Post a Covid driven frenzy hunt for space over last 3-years
According to new research by CBRE, a new supply of life sciences real estate outpaced demand in many top U.S. life sciences markets in the fourth quarter, boosting the sector's vacancy rate back toward pre-pandemic levels.
Metrics gauging the life sciences sector varied in the fourth quarter as the industry normalized after robust growth in 2021 and much of 2022. Life sciences employment growth slowed from earlier rates but still progressed at a 4% year-over-year pace. Venture capital funding rebounded in the fourth quarter after three consecutive quarterly declines.
The market for lab space registered similar fits and starts. Average vacancy across the 13 largest U.S. life sciences markets rose to 5.7% in the fourth quarter from 5.1% in the third, but it stayed even with the year-ago figure and below pre-2021 levels. Vacancy figures include space listed for sublease.
Average asking rates increased to a record $62.16 per sq. ft. per year in the fourth quarter, likely due to new, high-end lab space coming online in many markets. Lab space under construction grew to 40.3 million sq. ft. in the fourth quarter, up roughly 8% from the third quarter. Meanwhile, demand for space declined by 8.4% to 18.5 million sq. ft.
"The past two years set the bar quite high for growth," said Matt Gardner, CBRE's Americas Life Sciences Leader. "It's natural for a red-hot market to cool a bit after such a strong run. A broad perspective of the current market should include record life sciences employment, continued rent growth and a rebound in venture capital along with nonrecurring events like increases in sublease space."