Life Science Sector Asking Rents, Occupancy Surge Amid Sky-High Demand

As growth in the life sciences sector hits historic levels, demand for lab space across major US cities has exploded.  And that in turn has driven up rents and occupancy in key markets, as the construction pipeline struggles to keep pace.

“Coupled with strong capital flows, life sciences companies have increased their footprint in most markets, driving up rents and increasing occupancies,” says a new report from Cushman & Wakefield looking back at the sector’s performance during the first quarter. “This uptick has attracted more jobs and more talent to the sector as evidenced by the growth of employment.”

The current construction pipeline for life sciences lab space sits at 17.1 million square feet (msf), or 10.7% of current inventory, according to Cushman & Wakefield data. Boston has the largest labor pool and inventory there is set to grow the most of all markets Cushman tracks, with over 9.6 msf of lab space currently under construction, followed by San Francisco Bay Area (2.9 msf) and San Diego (2.3 msf).

“Although starting from a lower basis, double-digit increases in inventory are coming for New York City (26%), Chicago (14%) and Philadelphia (10%),” the report notes. “New lab space is needed, especially in tight markets with sub-6% vacancy rates (e.g., San Diego, Philadelphia and Boston).”

Asking rents for lab space have ticked up by an average of 72% since 2015, led by the  San Francisco Bay Area and Raleigh-Durham. Vacancy for life sciences space is below 10% in six of the largest U.S. markets: San Diego, Philadelphia, Suburban MD, Seattle, Boston, and Los Angeles.

And “even with a large pipeline of new space, strong pre-leasing along with forecasted sector and employment growth, will keep vacancy rates low in most major markets,” the Cushman report predicts.

Investment in life sciences assets is predicted to swell this year, with CBRE estimating growth of at least 10% in the US this year. That’s on top of a whopping 62% increase last year, when investment in life sciences real estate reached $21.4 billion.

“The surge in investment in the US life sciences market is underpinned by strong supply and demand fundamentals,” said Chris Bodnar, Vice Chairman and Co-Head of Healthcare & Life Sciences Capital Markets at CBRE. “A shortage of existing life sciences space available for purchase, coupled with robust and soaring property prices, have led most real estate investors focused on this sector to pursue development opportunities.”