Research and development (R&D) is a hallmark of high-performing economies. Nations at the vanguard of the global economy are associated with innovation and the formation of new industries. For many decades, the United States has been the global leader in R&D. But that dominance is slipping as expenditures stagnate.

This year, the United States will account for 28.3 percent of total global R&D spending, which translates into 2.7 percent of gross domestic product or approximately $424 billion. That’s a 1.7 percent drop from the nation’s 30 percent share of total global R&D spending in 2011. By comparison, China’s share of global R&D spending rose from 13 percent to 15 percent in just two years.

Battelle, a global research organization, forecasts U.S. R&D expenditures will expand just 1.2 percent this year in nominal terms, or almost not at all in inflation-adjusted terms. It could be worse. Ten years ago, the European Union committed to devoting 3 percent of its gross output to R&D by 2010. Due in part to the economic downturn and weak policy commitment, Battelle states that ratio has fallen below 1.9 percent.

The Laboratory Construction Market

Ongoing financial constraints and a lack of commitment to growing America’s innovation economy are reflected in U.S. construction data as well. A March 2013 informational brief from the National Center for Science and Engineering Statistics indicated federal obligations for investment in R&D plants declined from $6.6 billion to $4.3 billion in fiscal year 2011, which in large part is due to exhausting the financial capacity that emerged from the American Recovery and Reinvestment Act of 2009. In 2012, federal R&D plant obligations rose to $4.9 billion, but remained well short of 2010 levels.

U.S. colleges and universities also face financial pressures, but investment in R&D facilities remains stable. Much of this investment is taking place at the nation’s medical schools, which compete for federal grants and the best faculty and students, as well as develop potentially valuable intellectual property.

A list of new buildings under development produced by the Association of American Medical Colleges is highly revealing. As an example of how consequential these projects can be, the University of Minnesota is scheduled to break ground on a $63 million microbiology research facility in Minneapolis. The 80,000-square-foot project represents the final building to be constructed in the university’s $292 million Biomedical Discovery District.

In June, Brigham and Women’s Hospital broke ground on a $450 million translational research building in Boston. The 360,000-square-foot facility will include advanced laboratories, clinical space and a subterranean imaging center.

Loyola University Chicago recently broke ground on a $137 million medical research and education building that will support nearly 500 scientists and staff. Also in Chicago, Northwestern Medicine is planning to construct a facility that will provide up to 500,000 square feet of advanced biomedical research space. The $1 billion project also encompasses the renovation of 250,000 square feet of lab space in existing facilities. Meanwhile, the University of Chicago Medical Center opened its Center for Care and Discovery earlier this year, which totals 1.2 million square feet with a budget estimated at nearly $700 million.

In St. Louis, the Washington University School of Medicine announced plans to construct a $75 million facility to house labs for the Department of Genetics, the Center for Genome Sciences and Systems, the Department of Medicine and the Department of Developmental Biology. In the Mid-Atlantic, the University of Maryland (Baltimore) initiated planning and construction of a new research laboratory facility that will accommodate collaborative and interdisciplinary research in the School of Medicine, School of Pharmacy and Dental School. The Health Sciences Facility III will encompass 332,000 square feet with a project budget estimated at $285 million.

Stable construction costs have helped sustain R&D facility investment. According to Laboratory Design, the cost of
constructing a university or medical school life sciences facility increased 1.8 percent in 2012. Facilities devoted to research in chemistry cost 2 percent more to build and facilities dedicated to software development cost an additional 2.1 percent. The corresponding statistic for nanotechnology research facilities was 1.9 percent.

However, Laboratory Design reports costs will rise about 4 percent this year due to a number of reasons, including a more solid nonresidential construction marketplace. This is consistent with data supplied by RSMeans, which estimates the cost of college laboratory construction will rise in the range of 4 percent this year. For example, the cost of constructing a college laboratory in Baltimore is expected to rise from $182 per square foot in 2012 to $189 per square foot this year (3.7 percent). Costs are expected to rise from $258 per square foot in 2012 to $268 per square foot in 2013 (3.8 percent) in New York, and from $209 per square foot to $218 per square foot (4.3 percent) in Los Angeles.

Looking Ahead
Despite declining global market share, R&D facility investment in the United States is an important source of construction demand. It remains to be seen what impact state pension, health care and federal sequestration issues will have on the pace of construction. The best case scenario is the nation will reassert its commitment to research and development, innovation and faster economic growth.


Anirban Basu is chief economist of Associated Builders and Contractors. For more information, visit www.abc.org.