Life Sciences Projects Comprise Almost One-Third of U.S. Office Development
Activity comes even as funding for the sector cools and fears of a glut of space increase
By Greg Cornfield August 23, 2023 1:00 pm
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U.S. life sciences real estate development and overall investment seemed to soar high above all other types of assets in the wake of the pandemic, peaking at $6 billion in property sales in 2022.
But, now, as traditional office space copes with uncertainty, the life sciences market has retreated to pre-pandemic levels of growth, according to a CommercialEdge report released Tuesday. Life sciences real estate transactions totaled $386 million in the first seven months of the year — well below 2022 rates, but still outperforming the overall national office market.
Rising interest rates, the fallout from the collapse of Silicon Valley Bank, and general economic uncertainty have hampered venture capital funding for the life sciences sector in 2023. But, while this year is on pace to produce the lowest VC funding levels since 2019, it is still set to be higher than any year before 2018.
“The life science real estate market remains resilient, with properties trading at a premium four times the national average,” the report read.
Indeed, though life sciences asset sales receded the past year, the properties that have sold traded at an average of $770 per square foot, well above the $196-per-square-foot national average for all office buildings, according to CommercialEdge. Further, of the 108 million square feet of office projects currently underway around the U.S., 35.5 million square feet is for new life sciences spaces.
Boston, by far the country’s largest life sciences hub, has approximately 13.9 million square feet of total office development underway, of which 12.4 million square feet is represented by life sciences projects.
“Life science is disproportionately buoying office starts across the country, especially in the traditional life science markets like Boston, San Diego and the Bay Area,” said Peter Kolaczynski, senior manager at CommercialEdge.
Life sciences space made up less than 5 percent of all office construction over the past decade, but, in the last two years, such space tallied more than one out of every four new projects in the country, with more than 23 million square feet of lab space beginning construction just since 2022.
“Overall, life science office market outlooks expect a continued expansion for the sector in the future, albeit not at the blistering pace seen in the last few years,” CommercialEdge reported. “In the near term, a supply glut may be on the horizon. … Yet, any risk of oversupply would be concentrated in just a few markets, as the life science sector remains clustered in select cities such as Boston, San Francisco, San Diego, Philadelphia, Houston and Seattle.”
Gregory Cornfield can be reached at gcornfield@commercialobserver.com.
