Philly's Next Life Sciences Boom Set For 2025 As Leasing Slows To A Trickle

Several large life sciences developments launched during the height of venture capital and construction financing are opening into an entirely different climate in Philadelphia.

Rising interest rates have throttled the funding needed for startups to commit to physical expansion, but once again, Philly’s no-boom, no-bust environment saved it from overbuilding, experts told Bisnow.

“The wind is out of [life sciences startups’] sails a little bit after it being so breakneck, but there’s a general sense that we’re normalizing here and didn’t overcommit,” CBRE Senior Research Analyst Nick Jann said.

The number of active tenant requirements seeking space in the Philly region dropped from 41 last year to 21 this year, CBRE found in its local second-quarter report. Less than 200K SF of leases were signed in the first half, well off the pace of last year, when leasing totaled nearly 1.4M SF.

“I think the sector overall has a lot of runway in the medium to long term,” Newmark Philadelphia Market Leader Lauren Gilchrist said. “In the short term, it’s a bit cloudy, mostly because requirements have been put on hold and VC is slow.”

Philly’s next wave of anticipated development is projected to begin delivering in 2025, right about when economic projections for venture capital funding and construction financing are set to improve, Jann said. 

“Once interest rates settle in and begin to stabilize, the capital markets will slowly turn on the spigot and life sciences funding will resume at the pace [it was on] prior to 2022,” Avison Young principal Patrick Kelley said. “As this happens, life sciences space will be absorbed.”

The most recent delivery in Philly was One uCity Square, Wexford Science + Technology’s development for University City Science Center, with Ventas as equity partner. Opened in January just off the Market Street corridor, the 400K SF building is 90% leased, with less than a floor still available, Wexford Executive Vice President Tom Osha said.

Three more lab buildings are set to deliver imminently with much less square footage committed: the 250K SF 3.0 University Place at 41st and Market streets; the 200K SF of commercial space at Brandywine Realty Trust’s 3025 John F. Kennedy Blvd. development; and Ensemble/Mosaic’s 137K SF building at 1201 Normandy Place in the Philadelphia Navy Yard.

Across those buildings, only two leases have been signed: an incubator space to be operated by Ben Franklin Technology Partners at 3.0 University Place and a 32K SF lab at 1201 Normandy to be occupied by Invisible Sentinel, a local startup acquired by France-based bioMérieux.

Brandywine CEO Jerry Sweeney said the pace of leasing at properties like 3025 JFK, the first ground-up component of its Schuylkill Yards district, has been “frustratingly slow” in the company’s Q2 earnings call. The company has not fully committed to life sciences for interior construction at 3025 JFK in case an office tenant comes calling. Meanwhile, the residential component of the building, called Avira, began leasing last month.

1201 Normandy is “approaching substantial completion,” Ensemble Real Estate Investments Managing Director Mark Seltzer said. Several opening dates for 3.0 University Place have come and gone, and company leadership has pivoted away from targeting gene therapy startups to larger, more established pharmaceutical companies and institutions, University Place Associates President Anthony Maher said in March.

Also in the Navy Yard, Gattuso Development Partners has completed core and shell work at the 130K SF Current Good Manufacturing Practices, or cGMP, facility it developed on speculation at 2500 League Island Blvd., President and CEO John Gattuso said. All that remains is tenant improvement work once a lease is signed.

The biomanufacturing-oriented redevelopment of the former Budd Co. manufacturing facility in North Philadelphia is in the same position.

With hundreds of thousands of square feet available either now or in the near future, Philly’s life sciences market has finally reached the point it recognized would be needed for venture-funded companies to finally commit to space.

The pre-leasing success at One uCity Square being a notable exception, developers in Philly acknowledge that prospective tenants generally sign leases only months away from anticipated occupancy.

“Did we expect to have a leased building when we opened? Absolutely not,” Seltzer said of 1201 Normandy.

Precious few companies from the fertile startup ecosystem in cell and gene therapy are landing the financing needed to make that jump this year or next.

Though opinions differ on how central the two fledgling industries are to Philly’s sustainable success in life sciences, it doesn’t look especially likely that the current wave of development can rely on graduates from the (still quite full) incubators and accelerators across University City to fill its large blocks of lab space before 2025.

“We’re seeing reduced deal flow in general; however, most of the recent activity in the Philadelphia regional life science market is from China and India,” Avison Young’s Kelley said. “There is very little expansion of existing regional life science companies.”

Optimism remains for absorption of the current wave — not because of the ideas generated in Philly’s institutions and incubators, but the people generating them. The region ranked sixth in the U.S. for life sciences talent in a national CBRE research report last month. That has drawn unprecedented interest from out-of-market tenants.

“There’s a company looking at Philly from San Diego, others from Italy, Texas, Norway, the UK, Massachusetts,” Gilchrist said.

“That’s interesting in and of itself, because we historically do not attract a lot of out-of-market companies to Philly, and the fact that I could rattle off so many companies attracted to the talent here is significant no matter what the industry is.”

Two key deliveries in the 2025 wave could bolster Philly’s ability to deliver more home-grown successes like Spark Therapeutics, whose 60K SF lease at The Discovery Labs in King of Prussia was one of the two largest leases signed this year, per CBRE’s report. Both will be owner-occupied. 

Spark’s 500K SF cGMP facility in University City, which it began building in February, will house gene therapy production for every company under the umbrella of Roche, Spark’s parent. On the east side of the Schuylkill River, Children’s Hospital of Philadelphia began construction on a 250K SF gene therapy research center last fall.

“We like to think of uCity Square as a North Star, but there are stars all throughout the region, and they’re all contributing, even though the facilities might not be open to others,” Osha said of Spark and CHOP’s in-progress buildings. “But talent coming in to operate those facilities helps grow the capabilities of the region and is enticing for other companies coming in.”

As for leasable buildings, the largest anticipated delivery in the next wave is Gattuso’s 500K SF project at 3201 Cuthbert St., which broke ground at the start of the year with nearly half the building pre-leased. Also underway are Breakthrough Properties’ 223K SF overbuild at 2300 Market St., which has not announced any tenants, and MRA Group’s multiphase redevelopment of a former DuPont campus in North Delaware.

A much longer list of projects has been announced over the past few years, but the initial exuberance of the gene therapy explosion has given way to a more pragmatic view of reality among market observers.

“Our brokers literally told us to stop tracking planned projects,” CBRE researcher Jann said. “Now, we wait until the shovels hit the ground to track them.”

For now, Philly can content itself in the consensus idea that it did not bite off more than it could chew during the last development boom. But risk still remains that 2025 will be less of a comeback and more of a pileup.

“The success of the 2025 projects will be forecasted by the pace of lease-up in 2023 and 2024,” Gilchrist said.

CORRECTION, AUG. 15, 1 P.M. ET: A previous version of this article misstated Anthony Maher's position at University Place Associates. This article has been updated.