Life Sciences Real Estate Development Drops as Market Fundamentals Soften

Executive Summary

• Life sciences employment growth has slowed to 1.4% since January—slightly above the 1.0% increase in total U.S. nonfarm payrolls.
• Venture capital funding for life sciences firms increased for the second consecutive quarter and was on par with the early 2020 quarterly average. The rolling-four-quarter venture capital funding total increased on a quarter-over-quarter basis for the first time since peaking in 2021.
• The lab/R&D vacancy rate increased by 1.5 percentage points quarter-over-quarter to 10.6%, above the 8% average from 2016 through 2020. The sharp rise in vacancy was partly due to 2.5 million sq. ft. of construction deliveries in Q3 that were 45% preleased.
• The largest life sciences real estate markets of Boston-Cambridge, San Francisco Bay Area and San Diego recorded a combined 1.5 million sq. ft. of negative net absorption in Q3. Chicago and Washington, D.C.-Baltimore led the pack for positive net absorption at nearly 75,000 and 62,000 sq. ft., respectively.
• The average asking rent for the top 13 U.S. life sciences markets increased by 0.8% quarter-over-quarter to a record-high $66.86 NNN.
• Lab/R&D space under construction fell to 38 million sq. ft. in Q3 from a record-high 40 million sq. ft. in Q2. A quarter of Q3’s total, 27 million sq. ft. of which is scheduled for delivery by the end of 2024, was preleased.