Waiting For A Rate Cut, Alexandria Weathers Tough Time For Lab Leasing

Executives at Alexandria Real Estate Equities focused on the future, highlighted by a record-setting lease signed earlier this month, during an earnings call that revealed deepening losses for the country’s biggest biotech REIT.

ARE has fared better than many of its cohorts amid record-high vacancy in lab properties across the country, including in hubs like Boston, but posted a $109.6M loss for the second quarter, marking the third straight quarter of declining net income. Occupancy at its properties ticked down and leasing slowed.

Still, Executive Chairman Joel Marcus expects an interest rate cut that is likely to buoy the capital markets outlook, boosting the economy and leasing of all types. The company’s more targeted focus on its megacampus strategy is well underway, and the July 14 lease at its Campus Point development in San Diego — coming in at 467K SF for 16 years — helped the stock inch up over the last week.

“It’s a seminal moment in the history of Alexandria,” Marcus said of the lease during ARE’s earnings call Tuesday.

ARE signed 770K SF of leases in the second quarter, down from 1M SF in Q1, and occupancy of rent-generating properties was down slightly from 91.7% to 90.8%. 

Senior Vice President of Science and Technology Hallie Kuhn said during the call that the company will “remain resilient in the face of an uncertain macro environment.” 

That uncertain environment is driven by large-scale economic and policy decisions that have many of CRE’s subsectors on shakier footing than they wanted to be when 2025 began. A shifting trade war and persistently elevated interest rates are among the moving targets that have kept landlords and tenants searching for clarity.

An interest rate cut is “desperately needed for the capital markets of our industry,” Marcus said. He expects a combination of policy changes and lower interest rates to help tenants make faster leasing decisions and get past some of the recent market “turmoil.”

ARE execs noted that they believe they have opportunities to capture new leases from existing clients who are looking to expand. There are more tenants in the market, but they’re taking much longer to make space decisions. 

In addition to the space glut that’s still depressing the national lab leasing market — JLL research found there’s a 9-to-1 imbalance in supply and demand in major markets — there are demand issues due to financing challenges. 

While nearly $22B in venture capital was deployed across the first half of 2025, much of it has been concentrated among more advanced firms that already have achieved significant testing milestones, Kuhn said. 

There were no IPOs within public biotech in Q2, though Kuhn did point to a significant uptick in merger and acquisition activity and biopharma licensing deals as signs that there is still capital seeking and supporting science. Historically, the real estate implications of increased M&A activity have been mixed and don’t necessarily lead to an uptick in leasing demand.

The massive expansion of empty lab space in major markets is expected to slow, offering some relief to biotech landlords.

In Boston, 565K SF of supply was delivered in the market completely vacant in Q2, and an additional 300K of unleased space is expected by year’s end, CEO Peter Moglia said. In San Francisco, 700K SF of new supply, roughly one-third leased, is expected to be completed in the next six months.  

And in San Diego, 120K SF of space remains to be delivered in the back half of the year, also all unleased. That suggests the glut of space will remain relatively steady, though the preleasing figures suggest tenants aren’t signing. 

During its Q1 call, ARE said it would face 3.7M SF of lease expirations in 2025 and predicted 461K SF of new space coming online for a total of just under 4.2M SF. At the halfway point this year, it has leased 1.8M SF, a figure that rises to a bit over 2.2M SF if the record July lease is included.

The Campus Point lease was another indication of the firm’s megacampus strategy, a focus on investing in larger, concentrated properties while selling other assets and reinvesting in more megacampus real estate. At the end of Q2, 75% of annual revenue came from these megacampus sites. Moglia said ARE has so much equity in these holdings that it could tap into that resource in the future if necessary. 

Marcus also noted that the company was focused on its “2027 and beyond stabilization pipeline” and its asset recycling program to sell underutilized properties. Both are long-term investments.

ARE sold $261M in Q2, up from $176M in Q1, and plans to sell more than $1B of assets by the end of the year. Much like 2024, the sales will be weighted towards the end of the year. 

Chief Financial Officer Marc Binda said ARE is “carefully managing our capital allocation” due to the high-cost-of-capital environment for construction spending, and evaluating some of its 2027 redevelopment projects for alternative, lower-cost investment opportunities. 

“We will continue to routinely evaluate these projects to determine on a project-by-project basis whether to continue progress beyond the current milestones. And those decisions will be subject to future market conditions,” Binda said of the company’s pipeline. 

Marcus made a point to quell fears about the potential negative impact of the Trump administration’s changes to biotech research funding and personal and policy shifts within the federal bureaucracy.

He said his team hasn’t noticed any serious, undue Food and Drug Administration delays, and the ARE team walked away from a July 17 meeting with Commissioner Martin Makary feeling positive about the direction he’s taking the agency. 

He also said fears of cuts at Health and Human Services were “overblown,” and that cuts to National Institutes of Health Funding didn’t impact ARE tenants.