NIH Cuts To Stifle Demand Driver For Life Sciences Space

Cuts aimed at the National Institutes of Health in a Feb. 7 announcement from President Donald Trump could have stark impacts for the life sciences real estate industry, which is already struggling under the weight of supply overages and soft demand.

The proposed cuts were paused by the order of a federal judge and subject to a Feb. 21 hearing, but would potentially have rippling impacts, including interrupting underwriting assumptions for lab real estate projects that involve universities and slowing the pace of innovation that remains the lifeblood of the biotech industry.

“It's going to touch real estate,” said Project Management Advisors Senior Project Manager Grayson Mann, a pharma and life sciences expert. “It will touch the companies that would make therapeutics and will stop life sciences expansion in our major markets. We’ve already seen an overbuilt real estate market for life sciences… this kind of just pours salt in a wound that's been festering for almost three years now.”

The proposed NIH cuts would impact indirect costs, or facilities and administration costs, which the NIH pays out to cover overhead, including staff, facilities and rent, associated with medical research. Each university or institution negotiates these fees based on the cost of doing business in their town or city. The announcement slashed such funding from 40% to 15% of a grant’s total budget. 

In fiscal year 2024, 92% of the NIH’s $37B grant budget was sent to nonprofits, including universities, research institutions and academic medical centers. Roughly $9B of that is indirect costs, and the proposed cuts would eliminate $5B of that sum. 

“There seems to be this assumption that this is just some add-on, and it's not,” said Brian Darmody, chief strategy officer for the Association of University Research Parks. “Most universities aren’t actually covering all their costs.”

Cutting this funding will deter future investments in bioscience infrastructure, including university lab developments, Mark Romney, co-chair of the AURP Bio Health Caucus and senior vice president of Blue Rise Ventures, said in a statement. Since the cuts also impact ongoing grants, it might impact public-private university lab development projects currently in the works.

“In some cases, perhaps, research might be scaled back — less workforce, fewer physical inputs, lower lab utilization, or the like — extending the time and limiting the depth of research,” JLL Head of Global Industries Markets Advisory Travis McCready said via email. “However, given the nature and both operational and cost complexity of core scientific facilities, efficiency only carries you so far. The more likely scenario is that a significant portion of research activities will simply cease for lack of being able to pay for the workforce or facilities required past a particular threshold.”

The relationship between NIH funding and the development of university lab projects, especially public-private ones, could be compared to how Section 8 housing vouchers support affordable housing. By tapping into a guaranteed government source of income in the form of public rent payments, apartment landlords maintain guaranteed revenue, and underwriters and financiers can predict, fund and value a building with that certainty in mind. 

“Funding for core facilities is complex, and in the development process, assumptions are made both for a diverse development capital stack, including operational funds,” McCready said.  “A severe rate cut would disrupt both sets of assumptions, placing into question the economics for building and maintaining core scientific facilities.”

The NIH cuts, along with other recent staffing cuts or funding reductions announced by the Trump administration, including significant proposed cuts to the Food and Drug Administration and thousands of probationary Health and Human Services employees getting let go, have left the scientific community stunned and trying to process the nature of this shift, McCready said.

The localized impacts will be disproportionate state by state and institution by institution. McCready predicts Massachusetts, California, North Carolina, Maryland, Virginia and New York will “disproportionately bear the burden of the proposed rate cut,” since companies in these six states received nearly 75% of NIH research grant funds in fiscal year 2024. 

This might force these institutions to figure out new ways to monetize their innovations or attract more private investment, PMA’s Mann said. But there’s no way they can make up the total federal investment that may be lost. 

“I have seen firsthand how innovation districts and biomanufacturing clusters are transforming local economies, creating jobs and strengthening the U.S. supply chain,” Romney said. “These efforts depend on stable, predictable government support. If the NIH does not reverse course, it will create long-term damage to the very industry it is meant to support.”