A recent corporate real estate study adds weight to the notion that anchor institutions, chiefly hospitals and universities, play a crucial role in the trajectories of the local economies they inhabit.

The report by Ian Anderson, director of research and analysis for CBRE, produced a finding that may seem startling: Employment in education and health services (Eds & Meds) has grown every year since 1940, the first year the study covers. As that fact sinks in, consider that Eds & Meds is the only employment sector that can stake such a claim.

In an interview with Site Selection, study author Anderson expressed a measure of surprise at his own finding.

“It’s remarkable,” says Anderson. “When you look at the data, I think the real hidden job generator in this economy is education and health services.”

The CBRE study found that “over the past 50 years, no major US employment sector has grown as quickly (500 percent) or added more jobs (18.8 million — more than one out of every five)” than the education and health services sectors.

Together, hospitals and universities employ about 8 percent of the US labor force and account for more than 7 percent of gross domestic product. Anderson’s study suggests the long-term effects of Eds & Meds clusters are akin to shock absorbers on a local economy, smoothing out bumps created by ups and downs in the economic cycle. The size, purchasing power and stability of anchor institutions (universities, after all, do not just pick up and move) help to reinforce their long-term value.

Follow the Leaders

Anderson believes the Eds & Meds effect may be accelerating.

“You can look over the past two decades,” he says, “and see medical centers in almost every metro growing by leaps and bounds. We have an economy that continues to become more sophisticated. We have more disposable income. We have more comfortable lives and the ability to spend more on health services. We’ve become more health-conscious, and we have more disposable income to extend our longevity.”

Similarly: “As we’ve moved away from a manufacturing and industrial economy toward a more knowledge-based economy, education has become more important than ever.”

Analyzing the nation’s top 25 metropolitan statistical areas, CBRE found that Philadelphia (Penn Medicine, University of Pennsylvania, Temple, Drexel), Boston (Massachusetts General Hospital, Harvard, MIT) and Pittsburgh (University of Pittsburgh Medical Center, University of Pittsburgh, Carnegie Mellon University) derive more than 20 percent of their local jobs from the Eds & Meds sector. New York, Baltimore and St. Louis round out what Anderson calls the “Big 6.” Riverside-San Bernardino, California, says Anderson, is a rising Eds & Meds star.

“The United States,” he says, “still has the best educational and healthcare services system in the world. So, we are still attracting a disproportionate amount of people from overseas who are coming here to essentially purchase our education and health services.

“I don’t think we’re talking about a bubble. If we were a closed economy, I’d be more worried. But the fact that we continue to lead the world in offering educational and health services and the incredible growth in populations in places like India and China, there’s an overflow that’s going to be driven here for what have essentially become exports.”

Words of Caution

Aaron Renn, senior fellow at the Manhattan Institute for Policy Research and author of The Urban State of Mind, sounds a cautionary note against over-exuberance. Noting the successes of Philadelphia and Pittsburgh, Renn says the Eds & Meds sector has come to dominate other cities’ development strategies, and perhaps unwisely so.

“Most places are not the Mayo Clinic or the Cleveland Clinic, places where people come from all over the world for treatment,” Renn tells Site Selection. “Most places are just providing services for their local community. It’s sort of like a grocery store.”

Renn argues that some of the economic and social trends that have buttressed the growth of Eds and Meds are likely to soon reverse.

“As the US starts to groan under the weight of spending on health care and higher education, it’s clear that as a society, we need to spend less, not more, on these items,” he says.

More crucially, says Renn, fundamental demographics should cause communities that might be affected to think about where things are headed. On the Eds side, he notes that some colleges, even universities, are beginning to struggle to attract the numbers of students they need.

“We had the baby boom,” says Renn. “Then we hit the very large millennial generation. But for a decade we’ve been in sort of a low birth-rate environment. As a result, cohorts of people are smaller. So to the extent that cohort sizes are declining, that’s the future customer base of universities. There was a bulge of millennials passing through, and when that bulge is past, now you have a structurally declining market.

