Life Sciences Properties Being Marketed As Office Space Amid Supply Glut
Vacancy rates for life sciences properties have more than tripled since early 2022, leading some developers to make a shift that might have been unthinkable a few years ago: offering those facilities as office space.
Vacant life sciences space is piling up nationwide as demand for the once-hot properties drops significantly from the sector's pandemic-fueled peak, The Wall Street Journal reported.
As a result, building owners in top markets have begun marketing life sciences facilities as office space. In Boston, owners of at least 10 life sciences locations are marketing buildings for offices instead of lab space.
Fred Borges, a senior managing director of Boston-based investment firm Rockpoint Group, told the WSJ that building owners are no longer commanding the $100 per SF rents that lab space garnered in its heyday.
“They will gladly do a deal for $70 on the office side,” he told the outlet.
The start of the pandemic spurred life sciences to the top of the commercial real estate investment heap, with the national vacancy rate dipping to just under 7% for the first quarter of 2022, according to JLL. But by the end of June, that rate had risen to nearly 24%.
Building owners in San Diego, Boston and the Bay Area are also grappling with new life sciences properties becoming available. Over 59M SF of new space was added since Q1 2020, and more than 19M SF are in the pipeline nationwide, per JLL.
“A lot of people just threw money in stupidly,” Joel Marcus, executive chairman and founder of Alexandria Real Estate Equities, told the WSJ.
High interest rates, an uncertain economy and weak venture capital financing have slowed the sector's expansion rate. The Boston region’s vacancy rate was 21.5% at the end of Q2 compared to just 3% two years prior, according to Colliers.
“From an investor's perspective, mistimed construction is really the heart of the problem,” Colliers Research Director Jeff Myers told Bisnow late last month. “There's so much new lab product delivering that there's no way that the current level of demand can keep up. As a result, vacancies are rising very, very rapidly.”
While the latest data shows life sciences leasing is rising nationwide, lease sizes are fairly small. The majority of leases have been for 30K SF or less, JLL Head of Life Sciences Markets Travis McCready said last month.
