Lab Leasing Shows Life Sciences Demand Strong Overall, But Slow, Uncertain In Spots
Like the biologists and technicians working inside gleaming new lab space, life sciences real estate professionals look for patterns and hypotheses to explain how systems work and evolve.
Right now, the signals many are getting from a study of the market are decidedly mixed.
Bisnow reached out to developers and operators of the 15 largest life sciences projects projected to open in 2023 and found a very mixed story of pre-leasing success. Some firms and locations were in very strong demand, while others have struggled to sign pre-lease agreements in the months before opening.
Part of it has to do with the general state of the market. There’s more caution, especially from the types of larger tenants that tend to fill out developments, Newmark Executive Managing Director Eric Bluestein said.
Others have seen a great response. In Philadelphia, Wexford’s 400K SF One uCity Square project in University City, which has a finished core and shell, only has 15K SF left to lease before its grand opening. Wexford President Thomas Osha said “leasing velocity in that building has continued strongly,” but he also feels the national leasing picture is a bit more mixed.
“It does seem to be kind of a market-by-market thing right now,” he said. He predicts a wait-and-see approach and a slowing, if not stopping, of spec development. “I believe it's just this. It's an environment of macro uncertainty.”
Other forthcoming projects that are fully leased include 400 Summer in the Boston Seaport, a 625K SF WS Development project fully leased to local biotech company Foundation Medicine.
Alexandria Real Estate Equities, which tends to tout its very strong bench of top tenants, has three high-profile projects completing later this year that are all fully pre-leased: 15 Necco Street in Boston, which is fully leased to Eli Lilly, One Charles Park in East Cambridge and 1150 Eastlake in Seattle. Chairman Joel Marcus said the leasing activity in Q1 2023, 1.2M SF, was right between the firm’s five-year and 10-year leasing averages. He feels confident, considering ARE’s relationships and operational experience, and only sees potential oversupply challenges coming up in the South San Francisco market.
There’s been a normalization in the market, according to Stockdale Capital Partners Managing Director Leo Divinsky, whose firm has been finishing a massive redevelopment of a San Diego mall, Horton Plaza, in the hopes of helping seed a new downtown submarket for tech and biotech. But he also said that he’s seeing a slowdown. The development, set to open by the end of the year, hasn’t signed any life sciences tenants yet.
Divinsky believes more will come after retail tenants begin signing in the coming months, and leasing is proceeding according to the company’s business plan. Once spec suites are finished, firms will see the benefits of downtown, he said.
Another highly anticipated downtown San Diego project, the 5-acre RaDD, or Research and Development District, by IQHQ, won’t open until 2024.
“We think the momentum is building downtown,” Divinsky added. “We anticipate the demand to continue building through the balance of the year and next year.”
Another issue is secondary markets slowing down, and projects financed and started during high points of the previous two years might not be as attractive today. Bluestein added he doesn’t think the velocity and volume of transactions that were being underwritten in the past will come to bear in the next year to 18 months, certainly not at the speed some expect.
Requests for leasing activity at Dynamic One, part of Houston’s burgeoning TMC Helix Park, and Sterling Bay’s Lincoln Yards project in Chicago, weren’t answered.
Over the next few years, Bluestein expects significant, sustained leasing activity by 10K SF to 20K SF users, but until the markets improve, larger tenants won’t be as aggressive or as active. He expects landlords will be more aggressive with tenant improvement dollars and even free rent when leases commence.
