Life Science Development Slows, but Leads Overall Office Market
The sector is “buoying” office starts across the country.
Life science buildings comprise nearly one-third of the office development pipeline today, according to Yardi’s Commercial Edge.
This, despite a reduction in venture capital funding in 2023 due to rising interest rates, the collapse of Silicon Valley Bank, and general economic uncertainty.
While the first half of 2023 saw the lowest amount of VC funding since 2019, investment this year will surpass any year before 2018, according to Commercial Edge’s National Office Report for August.
Nonetheless, Commercial Edge has life science properties trading at a premium, the supply pipeline is robust, and the long-term outlook remains positive.
“Life science (31% of current pipeline) is disproportionately buoying office starts across the country, especially in the traditional life science markets like Boston, San Diego and the Bay Area,” Peter Kolaczynski, CommercialEdge Senior Manager, said in prepared remarks.
Just one decade ago, life science comprised less than 5 of all office construction. In the past two years, Commercial Edge said it has accounted for more than one out of four new projects, with over 23 million square feet of lab space beginning construction since 2022.
“Since the start of 2021, 16.3 million square feet of new life science facilities have been delivered,” according to its latest report, compared to between 2010 and 2020, when 23.9 million square feet were completed.
Some developers have experienced hefty delays in getting construction materials such as high-priced mechanical items, GlobeSt.com reported in July.
Any risk of oversupply would be concentrated Boston, San Francisco, San Diego, Philadelphia, Houston, and Seattle, according to the report.
Earlier this month, GlobeSt.com reported that life science leasing had dropped 58% in Q2.
Office sales activity cooled across the board in 2023, including the life science sector. However, the properties that have sold, have traded at an average of $770 per square foot, nearly four times higher than the $196-per-square-foot national average for all office buildings.