State Of Lab Real Estate: How The Biggest Markets Are Slogging Through Supply

After eclipsing office during the pandemic, the once-booming lab real estate market is falling back to Earth. As recent reports and data show, life sciences space is now showing many similarities to other struggling real estate sectors.

JLL’s recent lab properties report showed a 29% jump in tenant demand in San Diego, San Francisco and Boston last quarter. But despite that growth, these markets still face significant headwinds. Big developers are evaluating their construction projects amid oversupply issues, and a flight to quality is leaving older, second-generation spaces desperate for tenants and leasing activity. 

Large players are shedding underperforming assets, with Alexandria Real Estate Equities’ disposition of certain properties in favor of its “megacampus” strategy being the most prominent example. Tenants are doing more with less and drastically reducing demand. Part of the future of the big markets hinges on how large swaths of older space get repurposed and even redeveloped. Bisnow spoke with a handful of experts and analysts to get the pulse of the three biggest lab real estate markets. 

Boston: Overbuilt And Overextended

“I think this could be the most challenging Boston life sciences market in quite some time,” said JLL Executive Managing Director Chad Urie, who focuses on lab real estate. “It’s just a completely overbuilt situation.” 

Urie has seen both a flight to quality and a shrinking of lease terms, which echoes what is happening in the wider office market, creating a challenging environment for lab owners and operators. The market typically sees long-term leases from top-flight clients and institutional players, such as universities or Big Pharma. 

Today, Urie said, just a handful of markets, like East Cambridge and Seaport, are seeing significant activity, and tenants seek flexibility. Boston boasts 26M SF of Class-A life sciences space but also 20M SF of Class-B space, just shy of the parallel total in San Diego, according to JLL data. Nearly 2M SF was delivered in Boston in early 2024, with only 27% preleased, according to CBRE. 

“It’s the tertiary submarkets in Boston that have a lot of people scratching their heads,” Urie said. “I mean, people are thinking, ‘Should we actually even go ahead and complete some of the construction taking place?’” 

Boston’s struggles mirror the market overall. JLL found that average lease terms for lab space, which hit seven years in 2022, have plummeted to just over five years in 2024, and Class-A space has driven leasing, along with absorption, in recent months.  

“Among the big three markets, Boston has the highest vacancy rate,” Unispace Life Sciences Americas Managing Director Daniel Maldonado said. “It’s a very challenging market nowadays.”

San Diego: Big Raises And Big Pharma

San Diego’s story, according to Urie, is different. Throughout the early months of 2024, the market has received a disproportionate amount of venture capital funding coming to the market, a total of $1.37B compared to Boston’s $1.8B. The city also doesn’t have the degree of overbuilding found in Boston, with the exception of the downtown area.

San Diego has also seen more Big Pharma activity over the last year. According to Ken Richter, national life sciences sector lead for Project Management Advisors, large biotech firms have made some big moves. Bristol Meyers Squibb leased 437K SF; Pfizer condensed its operations and moved into a new space, taking 230K SF in Torrey Pines; and another large firm he can’t name is seeking roughly 400K SF, Richter said. 

For comparison, San Diego has 1.7M SF of demand right now, per CBRE, while Boston, a much larger market with a lot more under construction, has just 1.9M SF of demand.

San Diego has plenty of second-generation space to lease, but the velocity of fundraising and Big Pharma’s dealmaking has many expecting a faster recovery than other bigger markets.

Sean Slater, architect and senior principal at RDC, which has done many local life sciences projects, said he’s hearing from brokers that they see a quicker bounce back in the next few years. 

San Francisco: Small, Steady Leasing On Upswing

The Bay Area suffers from similar oversupply issues but has different demand drivers than Boston and San Diego. Richter said the growth and leasing activity today comes from mostly smaller clients and startups, which JLL has said has been particularly notable compared to other big markets. It’s challenging many of the large projects in areas such as South San Francisco to subdivide and cater to smaller leases.  

“Demand in San Francisco is pushing 2.5M SF,” said Urie. “I could see it hit 3M SF. But the challenge remains the amount of assets left to absorb.”

However, Maldonado remains optimistic about the market despite 6.2M SF under construction and 16M SF in various stages of planning. He predicts VC investment will soar as smaller firms get acquired by Big Pharma merger and acquisition activity, with the proceeds being reinvested in more startups, driving a flywheel effect that’ll benefit San Francisco. If he had to build in a market today, he’d pick San Diego, but San Francisco would be a close second. 

Raleigh-Durham: Ready To Pull The Trigger

Of all the secondary markets seeing expansive growth, including Houston and new developments in Boulder, Colorado, the Research Triangle continues to be a big focus due to its biomanufacturing potential. Richter, whose firm has done site selection work in the region, says there is a critical mass of talent and development opportunities, and remains “very bullish” on the area.

A combination of biomanufacturing potential – especially the GLP-1 weight-loss drug sector that has fueled substantial demand – and lower costs of operation have already made the region a hotspot for new projects, and many see that momentum continuing. Urie said the Triangle and surrounding counties have numerous sites ready to develop if and when drugs get approved, and new production lines need to be set up. And with a record number of drugs up for Food and Drug Administration approval this year, there’s a reason the area triggers enthusiasm for investors, Maldonado said.