When it comes to producing scientific research and contributing to new drug development, Canada has a reputation for punching above its weight. Where it lags other countries is in commercializing this research, getting new drugs and therapies to market, and generating knowledge spillover effects that nurture a growing ecosystem. One of the biggest obstacles the industry faces is a lack of real estate: small- and medium-sized biotech companies often cannot grow in Canada because the physical space they need is almost never readily available.
This is beginning to change. As we point out in our 2023 Canadian Life Science Outlook, we are embarking on a wave of new supply that could add between 4-5 million square feet of lab and biomanufacturing space across Canada’s three largest urban centres over the next 5 years.
Of course, this comes with some caveats. It is now far more expensive for developers to lock in construction financing and build this space than it was a year ago, thanks to rising interest rates and lofty construction costs. Meanwhile, venture capital investment targeting life science companies – a key leading indicator that we use to estimate future demand for lab space - fell in 2022 by 34% compared to 2021 levels on a global basis, and by 46% in Canada. These two factors – the former influencing the supply side and the latter impacting the demand side – have injected more uncertainty into the market and will likely result in some of these projects stalling.
Another challenge for the growth of the life science market is the availability and affordability of housing, particularly in Toronto and Vancouver. If the workers that lab occupying companies are targeting can’t find housing within a reasonable commute, they will be less interested.
But there are many reasons for optimism. Pharmaceutical companies are looking to expand aggressively in Canada, seeing promise in its growing and diverse population, its highly educated workforce, and its science ecosystem. In the past few years several of the world’s largest pharmaceutical companies have announced ambitious growth plans. Whether it’s Sanofi, Moderna, and Astrazeneca opening new manufacturing facilities or research centres, or GSK, Danaher, and Novo Nordisk announcing major M&A deals or partnerships, or real estate investors like WP Carey, Spear Street, and Alexandria bringing new supply to market or acquiring buildings, these groups are focused on the long-term and they see Canada as a part of that strategy.
Another positive trend has been substantial job growth since the pandemic. Between 2020-2022 Canada added over 14,000 new jobs in the life sciences, almost double the job growth that the industry saw in the entire decade before the pandemic. Job growth has been strongest in Vancouver and Montreal, which together account for more than half of this job creation.
The biggest barrier to the growth of the market is the lack of lease and fit-out comparables, which makes it difficult for investors to underwrite these developments. However, as the current wave of new supply hits the market, more leases will be executed and more information will be disseminated to market players, giving investors and developers more confidence to underwrite new projects. Thus, it will create a virtuous cycle.
Our newest report maps out the life science market in Canada’s three largest urban centres, identifying existing stock, future supply, and occupiers. Here are some highlights from each city:
The Toronto-Golden Horseshoe market consists of about 9.5 million square feet of dedicated lab and GMP space. The top clusters are Toronto’s Discovery District and Mississauga’s Meadowvale, with other emerging nodes like Sheridan Research Park and Hamilton’s McMaster Innovation Park. The broader Toronto-Golden Horseshoe region boasts about one-third of Canada’s life science employment, one-third of federal government research spending, and 45% of venture capital flows.
Over the past year we have seen some exciting projects announced, including Schwartz Reisman Innovation Centre at the University of Toronto, which will be Canada’s largest purpose-built lab building, and The Core in Mississauga. There is excitement in nearby Hamilton where OmniaBio is approaching completion on its biomanufacturing facility that will anchor McMaster Innovation Park. The Toronto-Golden Horseshoe region boasts a specialization in artificial intelligence and immune-oncology therapies, two of the most critical trends shaping the biopharmaceutical industry. It is also becoming a coveted location for clinical trials thanks to its growing and diverse population.
Montreal’s life science market consists of about 4.2 million square feet of space. About two-thirds of this space is GMP, or biomanufacturing, and about one-third is lab space. This underscores Montreal’s competitive advantage as a pharmaceutical manufacturing hub with a highly skilled labour force. The largest life science clusters are the West Island / Transcanadian Highway corridor, St. Laurent (specifically Tecnoparc and Nexus 40/13), and Biotech City in Laval. Those three submarkets account for about 75% of the market inventory.
Montreal has several factors working in its favour that have driven growth in the life science industry over the past several years. It features world class hospitals and universities, a highly skilled labour pool, expanding transit infrastructure, and cheaper real estate relative to Toronto and Vancouver. This last point is important because when investors can get in at a lower cost basis it makes conversions or ground-up development more financially feasible.
Vancouver is clearly Canada’s momentum market in life sciences. Over the past 10 years, its life science employment base grew by about 65%, the fastest employment growth of any Canadian city by far. It is a scientific research powerhouse, anchored the UBC and Simon Fraser. Existing stock is limited, totalling about 3.2 million square feet of space with the largest clusters being Mount Pleasant, False Creek Flats, UBC, and Still Creek in Burnaby.
Yet what is remarkable about Vancouver is the scale of its proposed development pipeline. Around 2.9 million square feet are either already under construction or proposed, nearly equalling the entire existing market. We should caution that many of these projects are in the pre-development stage or are proposed built-to-suit projects. But nevertheless, the amount of proposed life science development in Vancouver is far beyond what we are seeing in Toronto and Montreal, and about 80% of this development will be in the submarkets of Mount Pleasant and False Creek Flats. In a few years these neighborhoods will be linked to UBC via the Broadway Subway extension, which will be a game changer for the city and the life science market.
Download the full 2023 JLL Life Science Outlook Here.