Just 3 Life Sciences Assets Traded Hands So Far This Year in the U.S.
‘It has become clear that developers over-responded to demand for lab space.’
By Greg Cornfield September 26, 2024 2:55 pm
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New data and industry reports this week show that the life sciences sector of commercial real estate has continued to weaken in 2024 as demand sinks further.
While U.S. lab leasing has declined the past couple of years, it hasn’t fallen as far as investment sales. In 2022, 62 life sciences properties sold for $6.2 billion, with an average sale price of $890 per square foot, according to data from CommerialEdge. Last year, sales fell to $1.8 billion across 20 transactions, or $631 per foot. But, so far in 2024, just three life science properties have traded hands.
The total vacancy rate for life sciences properties increased 350 basis points since the end of 2023, driven by a recent influx in empty new construction, as well as a rise in available sublease space, according to another report from Cushman & Wakefield (CWK). One glaring example dragging the market is IQHQ’s $1.6 billion mixed-use Research and Development District in San Diego that is set to open with no biotech tenants.
“Softer demand and an increase in vacant sublease space has translated to lower asking rents in some markets,” Sandy Romero, a Cushman & Wakefield research manager, said in a statement.
When interest rates were at record lows coming out of the pandemic, investors poured money into the sector, leading to a surge in lab construction. CommercialEdge found that 33.5 million square feet of life sciences space has been completed just since 2020. And another 26.4 million square feet is still underway. But funding quickly started to dry up, and demand has suffered in most markets since.
“This year, it has become clear that developers over-responded to demand for lab space, leading to a supply glut in the sector,” CommercialEdge reported. “Investor appetite for lab space has completely cratered after the sector’s peak following the pandemic.”
“There is currently too much space in life sciences due to recent deliveries,” said Peter Kolaczynski, director of CommercialEdge. “Unlike traditional office space, the long-term fundamentals for life sciences remain solid. Still, it will take longer than originally anticipated for the space to be absorbed, as these projects are delivering into markets with more availabilities.”
Despite the slides, both Cushman & Wakefield and CommercialEdge noted the strength and longevity of providing space for biotech and life sciences tenants, with expectations that sales could rebound as interest rates fall.
“The strong appetite for highly amenitized, newly constructed Class A space is expected to push asking rents higher as a significant amount of new space delivers in the sector through 2025,” Romero added.
“Most life science work remains immune to remote and hybrid work, requiring carefully controlled physical spaces,” CommercialEdge stated.
Gregory Cornfield can be reached at gcornfield@commercialobserver.com.
