Life Sciences Real Estate Players Warn Digging Out From Slump Could Take Years

Lab leasing activity hasn’t capitalized on the momentum seen at the end of 2024, with major markets posting vacancy rates well above the norm and deal counts sliding sharply. 

The leases that have been signed tend to be renewals at shorter terms than landlords might like. And when taken together with a yawning glut of supply — a common topic at Bisnow’s International Life Sciences & Biotech Conference, held earlier this month in San Diego — a picture emerges of a market that might not rebound for years.

“Even average performance isn’t good enough to dig ourselves out of the supply hole we’re in,” JLL Boston Research Manager Mark Bruso said.

Just 62 lab deals were signed in the first quarter of 2025, according to JLL data, roughly in line with 2017, when the life sciences property market nationwide was significantly smaller. 

There is still substantial negative net absorption in major markets, including Boston, San Diego and the Bay Area. All three show 30% vacancy for lab space, a situation that has never occurred before, according to Bruso. 

Last year saw small gains in leasing activity, but the wave of what one panelist called “perpetual uncertainty” that kicked off at the beginning of this year cut leasing activity by one-third. 

Big Pharma has been investing in new facilities and modernizing their research and development spaces. But that’s just a small portion of the wider market and is far from creating enough demand to eat into the excess space, with national vacancy above 23%, according to Cushman & Wakefield.

For the time being, leasing activity hasn’t recovered to the level seen in 2024.

BioMed Realty Trust CEO Timothy Schoen said his firm had stopped building space two years ago, and they still haven’t seen the market bottom out, although he predicted overall leasing will be up 30% this year versus 2024. 

This is a unique situation where both the tenants and landlords are in “survival mode,” and the industry lacks both clarity and capital, JLL Vice Chairman Chad Urie said.

Sixty-five percent of leasing activity recently has been renewals, 70% are for seven years or less, and the market may not really recover until 2028, Urie said.

This is a “stasis moment,” Kilroy Realty Senior Vice President Peter Dowley said. While the office market has started to see deals, new comps and a coming together of buyers and sellers around a new pricing dynamic for real estate, lab real estate remains behind. The lack of sales and activity means data points that could help energize sales and deals are still missing for major markets.

With fewer tenants seeking space, the market has shifted. Many are midsized firms that have benefited from a venture capital market that has shifted toward late-stage funding, said Sandy Romero, head of life sciences and healthcare insights at Cushman & Wakefield. Smaller companies, constrained by cash flow challenges, remain more careful and conservative.

The shrinking construction pipeline has shifted to 3% spec, according to new Cushman & Wakefield data, with 63% of new space preleased. But as Romero said, that’s also because anything that’s being built and still under construction likely started when the market was already constrained, and developers need more airtight expectations of future leasing to break ground. 

It’s a sign that the latest wave of development is nearly done. Next year’s national construction pipeline contains just 1M SF. What remains to be completed must contend with tariff uncertainty, a “common topic of discussion,” according to Swinerton Senior Project Manager Nate Robeson.

There’s no sign the space glut is receding. Asking rent in Boston dropped 1.3% year-over-year, according to Romero. Effective rents are even lower. 

“For landlords, it’s a knock-down, drag-out fight for every deal,” JLL’s Bruso said.

That means landlords have accelerated their efforts to chase creative ideas and nonbiotech tenants to fill these spaces. Oxford Properties is leaning into hospitality and amenities to keep buildings and campuses active, and inviting in the venture community and incubator spaces to activate underutilized space, according to Vice President Abby Mondani.

The lab sector’s biggest operators are “wrapping their arms around hard tech” disciplines like defense, space, advanced manufacturing and aeronautics, Bruso said. There have been more 10K SF leases for these kinds of tech tenants than lab tenants in the Bay Area over the last few years. 

Some firms are focusing on development types aimed at these specialties, like King Street Properties, which launched Pathway by King Street for advanced manufacturing, according to West Region Market Lead Sonia Taneja.

But that’s not a complete solution. Alternative tenants, even high-flying AI firms, won’t need the kind of tenant improvement allowances lab users typically request, but they also don’t pay the same high rents. 

These kinds of swaps work better for smaller, older spaces, where landlords can accept lower rents. For new buildings and massive state-of-the-art lab buildings, the underwriting won’t allow competitive rents for these firms. 

If construction hasn’t started on a project, selling land to a residential developer may be the best bet, Kilroy’s Dowley said. Otherwise, high-end office might be the only use that can command anything near the rent required for lab financing.

Other challenges must be met before the industry can fully remove itself from this downturn. Taneja also mentioned the coming wave of refinancing in lab space, which will be more difficult due to recent sector performance. She believes there’s going to be a question about how the financial markets view life science buildings in the future. 

The impacts of National Institutes of Health funding cuts also haven’t been fully felt yet. The cuts will impact university research that would produce startups over the next few years, suggesting that the damage done hasn’t yet hit the life sciences leasing market. 

There is some hope in biomanufacturing, according to Myung Kim, project director at Project Management Advisors, which has seen a resurgence of new factories due to onshoring and promises by Big Pharma to reinvest in the U.S. 

Indiana and North Carolina in particular have seen investment to expand GLP-1 production and build out more domestic capacity, and JLL is tracking 3M SF of active requirements, a 50% jump from last year. But otherwise, the life sciences real estate market remains flat. 

There also continues to be plenty of funding accumulating on the sidelines. Venture capital has raised $2B this year, a dropoff from last year’s record haul of $15B, Bruso said. 

While those funds still haven’t been spent, it’s just a matter of time, he said. When that is, however, seems to be anybody’s guess. 

“We’ve been looking at this trend for two years, saying next quarter is the one where the light switch goes on, the money goes out the door and real estate starts growing,” Bruso said. “When does this investment start? Nobody knows, and that’s the million-dollar question.”