Reversal Of NIH Funding Cuts Preserves Pipeline Of Potential Biotech Tenants

A reversal of the steep cuts proposed for federal biotech funding has the life sciences lab real estate sector breathing a sigh of relief, as a resumption of previous funding levels will continue to support the industry’s innovation centers and lab demand.

The National Institutes of Health’s new $48.7B budget is larger than last year's and, although essentially flat when inflation is factored in, is enough to signal much-needed stability for a major funding source that drives lab leasing.

“When you’re looking at the state of the life science industry, you cannot overstate the importance of the academic heart of all major biotech clusters,” said Matt Gardner, leader of CBRE's advisory life sciences practice. “It’s hugely important, the engine of innovation. It’s where the early-stage innovation comes from.”

A proposed 40% cut from the National Institutes of Health’s 2025 budget was reversed by Congress earlier this month. President Donald Trump signed the legislation despite his administration’s attempts to slash the budget in the first place. 

Trump’s proposed changes would have cut indirect costs — the facilities and administration costs the NIH provides to fund medical research — from $9B to $5B. This not only undergirds research that sparks crucial innovations but also can serve as a source of funding for underwriting assumptions about the construction of new academic research facilities.  

The cuts would have been concentrated in states such as Massachusetts, California and North Carolina, hubs of the biotech industry.  

“To really be on the cutting edge of innovation, you have to find out if something works or not,” JLL Boston Research Director Mark Bruso said. “NIH dollars play a pretty vital role in the ecosystem. This is the funding for new, early-stage research that otherwise wouldn’t get funded.”

When initially announced roughly one year ago, the cuts were received as a damaging blow to the basic research that sustained life sciences innovation.

On top of a still-overbuilt lab real estate sector, the funding reduction “kind of just pours salt in a wound that's been festering for almost three years now,” Project Management Advisors Senior Project Manager Grayson Mann told Bisnow at the time. 

The cuts didn’t immediately make a big impact on broad swaths of life sciences real estate, since entities leasing lab space aren’t typically directly funded by NIH dollars. But there were a few early-stage startups that had to “rip up a lease negotiation and pause their expansion plans,” Bruso said.

If left in place, the cuts would have impacted lab real estate a few years down the road. If the base of the pyramid was broken, it would have halted research that creates promising startups that need space down the line. 

Universities did slam the brakes on some plans to build academic medical centers that were the results of public-private partnerships dependent on federal research dollars.

“Basically, the universities, I believe, kind of froze everything,” Partnership Fund for New York City President and CEO Maria Gotsch said. 

The University of North Carolina paused a $218M development of a 160K SF Translational Research Building on campus, while the University of California, San Diego delayed construction of key research buildings. 

During Alexandria Real Estate Equities' Q4 earnings call, Chairman Joel Marcus cited the potential cuts as part of the reason for “a big decline of demand and immediate decision-making by a lot of medical institutions.” 

Research facilities funded by the state for a public institution became much harder to develop because state budget cuts meant the overall capital for public research universities was reduced, according to Brian Darmody, chief strategy officer for the Association of University Research Parks.

Ultimately, a coalition of scientific and academic groups lobbied Congress to reject the cuts during the budgeting process.

CBRE’s Gardner said academic clients his team works with are happy about the NIH news and that his team has “had conversations in some emerging markets about how to gauge the timing for the next phase” of multistage life sciences lab developments.

But the resumption of previous funding levels can’t shake the uncertainty plaguing the market, including high vacancy, and angst over the speed of drug approvals.  

Fourth-quarter data from major brokerages saw high vacancy levels in all major markets, including 33% in the Bay Area and 28% in Boston and San Diego.

Alexandria posted a $1B loss during Q4 2025 and predicted a year or more of challenging leasing conditions during its latest earnings call.

Additional administration actions, like staffing cuts at the Food and Drug Administration that have delayed some drug approvals, and actions taken against approving mRNA vaccines, have added to the unpredictability.

The back-and-forth in NIH funding, though resulting in stable funding levels for now, underscored an administration willing to buck the bipartisan congressional consensus around funding research grant programs. 

Over the past year, the Trump administration has declined payments and defied court orders around grant funding, although a federal court in Massachusetts ruled the intended cap on indirect costs was unlawful and used funding as a weapon against specific universities.

“You don’t build durable biotech ecosystems one building or one budget cycle at a time,” said Mark Romney, co-chair of the AURP Bio Health Caucus and senior vice president of Blue Rise Ventures. “They only work when research funding, regulatory clarity, talent development and industry partnerships are moving together over the long term. When any one of those becomes unstable, momentum quietly erodes.”

A coalition of medical and academic groups proposed a different model of funding research that would increase transparency while reducing administrative burden on universities.

Darmody expects Congress and the Office of Management and Budget will review it and work on a system acceptable to the higher education community by the end of the year.

But despite maintaining funding, Bruso said there’s still worry that policy changes or political whims can make an impact in the future. 

“I wouldn't say folks are waving the mission complete flag,” Bruso said. “This is sort of like, 'We’ve won the battle, but we don’t know what the war is going to end up like.’”