NYC's Already-Sluggish Life Sciences Market Hit By Federal Funding Cuts

New York City’s fledgling life sciences real estate sector was wobbling even before the federal government started slashing funding for higher education institutions.

Now, with the highest asking rents of any market, the second-highest vacancy rate and a slew of new inventory under construction, NYC’s life sciences segment could be in trouble. Built on institutions that rely heavily on government funding, questions remain over the future of the expensive, empty lab spaces in a city classified as an emerging — and therefore vulnerable — life sciences hub.

“There's a daily volatility that people are trying to wrap their head around to make very important decisions about,” Janus Properties founder and principal Scott Metzner said. “Where is their company going to go? How big a space should they take? What's the cost of building out a space?”

NYC’s life sciences real estate sector had a 41.8% vacancy rate at the end of the first quarter, according to Newmark’s most recent report.

The market also has a massive wave of inventory coming — 1.3M SF under construction, adding to its 3.6M SF of existing space — as well as the highest average asking rents of any market at $106.64 per SF.

Demand for space is trailing behind the pace at which developers are delivering new labs. Life sciences tenants signed just a handful of deals in NYC during the Q1, many of which are not for lab space, multiple brokerage reports show.

“Leasing has been slower comparatively to history, even in the larger markets as well,” Newmark Head of Northeast Research and National Life Science Research Elizabeth Berthelette said.

Two new leases for life sciences space totaling just under 24K SF were signed in NYC during the first quarter, a Newmark spokesperson told Bisnow by email. The spokesperson didn’t provide details of the leases.

CBRE’s first-quarter report says there were 30K SF of life sciences leases last quarter. The report names just one tenant that did a deal in Q1: health and beauty-focused lab Firmenich, which it says signed a 6K SF sublease at a confidential location. 

The only lab that landed a new loan in the quarter was GFP Real Estate and King Street Properties' 45-18 Court Square W., a Class-A life sciences building in Long Island City spanning 213K SF. It signed a 46K SF lease with BioLabs at NYU Langone during the fourth quarter and more than 100K SF earlier last year, likely helping to seal the deal for the $140.8M refinancing from Deutsche Bank.

That refinancing is an “anomaly,” going against the grain for general patterns in NYC’s life sciences real estate market last year, CBRE Field Researcher Phil Stern said.

“Having an institutional, reputable tenant like that is what I think essentially facilitated that,” he said. “There's very few other buildings that I think would be able to replicate that at the moment.”

King Street Properties Senior Director Ed Jaram said the property has fared better than many of its competitors in recent months.

“We are very, very, very fortunate in that, as of right now, we are almost fully leased,” he told Bisnow. “We’re certainly beating the curve of lease-up in general.”

As a city with access to world-class research institutions, government support, a deep talent pool and institutions that provide financing, owners, developers and brokers believe that NYC has all the necessary factors to become a powerful life sciences market.

But timing has not been on its side. The pandemic’s impact on the financing world saw venture capital pull back from the industry just as developers were delivering new, expensive lab space. VC funding has since recovered, surging by 124.4% from 2023 to 2024 to reach $2.2B, according to Newmark — only to be counteracted by federal funding cuts to research institutions.

“The uncertainty that that creates is not helpful,” Stern said. Removing federal funding stops scientific discovery — and therefore business investment and development — in its tracks, he said. “If you're cutting that from underneath, then it just reduces the possibility of new innovation from the get-go.”

NYC received $2.8B in National Institutes of Health funding last year, second only to Boston, Colliers’ Q1 report shows. That funding has been awarded to more than 50 hospitals and more than 100 research centers, according to the NYC Economic Development Corp. 

The city is expected to lose around $880M due to federal funding cuts, Savills’ report says. The impacts are already starting to play out, with Columbia University laying off 180 researchers earlier this month as a direct result of the cuts.

Federal cuts have already killed one lab lease for Janus Properties, Metzner said.

“We had an agreed-upon term sheet and test fit and everything, and it was moving quickly, and then we were told that they didn't think it was going to be affected. And then it was affected,” he said.

The unpredictability is having a chilling effect for universities, hospital systems, private businesses and startups alike, he said. 

“It's just slowing the world down because of the uncertainty of, ‘Is this funding really going to be pulled? And which types of programs might it be pulled for? Or is it going to be reinstated?’” he said. “We're only four months into this. I think there's been a lot of mixed signals.”

As an emerging market, the cuts will affect NYC more severely than established hubs like Cambridge, Berthelette said.

“The emerging markets tend to rely more heavily on public funding because the VCs are highly concentrated in the bigger markets where a lot of the R&D is happening, there's more company formation, agglomeration economies, and all of those things,” she said. 

Federal dollars are especially important in NYC, Partnership Fund for New York City CEO Maria Gotsch said. NIH funds basic research, which leads to discoveries, which are translated into real-life applications that draw VC investors, she said. 

“Some of that research can go on for 10, 15 years,” she said. “It's a long-term potential diminishment of the engine that creates these companies.” 

But there will be short-term effects of losing that funding too, she said.

“Where you could see a near-term impact is if, in order to protect that basic research, the universities start to cut back on what they've put in place over the last 10 years, which is funding the translational research,” she said.

Meanwhile, the influx of new inventory may add more stress to NYC’s life sciences real estate sector.

Among the owners that could end up feeling the pressure are the Weill-Cornell labs at 1334 York Ave. and Taconic’s 200K SF Class-A Iron Horse Labs, both of which are expected to deliver later this year. 

Janus Properties owns multiple properties in Harlem’s nascent life sciences corridor that have signed tenants, including Volastra Therapeutics and Harlem Biospace. Its past success with two former industrial buildings partially converted into office space — the Mink Building is nearly 90% leased and the Sweets Building is almost fully leased — is giving Metzner confidence that Janus can sign deals at its other properties in the area.

“We're probably talking to enough tenants actively right now to get to 75% leased,” he said of the 200K SF Malt House building, an office and cultural space in a former brewery in the West Harlem corridor. 

The firm hasn’t yet signed any leases at its recently delivered 350K SF Taystee Lab Building at 450 W. 126th St. which is also in the corridor, Metzner said.

But he believes there is enough confidence and investment in NYC’s life sciences industry that the building will fill up.

Jaram also believes that the potential offered by NYC’s market will eventually lead to success — even if it’s a while away.

“Short-term, yes, there's going to continue to be a period in which everybody's trying to figure out what the right move is,” Jaram said. “But longer term, the untapped growth is still huge.”