Life Sciences Market Still Healing, But Emerging Trends Could Upend Sector in 2025

A fresh report on the U.S. life sciences sector is back from the lab with an inconclusive prognosis despite an improved investment environment in 2024. 

The niche industry struggled throughout 2024 in stark contrast to the whirlwind years of demand highs and vacancy lows in the immediate wake of the pandemic. Record-high vacancy rates and declining rent growth have since become the norm as more and more lab space entered the market, according to a new report from Cushman & Wakefield (CWK). Yet the sector is simultaneously poised for a sea change this year as trends surrounding AI and domestic drug pricing come into clearer focus. 

The industry’s vacancy rate continued to climb in most of the 16 markets tracked by C&W, including major urban hubs in the Americas and Europe, with an average rate of 20.5 percent in the fourth quarter of 2024 — an increase of 250 basis points since just the second quarter last year. Some of the worst offenders were New York City, Boston and the San Francisco Bay Area, which reached vacancy rates of 42 percent, 30.3 percent and 26 percent, respectively. 

The vacancy spikes in the Bay Area and in San Diego, which reached 20.4 percent in Q4, were particularly dubious. Vacancy rates in both markets nearly doubled compared to the final quarter of 2023. In San Diego, the high vacancy rate comes despite several deals for well over 100,000 square feet, including Pfizer’s 230,000-square-foot lease at Breakthrough Properties’ 10-acre Torrey Heights campus. 

The dribble of demand has naturally led to the slowing of average rent growth, which was down year-over-year, but still positive at 3 percent by the end of 2024. Yet perspective is key, as asking rents were still 22 percent higher than in 2022, per C&W. 

There’s also some light at the end of the tunnel. Much of the occupancy and rent growth decline was driven by vacant sublease space, which should ease throughout this year as the development pipeline rightsizes and tenants take more available space, according to the report. 

Total net absorption across U.S. markets was negative for the second year in a row due to the sheer volume of new space, but that’s not true everywhere. Four of the U.S. markets surveyed — Chicago, New Jersey, Boston (despite a notable vacancy hike year-over-year) and Los Angeles/Orange County — reported positive absorption in 2024. The L.A./Orange County market in particular was a much-needed success story for life sciences last year, as overall vacancy dipped below just 2 percent by the end of 2024. 

Many of the biggest leases in the region last year were secured by landlord The Irvine Company, which signed Becton, Dickinson and Company to over 116,000 square feet and Tarsus Pharmaceuticals to about 60,000 square feet at its 70-acre Spectrum Terrace office campus in the city of Irvine, as well as signing Willow Laboratories to about 63,000 square feet at the University of California Irvine Research Park.

“Many of the submarkets across Los Angeles and Orange County are viable locations for the life sciences industry due to their proximity to world-class institutions, or because they are anchored in areas with significant workforce tailored toward the industry,” C&W’s report notes. 

Indeed, the region received one of the largest chunks of funding from the National Institutes of Health last year, some $1.9 billion, due to proximity to research and higher learning institutions such as UCLA, University of Southern California, City of Hope and Caltech. 

Life science investment sales across the U.S. ticked up by the end of last year to $7.2 billion, a jump of 33 percent year-over-year, as did the sheer number of deals, with 32 percent more closing compared to 2023’s figures. Yet both trail behind the 10-year average, and are well below the 2021-2022 peaks, which broke past $20 billion. 

Deal volume will likely remain inhibited this year due to an elevated and uncertain interest rate environment, per C&W. Pricing per square foot has also trended steadily downward since the 2021 peak, dropping by about 38 percent since then and dipping 14 percent year-over-year.

Yet there are some emerging trends that could upend the life sciences market within the foreseeable future. Chief among them is the industry’s embrace of AI for a number of different applications (and the adjacent boost in public and private capital funding), including discovery of new drugs, improved workflows and accelerating the clinical trial process. Funding for AI in life sciences across the globe spiked by 31 percent last year compared to 2023, and the 2024 Nobel Prize in chemistry was awarded to a joint U.S. and English team that used AI for protein design, C&W notes. 

The cost of drugs is a potential curveball. Nearly 50 percent of all active pharmaceutical ingredients used by U.S. drug manufacturers are produced abroad, all of which could be affected by potential tariffs that the Trump administration has floated for months. Increased drug costs could affect every stakeholder from manufacturers to health systems to consumers, per C&W, meaning that the future of investment in lab and R&D could be very much up in the air — or dependent on a pen stroke. 

Nick Trombola can be reached at ntrombola@commercialobserver.com.