Vacancy Has Peaked For Life Sciences. The Good News Ends There

Lab leasing is showing small signs of improvement in select markets across the U.S., offering a glimmer of hope for landlords stuck in a supply glut for more than two years.

But underneath the leasing announcements trumpeted by landlords is a picture of sliding rents and growing concessions, increasingly offered to tenants outside of life sciences in an effort to fill excess space. 

“It may not be great to have all of that chaff in the overall market, but we have additional sources of absorption outside of life sciences that we may expect to take some of this additional space,” said Travis McCready, head of industries leasing advisory in the Americas for JLL. 

Lab availability has begun to contract for the first time in years, decreasing by roughly 2M SF in the top 12 lab markets in the last nine months, according to a JLL report. 

But the improvements have come with compromises for landlords. Rates are down nearly 18% since 2023 to $64 per SF, and the average free rent has climbed steadily, reaching one month for every year of lease term in 2025. Average lease lengths have fallen from 90 months in 2022 to around 60 months.

Life sciences is the only asset class among all commercial property types expected to see negative rent growth through 2030, according to a Newmark report that projected a 1.2% drop in the next four years.

This dynamic will keep the negotiating power squarely in tenants’ hands as they navigate a market that is somewhat more stable than 2025, when federal research funding cuts cast a pall over any expansion plans.

“Landlords will need to compete aggressively for every deal for the foreseeable future,” according to JLL’s report.

The leasing gains so far this year also haven’t been even across markets. Life sciences leaders like Boston, the Bay Area and Raleigh-Durham have experienced gains in occupancy, along with some younger markets like Denver. But others, including Los Angeles, New Jersey and even longtime life sciences stalwart San Diego, saw availability rates rise. 

Raleigh-Durham, the cradle of Big Pharma, has seen the greatest improvement so far this year, with availability dropping by 20% year-over-year. Pharmaceutical companies are among those in the life sciences space still in the hunt for labs and have sought space in the Research Triangle for the production of GLP-1 weight-loss drugs, McCready said.

In April, Novartis announced plans to lease 56K SF in the Pathway Triangle campus in Morrisville, building on a 202K SF lease announced last year. 

But even in the hub of prescription drugs, users outside life sciences are taking down lab space. A 368K SF lease at the Spark biotech campus went to a firm late last year that manufactures Pokémon cards.

In the Bay Area, landlords are leaning into the surge of artificial intelligence activity to find users for their lab spaces.

Lane Partners, developer of the 500K SF Berkeley Commons life sciences campus, is pivoting its marketing efforts for the property to AI, as well as robotics and advanced manufacturing. As of April, the property was only a shell, allowing the developer to add offices, assembly lines or amenity spaces as needed, the San Francisco Business Times reported. 

Bay Area AI companies have more than quadrupled their office space use since 2020, to 8.8M SF, as labs languish. In the first quarter, 32.3% of Bay Area lab space was available, according to Newmark.

One of the largest life sciences leases in the Bay Area so far this year, the Gladstone Institute’s deal for 105K SF in an under-construction Alexandria Real Estate Equities project, illustrates the kind of tenant landlords are targeting in the market. Gladstone is a nonprofit working on drug discovery but has grown its use of AI as the technology has become more sophisticated.

“Some call them AI-native biotech, and there is no better market for that kind of activity than the Bay Area,” McCready said. “That's basically what's driving the positivity and the positive absorption in the Bay Area market.”

On the flip side, there have been concerns that as biotech firms increasingly move to utilize AI in their research, it may mean shrinking real estate footprints as machines take over from teams of research scientists. 

That assumption hasn’t come to pass, according to Ryley Poblete, a senior associate and sciences leader at Gensler. Firms are wrestling more with how to incorporate AI into their research and, therefore, how it impacts lab layout, including startups seeking to conserve funding and space and larger firms seeking to invest in research and development and consolidate operations.  

But despite the growth of AI in biotech, the concurrent need for more lab equipment, power supplies and automation means footprints aren’t shrinking as much and as fast as some have feared, Poblete said.

“It’s not great for landlords, but it may not be as big a consolidation as you think,” he said. 

The life sciences industry itself is seeing some signs of improvement that could trickle into the real estate realm in the coming quarters. The XBI index, which tracks biotech stocks, jumped 37% last year and has traded near historic highs in recent months. Venture capital contributions to life sciences firms are up, with $7.5B raised in Q1, $800M more than the previous year.

Another possible tailwind is the reversal of Trump administration research funding cuts, but the damage has been done, to a certain extent, according to Nancy Kelley, president and CEO of life sciences consulting firm Nancy J Kelley + Associates.

Many National Institutes of Health grants, which were blocked and then rescinded, still haven’t been doled out by the federal government, and changes to funding rules have created an additional cloud of uncertainty around the funding, which has “just put a complete damper on the market and innovation,” Kelley said.

Factor in the cuts to the federal workforce and the loss of experienced workers to help shepherd drugs through trials and approval, and it’s a significant challenge, one that will harm potential recoveries in biotech and lab leasing, she said. 

“What we've lost, I don't think we can even put a value on, honestly,” Kelley said. “We're facing a situation where the federal infrastructure and partnership between the government and academia — and consequently the life science industry — is broken, and it needs to be rebuilt.”