Dive Brief:
- Life sciences markets are showing improvement, with major life-science regions experiencing increased demand. Facility owners are now expanding their tenant base to fill the oversupply created during the pandemic.
- Cities like Boston, the San Francisco Bay Area, and San Diego reported positive net absorption in the second quarter as life sciences capital markets rebounded, driven by a surge in mergers and acquisitions (M&A), recovery in venture capital, and an increase in IPO exits, according to a second-quarter report by Newmark.
- Landlords are diversifying their tenant rosters by incorporating users from adjacent industries like AI and advanced engineering, although tenants still prefer top-tier assets in core clusters.
Dive Insight:
The market is gradually recovering from a significant overbuild in capacity following the pandemic, as noted by Mark DiNapoli, managing director of design and construction at Longfellow Design Build.
- He remarked that there was a tremendous increase in life science and R&D real estate prior to COVID, leading to substantial oversupply.
- Newly constructed high-quality R&D life science spaces are being slowly absorbed, and there are emerging opportunities for build-to-suit projects for larger firms.
- Competition from Asia is driving major pharmaceutical companies to invest in new biotech ecosystems, posing a challenge for U.S. operations, according to the report by Newmark. Despite challenges within the FDA, the agency continues to approve new drugs, generating positive market demand.
- DiNapoli noted an increase in interest for customized build-to-suit projects, particularly in markets like North Carolina’s Research Triangle, which did not overbuild like other regions.
In San Francisco, many AI firms are beginning to occupy spaces initially designed for life sciences.
- DiNapoli stated, “There’s a lot of inventory that was delivered for lab and never occupied.”
- Non-wet lab users are also reshaping tenant demand, as lab-ready spaces remain attractive to tech companies needing similar infrastructure.
- The facilities built for life sciences often meet the needs of advanced technology users, thanks to shared infrastructure standards like air change rates, floor load capacities, and power specifications.
- As advanced tech companies may require slightly higher power allocations (35-40 watts per square foot) compared to life sciences (25-30 watts), transitioning between these uses is seen as feasible.
In summary, the life sciences sector is undergoing a transition, showing signs of recovery while diversifying tenant bases to adapt to changing market conditions.