“It’s the same thing,” says Renn, “with health care. Health care has benefited enormously from the aging population. The baby boomers are aging, and that’s lots of demand. When that’s over, you’re going to have a decline in the numbers of elderly people who consume a lot of health care services. If you look at a lot of communities in America, in the not-too-distant future, the over-65 population is going to start declining. If you’re building massive new hospitals, and your elderly population is going to turn south in a few years, that’s going to be overcapacity. “

Despite their opposing outlooks, Anderson and Renn agree that the most prominent and well-established of the Eds and Meds clusters are likely to thrive well into the future.

“If you’re at the top of the heap,” says Renn, “if you are the superstar, things are going to go well.”

Or, as Anderson writes: “As some of the more routine tasks become deliverable via technology, the education and medical institutions with the greater expertise and specialties are expected to benefit. Consequently, consolidation is occurring and — generally speaking — those with the most sought-after expertise will survive and flourish.”

Rich Bryden, director of information products at the Institute for Strategy and Competitiveness, designed and launched Harvard’s Cluster Mapping Project, an effort that continues under the U.S. Economic Development Administration grant to make the cluster mapping website a hub for education, analysis, and professional community around cluster-based economic development. The team has tracked biopharma since the beginning, in part because of where Harvard is located.

“We have done a bit more work on that over time, because of the Boston-centric story,” he says, noting that the cluster mapping effort is focused on the length and breadth of clusters, with trade orientation as important as the geographic footprint of operations.

The team’s most recent cluster-mapping rankings are based on the most recent comprehensive data sets available, from 2013. “We’ll see the 2014 data in May of this year,” says Bryden. Ranked in order of employment, the clusters in California, Illinois, New York, North Carolina and New Jersey top the state list. By economic area, the strongest clusters are in New York, Chicago, Los Angeles, San Jose and Boston.

New York’s ecosystem is aided by incubators and accelerators such as that developed by Alexandria Real Estate Equities, and by groundbreaking occupancies. And sometimes the reasons for the locations have more to do with logistics than science.

The Durst Organization and The Port Authority of New York and New Jersey in early January announced the signing of a 26,500-sq.-ft. (2,462-sq.-m.) long-term lease with oncology-focused Progenics Pharmaceuticals, Inc., for build-to-suit space on the 47th floor of One World Trade Center in Lower Manhattan. Progenics is the first biotechnology firm to occupy space at the iconic, Class-A office tower.

“The outstanding transportation network will enable current employees to reach our new headquarters, while the vibrant lower Manhattan locale will be a source of new talent close to our collaborators in both the technology and medical fields,” said Progenics CEO Mark Baker.

Something Ventured

The latest MoneyTree Report from the National Venture Capital Association and PwC, based on data from Thomson Reuters, shows that biotech “ended the year up 17 percent in dollars and relatively flat in deals for the full year 2015, compared with the previous year. In 2015, Life Sciences dollars were up 12 percent and deals were down 3 percent, compared with 2014.”

Trailing only software in its level of funding during Q4 2015, biotech received

$1.5 billion going into 95 deals. Despite ranking second in terms of dollars invested, however, biotech did not secure any of the Top 10 deals of the quarter.

“Investments in the Life Sciences sector (Biotechnology and Medical Devices combined) during the fourth quarter accounted for $2 billion going into 172 deals,” said the MoneyTree report. “Like in the previous quarter, Life Sciences investments accounted for 18 percent of all venture capital deployed to the startup ecosystem in the fourth quarter.”

For the full year 2015, biotech saw $7.4 billion worth of deals, up from just over $6.3 billion in 2014, even as the number of deals dipped ever so slightly from 482 to 475. Medical devices & equipment drew just over $2.7 billion in both years, with the number of deals dropping from 324 to 308.  

Notably, MoneyTree chooses not to track healthcare services as part of life sciences, but as a separate sector. However, it’s one worth watching — especially as campuses and areas devoted to healthcare begin to feature workspace assets dedicated to life sciences firms such as CROs, biotech and bioinformatics. The MoneyTree report shows that healthcare services venture capital deals grew from 51 in 2014 to 78 in 2015. Their aggregate value more than doubled, from $359.5 million to $838 million.