'The Math Isn’t Going To Lie': Lab Real Estate’s Woes To Continue In 2025
With life sciences real estate looking to turn the corner in 2025, developers and landlords will find themselves struggling with the same issue that defined 2024: a surplus of space that’s pulling down rents, stopping new construction and weighing on balance sheets.
“Ultimately, the math isn’t going to lie,” JLL Executive Managing Director Chad Urie said. “Understand what absorption is going to look like from demand, and if you take the supply and divide it out, you have several years in most markets to get back to an equilibrium of, say, 9% vacancy.”
Substantial new product was delivered in the big three markets in the third quarter, according to exclusive CBRE data updating its October 2024 lab construction report — nearly 2M SF in Boston, 880K SF in San Francisco and 117K SF in San Diego.
Even more speculative space remains under development in the same markets, with 4.3M SF in Boston, 1.4M in San Francisco and 1M in San Diego. And all three of these markets saw negative net absorption in Q3, according to Newmark research.
Urie believes that long term, many properties in select submarkets like South San Francisco, Kendall Square in Cambridge, Massachusetts, or Torrey Pines in San Diego will do far better than those in secondary or tertiary markets.
A flight to quality will mean rental growth will be challenging to achieve in many secondary markets, and lack of demand may even mean some of the forthcoming lab developments get converted to office or technology-focused space.
“The question we’re getting now is, ‘OK, when are rents going to recover?’’ Urie said. “It’s too early to even call that. If you look historically at rental growth in the life sciences industry, it's generally tied to periods of new construction. We're not going to be in a build cycle for four or five years.”
Bisnow reached out to developers of many of the largest, highest-profile lab buildings set to open in 2025. The only tenants any of these developers identified were a handful of retailers, including the health club Equinox, which will open in the Research and Development District, a San Diego life sciences project.
IQHQ, which has yet to announce any lab tenants for its $1.6B, 1.7M SF RaDD development on San Diego’s waterfront, has more projects on the way in other major markets.
In 2025, the developer is set to open 580 Dubuque in South San Francisco, a 335K SF life sciences project, as well as the 762K SF Alewife Park development in Boston. In 2026, the under-development $1B, 960K Fenway Center project is projected to open. IQHQ declined to comment when asked about leasing and preleasing progress and pointed to an Oct. 3 press release highlighting retail tenants taking leases at RaDD.
Chicago-based Sterling Bay, which has struggled to lease its flagship Chicago life sciences property, Ally, did not return repeated efforts to learn about leasing and vacancy figures for its other upcoming projects, including 5975 Pacific Mesa Court, a 322K SF San Diego project set to open this year.
The same goes for a number of other buildings, touted during the sector’s rocket ship years in 2021 and 2022 and now set to open to a radically different leasing environment. Longfellow’s Bioterra development in San Diego, set to finish by Q2 in 2025, has “no preleasing comments to make public as of now.”
A similar scenario is playing out with Trammell Crow’s 440 Bedford project in Lexington, Massachusetts, with “no signed leases,” per a spokesperson, and 200 Twin Dolphin in Redwood City, California, is “near complete on construction, 90 days from anticipated [temporary certificate of occupancy], no leases signed as of today.”
King Street Properties’ Burlingame development The Landing, a roughly 500K SF Class-A lab set to open in phases across the first two quarters of 2025, has tenants actively touring but no leases to announce yet.
Alexandria Real Estate Equities, a dominant player in life sciences real estate, has had a number of forthcoming built-to-suit projects fully leased to occupants, such as Bristol Myers Squibb. But, like its competitors, it is struggling with preleasing in speculative spaces. None of the 300K SF coming online in San Francisco this quarter has been leased.
The REIT had peak delivery of new product this year and has below-average preleasing for many of its major markets going into 2025. In Boston, 2.4M SF, currently 65% preleased, will be delivered next year, along with 1.7M SF in San Francisco that is 23% prelease. And in San Diego, 2% of the 700K SF coming online next year has signed tenants thus far.
There’s a sharp delineation between the state of the overall biotech industry, according to Urie — which has seen positive momentum from venture capital investments, which are set to exceed those in 2024 — and the lab real estate industry, where it will take years to fill the excess inventory that will continue to come online in 2025.
He predicts that the current market, which favors tenants, will only become more tilted in their favor over the next nine to 12 months as owners fight to secure leases and offer increasingly aggressive rental discounts and tenant improvement allowances.
“While vacancies have peaked and new deliveries have stopped, the war, the competition for occupancy, has begun and will probably put pressure on economics for at least 12 months,” Urie said.
The shifting economic footing beneath the larger life sciences market has shown improvements, Cushman & Wakefield Executive Managing Director Jonathan Metzl said, including in fundraising and access to capital. But uncertainty remains, especially around larger market policies and the incoming new administration.
“The influx of new capital will enable companies to address challenges with pricing and limited access to products,” he wrote in an email to Bisnow. “However, the impact of global regulatory changes and geopolitical uncertainties have recently tempered the market’s optimism.”
