Growing Pains Hit Chicago's Emerging Lab Market Hard As Vacancy Hits 50%
The supply glut in the life sciences market has hit every emerging and established market, but few have an outlook as dour as Chicago's.
The Chicago region’s lab real estate hit 40% vacancy in Q3, according to new CBRE data. In the city proper, that number rises to 50%, the highest of any major market in the country. The closest markets are Houston and San Francisco at 27% and 28%, respectively.
Chicago finds itself in this position due to the timing of its rise as a prominent market, as investors and backers seek to build out a functioning and balanced ecosystem of funding, talent and lab real estate.
Momentum and plans for new development peaked just as funding and demand for space reached their peaks. Now projects have arrived just as a downturn in funding and demand has challenged the market across the country. About 2.7M SF was set to deliver in the region between 2023 and 2026, roughly doubling the supply during a historic market downturn.
Some see this as a hurdle for an emerging market, one that is seeing growth in university-funded incubator spaces and the arrival earlier this year of the Chan Zuckerberg Biohub, a new $250M center for innovation and research.
“It’s a recent development that laboratory space is becoming available to the market,” said Portal CEO John Flavin, whose firm operates incubator spaces and funds startups. “So relative to where we started, it's been steady growth in a tough biotech market overall. We were a young, fledgling ecosystem where there wasn’t much space, and now have 50 startups at Portal.”
But the struggle to fill space remains a significant weight on the market. Most striking, perhaps, is the Sterling Bay Ally project, a 320K SF project set to be a flagship lab building in the Lincoln Yards development. But the development has stalled.
In the third quarter, Bank OZK wrote down nearly $21M on its land loan to a Sterling Bay subsidiary struggling to build out the 53-acre, $6B development. Bank OZK CEO George Gleason said the lender had become “less patient with the progress that our sponsor is making” during the company's Q3 earnings call, although he didn't name the borrower. In effect, the single lab building, a minimalist, modern tower, sits alone and unoccupied, without nearby retail or residential.
“It’s a beautiful building, unfortunately surrounded by vacant land,” Cushman & Wakefield Executive Managing Director Jonathan Metzl said. “Many companies find it challenging to truly consider relocating there because it's on an island.”
Sterling Bay didn’t respond to multiple requests for comment from Bisnow for this story.
Two larger university-focused developments remain in the lab pipeline, including Trammell Crow’s 300K SF project in Hyde Park, set to complete in Q4 and open next May, with 55K SF preleased by the University of Chicago. The developer also has a 178K SF building underway near Northwestern University in Evanston, just north of Chicago.
According to CBRE data, those comprise the entirety of the lab construction pipeline. If no more leasing occurs at the Hyde Park project or elsewhere, that would spike the city’s vacancy rate to 56%.
Metzl said he sees green shoots and reasons for optimism, including leases in the works and startups potentially ready to close funding rounds.
“Many developers got ahead of the market,” he said.
Flavin believes 2025 will be a much better year, with steady growth in new companies over the last few years a sign of long-term health. The city is outperforming where Flavin thought it would be a few years ago, including workforce development.
A summer CBRE life sciences workforce report placed Chicago third for diversified talent base, right behind Boston. Flavin said that just looking at real estate, “the numbers are a bit misleading,” considering the size and maturity of the Chicago market compared to the likes of Boston.
“The Chan Zuckerberg Biohub gave the city even more credibility from a national perspective, and Northwestern, University of Chicago and Argonne National Laboratories continue to spin out tremendous IP,” Metzl said. “Chicago is definitely on the map.”
Metzl confirmed that there hasn’t been any new leasing activity in the Chicago market over the last two quarters. CBRE’s report says the 85K SF lease last quarter by Kashiv was a renewal, and there has been just 17K SF of absorption in 2024.
