Denver's Life Sciences Market Has Lost A Bit Of Luster, But Brighter Days Are Ahead

After two years of economic doldrums, minimal growth and investor reluctance, there are signs that the life sciences industry in metro Denver has begun to revive and gain momentum.

The Denver-Boulder life sciences market went from being extremely tight in 2022, with vacancies hovering around 1%, to a much more tenant-friendly 10.2% in the second quarter of 2024. The swing matches what has occurred nationally as a wave of new space comes online and tenants pull back on demand.

“The luster has been lost a bit,” Chris Bodnar, vice chairman and head of U.S. healthcare and life sciences capital markets at CBRE, said at Bisnow’s Denver-Boulder Life Sciences Summit on Aug. 13.

“It’s hard to compare the life sciences industry to those last three years, where those companies were hyped up on what was low interest rates and venture capital funding that was going through the roof.”

But there are some positive signs, panelists said at the event, held at Grand Hyatt Denver.

“There are other markets … that are probably a lot more challenged than Denver-Boulder is,” Bodnar said. “Our vacancy rate is in a really good spot. Believe it or not, we’re on track for the third-highest year of venture capital funding in our space, and the high point was 2022. So the venture capital funding is coming back, and I’ll also say that we’ve kind of set the goalposts with interest rates. I think that allows people to make more decisions.”

A report from CBRE on the Denver-Boulder life sciences market says that after six months of virtual inactivity, life sciences venture capital funding in the region saw a “significant rebound” in Q2, reaching $65.9M for the quarter, or 13.4% better than the five-year quarterly average.

Leasing activity in metro Denver rose to nearly 79K SF in Q2, according to CBRE. That is the highest since Q4 2022 and a 61.1% increase compared to the 49K SF leased in the previous quarter.

Net absorption for Q2 of this year, meanwhile, remained positive at 6,600 SF, in line with the previous quarter’s 6,900 SF total. The average asking rent for lab space in Denver-Boulder stayed mostly stable over the past year at approximately $60 per SF on a triple-net basis.

This was the seventh year the “life sciences ecosystem” in Colorado has raised more than $1B, according to Elyse Blazevich, president and CEO of the Colorado Bioscience Association.

“We have returned to some normal, prepandemic levels of funding, but to see such a strong start to 2024 after a challenging 2023 shows some promising signs of recovery and resilience in our ecosystem,” she said.

Challenges do remain, especially with costs, which panelists said can prompt a debate on whether to convert an existing office space for life sciences applications or just start fresh from the ground up.

“There are so many variables such as land cost, but if you’re just talking about straight-up construction, you can be anywhere from $800 to $1K a SF for a development,” CoBuild Construction Services President Ed Wood said.

Wood said an adaptive reuse, second-generation retrofit of existing space is about half the cost of new development. Despite all the variables, he believes the adaptive reuse model is the way to go for speed to market. 

“Obviously, you’re kind of locked in on some things, but you get a lot more flexibility when you can do the ground-up. You get there faster if you do the remodels,” Wood said.

Blazevich pointed out the Denver-Boulder corridor’s advantages in attracting development and investment in the region’s life sciences sector. Along with Colorado’s high quality of life, she said the area has a very strong talent pipeline and major research universities.

Colorado has a high density of biomedical and bioengineers, as well as a state legislature that is putting through additional programs to help expand the life sciences education pipeline, she said.

The industry evolved quickly in the area, which can cause growing pains as developers and companies try to get a feel for how much space is needed.

“When I stepped into this role in November of ‘21, there was 1M SF of lab space shortage in the ecosystem,” she said. “It felt like almost overnight we went to 3.5M SF planned and in construction, with a lot of those projects timed to hit about the same time.”

And while there was concern the region might end up with an overbuilt life sciences market, Blazevich said the recent economic slowdown has worked in the sector’s favor by helping to stagger the delivery times of some of those projects.

The panelists also said developers need to consider not only the needs of a life sciences facility while in its planning stages but also the importance of that facility being able to evolve in the long term, for future technologies.

“It’s difficult because you have to make a robust building that can change with the life cycle of whatever is going to be inside that space,” AES Clean Technology Western Territory Manager Matt Korkuch said.

“Sometimes that means large [capital expenditures] spending to have lower [operational expenditures] spending, especially if we look at the total life cycle of a building,” he added. “You’re not looking at just that first tenant, you’re looking at the other tenants that are beyond that as well.”