Life Sciences Real Estate Fundamentals Soften as Market Readjusts

Executive Summary

• Life sciences employment growth slowed to 2.9% year-over-year through May 2023 and 0.9% since January—slightly above the 0.6% increase in total U.S. nonfarm payrolls.
• Employment levels appear to be stabilizing as monthly growth rates flatten.
• Life sciences venture capital increased slightly in Q2 after a slow start to the year. After peaking in 2021, rolling-four-quarter venture capital totals have declined, albeit at an increasingly lower rate as investor sentiment improves.
• The lab/R&D vacancy rate increased by more than 2 percentage points quarter-over-quarter to 9.0%, exceeding the 8% average from 2016 through 2020. The sharp rise in vacancy was partly due to 3.4 million sq. ft. of new construction deliveries in Q2 that were 45% preleased.
• The largest life sciences real estate markets of Boston-Cambridge, San Francisco Bay Area and San Diego recorded a combined 1.5 million sq. ft. of negative net absorption in Q2. Philadelphia and Washington, D.C.-Baltimore were the leading markets for positive net absorption at 240,000 and 96,500 sq. ft., respectively.
• The average asking rent for the top 13 U.S. life sciences markets increased by 3% quarter-over-quarter to a record-high $66.31 NNN.
• Nearly 41 million sq. ft. of new lab/R&D space was under construction in Q2, with just over 25% of it preleased. Nearly 31 million sq. ft. is scheduled for delivery this year and next.