Chapter 2
Three Major Challenges in 2025
U.S. Life Sciences Outlook 2025
5 Minute Read
01 Construction Completions
A surge of new lab/R&D supply will be the life sciences market’s biggest challenge in the first half of 2025 before tapering off later in the year. Seventy-five percent of the remaining construction will be delivered in H1 2025, adding further strain on an already oversupplied lab/R&D market. The majority of these completions (68%) will occur in the Big 3 markets.
By H2 2025, the construction pipeline will be down to only 4.1 million sq. ft for delivery by the end of 2026, nearly half of which is in build-to-suit development. Also by H2 2025, the construction pipeline will have been fully cleared in the San Francisco Bay Area and Philadelphia. San Diego will have only one build-to-suit project delivered in early 2026. Other markets that will have no new construction scheduled include Washington, D.C.-Baltimore, Raleigh-Durham, Los Angeles, New York City, Chicago and Denver-Boulder.
Figure 20: Life Sciences Lab/R&D Completions by Market
Figure 21: Largest Developers of Lab/R&D Space Under Construction
Source: CBRE Research, Q4 2024.
Figure 22: Largest Owners of Leasable Lab/R&D Space
Source: CBRE Research, Q4 2024.
02 Sluggish Absorption in Big 3 Markets
Not enough net absorption of life sciences lab/R&D space is expected to measurably reduce the effect of new supply scheduled for delivery in 2025, especially in H1. The Big 3 markets of Boston-Cambridge, the San Francisco Bay Area and San Diego have recorded a total of 5.3 million sq. ft. in negative net absorption since 2023, two-thirds of which was in the San Francisco Bay Area alone.
Figure 23: Net Absorption by Market
However, the other 10 major U.S. markets have recorded a total of 1.9 million sq. ft. of positive net absorption since 2023. Occupancy levels of lab/R&D space in these markets has never been higher and continue to grow in Raleigh-Durham, Philadelphia, New Jersey, Washington, D.C.-Baltimore, Seattle, Los Angeles, Chicago and Denver-Boulder. While construction completions in H1 2025 could weaken this performance, stable demand and venture capital funding should mitigate any negative impact.
Figure 24: Primary Market* Occupied Lab/R&D Space
Source: CBRE Research, Q4 2024.
03 Higher Vacancy
Lab/R&D vacancy increased in 2024, particularly in the Big 3 (22% on average as of Q3 2024 vs. 5% between 2019 and 2022). The average vacancy rate in eight other primary markets is considerably less at 12%. While vacancy rates should rise further in 2025, the emptying of the construction pipeline should help clear the way for more stability.
Figure 25: Lab/R&D Vacancy Rates
Source: CBRE Research, Q4 2024.
Higher vacancy has caused downward pressure on asking rents. In the Big 3 markets, average asking rents have fallen the most over the past two years, while those for the next other primary markets have shown more moderate declines. Further decreases in average asking rents are expected this year as vacancy remains problematic.
Figure 26: Average Annual Asking Rent Change
Current supply trends have also created more favorable conditions for life sciences lab/R&D occupiers in the form of concessions. Average free-rent periods offered by landlords in Boston-Cambridge and the San Francisco Bay Area have increased sharply over the past year (Figure 27).
Figure 27: Free Months of Rent per Year of Lease Term
Related Insights
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Figures
Life Sciences Market Ends 2024 With Improved Absorption & New Leasing Activity
January 31, 2025
Despite net absorption of more than 920,000 sq. ft. in Q4, the overall lab/R&D vacancy rate rose by 1.2 percentage points to 19.7% due to 3.4 million sq. ft. of vacant deliveries.
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There is an increased chance that the U.S. will avoid a recession and achieve a soft economic landing in 2024, but economic growth will slow and downside risks are elevated.
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Companies have many ways to prepare life sciences real estate portfolios for AI’s future requirements, while maintaining flexibility in the interim.
