Put under the microscope, the nation’s life sciences sector is starting to show signs of burnout.
Vacancy rates are on the rise in the sector as it grapples with oversupply and underfunding, the Wall Street Journal reported. CBRE data show vacancies are up in a number of the top markets for life sciences after activity in the sector soared in the early years of the pandemic.
Companies jockeyed to develop a Covid-19 vaccine and personal protective equipment helped boost life sciences to the point the sector seemed immune from the distress roiling the rest of the office market.
But it doesn’t appear the sector can continue to outrun the concerns plaguing the rest of the market. At the end of last year, there was 180 million square feet of life sciences space on the market. By 2025, CBRE projects that number to grow to 220 million square feet.
In San Diego, the sector vacancy rate is up from 3 percent to 5.6 percent year-over-year. In San Francisco, it’s up from 5.9 percent to 8.4 percent. Boston nearly quintupled its vacancy rate from a year ago.
The culprit behind the dip in activity is the same as in the rest of commercial real estate’s troubles: Higher interest rates and other economic conditions, which are cutting into funding available in initial public offerings, stock issues and borrowing, along with venture capital interest.
Alexandria Real Estate Equities — the lone real estate investment trust focused solely on life sciences — has seen its shares drop 13 percentage points since early March, compared to 2 percentage points for the REIT sector. The REIT revealed last month it was cutting construction spending by $250 million, pausing or delaying several projects.
It’s not all doom and gloom for the life sciences landlords quite yet. Pharmaceutical companies remain interested in such properties and rents are still on the rise. In the first quarter, average life sciences rents were $65 per square foot, up $25 from the last quarter before the pandemic.
— Holden Walter-Warner
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