University City Life Sciences Players Voice Optimism Despite 39% Vacancy
Property owners and brokers in Philadelphia’s life sciences market remain in a tough spot amid high vacancy and negative absorption, but they say they haven't given up hope.
As of last quarter, Philly's University City life sciences submarket had a 39.1% vacancy rate, according to CBRE.
Still, industry executives said the neighborhood’s array of options for prospective tenants and proximity to world-class research institutions put it in a good position to recover.
“It's a tough market right now, but we do believe there's certainly upside in the future,” JLL Managing Director Joseph Colletti said during Bisnow’s University City State of the Market event last month at the 3.0 University Place life sciences building.
“There's a lot of vacancy right now in the marketplace, but we also know all it takes is one or two big users to gobble a lot of that up,” he added
CBRE found that first-quarter move-outs in University City outpaced move-ins by more than 22K SF. That accounted for all of the negative absorption in Philly proper during the first three months of the year.
Just two major life sciences leases were signed in the region last quarter, according to CBRE, one of which was at the 3.0 University Place building.
The Philadelphia Police Department’s forensics team leased 118K SF in the building at 4101 Market St. The other lease was in South Philly, where TerraPower took 250K SF at the Bellwether District to build a $450M cancer drug plant.
PPD Office of Forensic Science Executive Director Mike Garvey said being in a neighborhood anchored by institutions like the University of Pennsylvania and gene therapy firm Spark Therapeutics is still attractive for organizations like his own.
“I'm excited about every bit of scientific inquiry that goes on in University City because I never know which is the next science that will allow us to look at that technology and say, ‘We can apply that,’” he said.
A massive amount of new life sciences product got underway across greater Philly in the wake of the pandemic. The regionwide new-construction pipeline peaked at roughly 2.5M SF in Q4 2022 and has since trailed off to about 500K SF, according to CBRE.
While the supply glut is a problem for owners, it also creates opportunities that were once rare for tenants.
“We have the life cycle space available for folks and more options than we did five, seven years ago,” Colletti said. “Before, there might have been one or two incubators. Now there's four or five where you can go to get started.”
University City stakeholders are also focused on retaining startups in the neighborhood after they move beyond the incubator phase as a way to lease up the neighborhood’s hulking unoccupied lab spaces.
That is partly about making the neighborhood more attractive to the executives in charge of those firms, said John Gattuso, CEO of Gattuso Development Partners, which opened its flex life sciences space at 3201 Cuthbert St. on the Drexel University campus last month.
“All of the quality-of-life types of issues that we typically talk about when we talk about potential are really important,” he said.
“This is still a district that is pretty short on restaurants. It is still a district that is pretty limited in terms of hospitality. It is still a district that is emerging in terms of immediate residential availability.”
