Outlook Murky For Life Sciences Leasing As Need For Recovery Grows

After more than a year of lethargic leasing, life sciences property owners likely can’t expect any great wave of relief in the coming year, even as other segments of commercial real estate find room to breathe.

Despite a few positive signs, steep funding cuts and increased international competition weigh on life sciences companies and their landlords. That dynamic has left tenants operating with an abundance of caution around leasing decisions that chafes against major landlords’ need to find long-term tenants to fill their megacampuses.

Those same landlords are still saddled with a historic supply glut and a dwindling pool of possible buyers for assets they want to offload, prompting analysts to question whether the bottom of the market will come in 2026 or the pain will continue.

“The sector is still trying to rationalize for risk and expense, and that plays into real estate: The footprints are smaller, and people are trying to do shorter-term leases,” Savills Vice Chairman and Head of Life Sciences Austin Barrett said. 

Venture capital for life sciences rose on a quarterly and annual basis in the third quarter to $8.4M, according to Cushman & Wakefield, but deal volume for the full year is down 12% compared to 2024.

But declines in VC pale next to cuts to federal programs that funnel grant money to research programs across the country. The National Institutes of Health alone cut some 2,100 grants worth $9.5B from its budget by June.

The fundamentals of the life sciences sector remain extremely challenged, with the three major markets suffering from a gnarly combination of high vacancy and falling rents as of Q3, according to JLL. 

Boston, San Francisco and San Diego all have vacancy rates of 30% or higher, driving rent declines between 6.4% and 7.4%. Alexandria Real Estate Equities found that demand for these three markets has dropped 60% since 2021.

These vacancy figures still mean there is a medium-term roller coaster ride in the market, according to a senior analyst focused on the life sciences sector. To remedy this, significant swaths of lab real estate need to be repurposed or leased to nonbiotech tenants. 

As much as 19M SF of labs nationwide are likely to change uses through conversion or distress, according to an October JLL report.

Demand nationwide may stabilize in 2026, said Elizabeth Berthelette, Newmark head of Northeast research and national life science research. Much of the downsizing is finished, but with firms remaining cautious due to uncertainty and a bulk of the funding going to a smaller number of firms, there also aren’t signs that there will be any surge of leasing to significantly eat into the massive supply glut. 

Still, leasing won’t soon climb back to the heights the life sciences market experienced during the 2021 heyday.

“I think the recovery is probably going to be uneven, even among the top markets,” she said. “We're not talking about pre-Covid levels or boom time levels.”

A striking dividend cut from life sciences heavyweight Alexandria Real Estate Equities last week underscored how the REIT and the industry at large face more serious headwinds than expected just weeks ago. It underscores challenges that private firms like IQHQ and Sterling Bay have had with leasing marquee projects.

ARE executives announced a 45% dividend cut during the firm’s investor day on Dec. 3 while predicting that 2027 should be an even lower earnings year than 2026. The company has also pointed out that occupancy is expected to slip next year.

In response to Alexandria’s news, analysts from BNP Paribas said that without significant demand from tenants, which remains challenging, the company’s earnings may not hit bottom in 2026.

The note also said Alexandria, which has seen its market capitalization drop from $17.1B at the start of the year to $8B after a significant stock slide, is potentially at risk of being delisted from the S&P 500. 

Another note from the firm expressed some skepticism, saying, “There also remains little clarity on what future lease up could look like given the challenged demand picture.” 

Alexandria didn’t respond to requests for comment for this story. 

Alexandria and other landlords like Sterling Bay and Silverstein have attempted to divest some life sciences holdings in the last year, with varying degrees of success. Sterling Bay last month sold the only completed portion of its Lincoln Yards megacampus in Chicago, and ARE shed nearly $500M worth of property through Q3.

But finding buyers for these assets is getting more difficult, setting up more balance sheet strain.

The volume of life sciences asset sales in 2026 depends in large part on interest rates, since even a cheaper sticker price for an asset won’t make it a good development or redevelopment target if it remains more expensive to build, Barrett said.

“I don’t see folks even buying things on a discount,” he said. “It’s just hard to pencil out in a market where rents are declining.”

The one pocket of buyers that is active is in the biopharma sector. These companies want to use this moment for opportunistic buying and expansion, as with United Therapeutics’ $107M buy in Durham, North Carolina. 

But there is also a mismatch between where pharma companies want their facilities located and where lab markets are overbuilt, the senior analyst said.

There are some bright spots in the industry that could trickle into leasing decisions as 2026 progresses. The XBI, which tracks biotech stock performance, hit a 52-week high earlier this month, and there has been a significant slowdown in new inventory being delivered. Lab space under construction in the third quarter dropped to its lowest level since 2019, according to CBRE.

Investment bank Stifel sees the XBI improvement as a sign of increasing capital flow and optimism around biotech firms.

Still, the name of the game for tenants is caution, Berthelette said.

“They're going to put more eggs in the basket that they feel has the best science or the most proven science or that they think is less risky,” she said. “And I think that's what's going on with real estate decisions as well. You know, do more with less, even if you're getting funding, because there's still all of this risk lingering in the current environment.”