Leaseless In Seattle: Lab Real Estate’s Struggles With Space

Centered in the tech hub of South Lake Union, Seattle’s life sciences real estate market has suffered from the same supply glut hurting other large lab markets across the country. And it’s likely to get worse in the short term. 

“It's difficult to identify a lot of trends because there's not much activity,” CBRE Executive Vice President Chris Moe said. “We have a client demand problem. And we're oversupplied with a significant amount of space that has been delivered into a demand cycle that has been extremely restricted at this point.”

While the second-quarter vacancy rate hit 11.3%, according to CBRE, a slight drop from the 11.6% rate in Q1, total net absorption dropped from 88K SF in Q1 to 29K SF in Q2. Even news that The RMR Group’s 300K SF Unison Elliott Bay project was finished in April was clouded by the fact that the lease touted in the announcement was signed in 2022.  

As of Q2, the market had roughly 856K SF under construction, equal to more than five times the total space leased in all of 2023, with just about a quarter preleased and several large buildings opening without any leasing activity.

Two lab spaces expected to open this year, the 158K SF Chapter II Building by Touchstone and Portman Holdings and the 197K SF 222 Fifth by LPC West and Intercontinental Real Estate Holdings, haven’t signed any leases, according to Moe. Another bellwether project for the city, Alexandria Real Estate Equities’ 701 Dexter, resumed construction in April after hitting pause on the project last fall.

These new buildings also have relatively large floor plates of 20K SF, which may not necessarily play to the needs of smaller tenants in the market. Just two of the seven leases signed in Q1 required that much space.

The market is hungry for small space for startups. The city’s incubator space is at 98% capacity, according to Alison Beason, life sciences and global health sector lead for the Washington State Department of Commerce.

Seattle is also predominantly a market of smaller players, with lots of early-stage cell and gene therapy firms. Unlike San Diego, Boston and the Bay Area, there isn’t as strong a presence of Big Pharma firms, which still have the capital to make larger leasing deals. In May, Pfizer canceled construction of a 270K SF manufacturing plant for Seagen, a firm it acquired in 2023 for $43B, that was to open north of Seattle. 

Like in so many other markets, the rocket ship years of 2021 and 2022, when the pandemic, venture capital investment and cheaper money fueled a run-up in fundraising and development, supercharged Seattle’s biotech market. In 2021 alone, near the peak of the boom, the city saw rising interest and a 2.6M SF construction pipeline. Real estate deals were struck to deliver new labs to an industry hungry for space. Seattle’s lab vacancy rate at the time hovered around 2.9%. 

That has led to what Moe calls today’s hangover period. CBRE is marketing around 300K SF of sublease space for clients.

Despite the supply headwinds, Seattle biotech backers see long-term potential in the region’s talent pool and believe once activity begins picking up, the market will resume its upward trajectory.

“Seattle has a really solid track record of innovative companies that have focused around the areas of cell and gene therapy,” Moe said. “There’s a really strong talent base that supports that. And they are, historically, unlikely to move from this area.”