long-term strategies in response to tariffs and other economic uncertainties, Kevin Wayer, JLL’s global division president for life sciences, said in a statement.
“We anticipate seeing innovative real estate strategies emerge, particularly in how companies approach their lab and biomanufacturing spaces to maximize efficiency and flexibility in this new landscape,” Wayer said.
The desire to strengthen the supply chain, along with geopolitical, patent and data security concerns, "have all sparked strong interest in domestic pharma manufacturing,” added Travis McCready, JLL’s head of industries and leasing advisory and chair of the brokerage’s global life sciences advisory board.