Philly’s Life Sciences Market Has Slowed But Is Holding Its Own — And Could Be Poised To Grow Soon

Philadelphia’s life sciences market experienced a downturn over 2023, as the venture capital that was keeping it humming slowed to a trickle.

But a pair of new reports show that it hasn't been hit as hard as other major biosciences hubs in the U.S., thanks to a slowdown in construction, and it could be poised for a comeback in the months ahead.

Philadelphia's life sciences vacancy rate was 5.4% at the end of the year, according to a February update from Cushman & Wakefield. Meanwhile, neighboring New Jersey’s vacancy rate was 10.6% and market leader Boston’s vacancy sat at 22.6% as of the fourth quarter.

Analysts told Bisnow Philly’s market is benefiting from a dwindling supply that has matched the slowing pace of demand in the area. Leasing activity hit its lowest point since 2019 last year, according to a CBRE report, although it ticked up slightly in Q4 due to a small rebound in startup activity that saw Zahav Biosciences and BlueWhale Bio sign leases in the city.

In 2023, new construction totaled 1.8M SF, according to the CBRE report, down from 2.1M SF of construction the previous year.

Anthony Pell, a senior associate in CBRE’s life sciences group, said that slowdown should keep vacancy lower this year despite sluggish demand. But hopes are high for a turnaround with some larger deliveries on the way next year.

“In 2024, we will not really see much new development delivered, but in 2025, there will be several buildings, purpose-built lab buildings, that will deliver in the market,” Pell said.

CBRE’s report points to several potential “green shoots,” including more venture capital funding loosening up at the end of the year and the National Institutes of Health awarding the second-largest annual funding to Philadelphia-area institutions in 2023. Cushman & Wakefield cited the University City Science Center being named an official network spoke of the Advanced Research Projects Agency for Health. 

“The Philadelphia life sciences sector is uniquely equipped to bounce back and hit its stride after this short-term pause in market activity,” CBRE wrote.

Philly has strength in the suburbs that other life sciences epicenters like Boston and North Carolina’s Research Triangle don't, said Michael Hanes, a Cushman & Wakefield senior research manager and author of the report.

“We have more research institutions in the city of Philadelphia, I think, than anywhere else in the Northeast, except maybe New York City,” he said.

For the moment, though, analysts said what demand exists in Philadelphia is for smaller, customizable spaces, as companies have signed new or renewed leases for offices and small manufacturing spaces.

And last year, as the market began to decline from its 2022 peak, the suburbs helped rally leasing activity. Metro leasing activity in 2023 totaled more than 500K SF, and the suburbs accounted for 69.8% of it, according to the C&W report.

As in other areas, high interest rates and a decline in venture capital capped growth in Philadelphia. Tenants are reluctant to lease up for a product or medicine that isn’t ready to go to manufacturing stages.

“They’re more cautious about it,” Pell said.

By the last three months of the year, materials group DSM BioMedical leased 80K SF in Wayne. Manufacturing firm Avo Photonics signed 27K SF in Fort Washington. Gene therapy firm Code Bio added 24K SF of lab and office space to the Spring House Innovation Lab, about 45 minutes north of the city. 

In the city itself, Zahav Biosciences relocated to Race Street Labs over the last few months. That lab is adjacent to Drexel University in University City.

More such tenants are needed in the city's core submarket, where year-end vacancies hovered at 55.6%, Cushman & Wakefield reported.

One way to bring companies to University City, Navy Yard, Center City and other metro life sciences locations is by investing in local employment opportunities, C&W's Hanes said.

“We have education, [we] have that community attacking in droves here. But we need to have connectivity between the Ph.D.s and MBAs,” he said. “And that's something that I think everyone is fully aware of that will happen here in terms of bringing this collective [of] different functions and/or skill sets to bring these companies to some kind of commercialization or profitability.”

Hanes said Drexel University’s program for business and sciences will graduate people who can step into startup roles. The next level up is resourcing nonlab talent for support positions.

Casting a wider net to attract companies is part of the solution, including turning to foreign companies to grow, CBRE’s Pell said.

“Part of the equation that I think people often forget about is we're very well positioned to attract companies from out of the market,” Pell said. “Companies looking at the United States for expansion from overseas and looking to plant a flag here note we have a really great combination of a very strong labor force, generally affordable cost of living and cost of real estate compared to other major markets.”

One such company, Scout Bio, was acquired this year by French company Ceva Santé Animale for an undisclosed sum. Ceva will maintain a relationship with the Gene Therapy Program at the University of Pennsylvania lab, where Scout Bio first started.

The Philadelphia-based team will stay on.

More deals like that could help get Philadelphia off “sitting on the sidelines,” Pell said.

Learn more about Philly's life sciences market at Bisnow's Philadelphia Life Sciences Conference June 27.