Lease Rates For Life Sciences Space Hit Record High Nationally

Lease rates for life sciences space hit a record high nationally even as demand for space declined after two years of frenzied activity.

The amount of life sciences laboratory space under construction nationally grew to 40.3 million square feet in the fourth quarter, up about 8% from the third quarter, even as demand for the space dropped by 8.4% to 18.5 million square feet, according to a new report from CBRE.

Vacancy in life sciences spaces rose across most markets, bringing the national average to 5.7% in the fourth quarter, up from 5.1% in the third quarter. Even so, the average asking rate hit a record high of $62.16 per square foot triple net, driven by record levels of new lab space construction.

“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.”

After declining for three consecutive quarters, venture capital funding increased by 18.4% in the fourth quarter. It totaled $21.7 billion for the year, down by 34.4% from 2021 but well above pre-pandemic totals.

Some markets are more balanced than others. Denver, for example, saw only moderate increases in lab vacancy and asking rates in the fourth quarter and a growing pipeline of projects under construction is poised to meet nearly 1 million square feet in life sciences demand.

Lab vacancy across the metro area rose to 5.6% in the fourth quarter, up from 2% a quarter earlier.

The greater Denver region remains one of the more affordable life sciences markets in the U.S., with average asking rents at $60 per square foot in the fourth quarter, up from $57 in the third quarter. In other markets, the average rates are higher, including $99 in Boston/Cambridge; $76 in San Diego; and $72 in the San Francisco Bay area — the nation’s three largest life sciences markets by lab and R&D inventory.

There were 21 companies looking for a cumulative 960,000 square feet of lab and research and development space at the end of the fourth quarter, and the region’s construction pipeline is well-positioned to meet the demand.

Ten projects that will deliver more than 930,000 square feet of new life sciences space are underway. With nearly 65% of the construction pipeline already spoken for, metro Denver has the highest pre-leasing rate among all major U.S. life sciences markets. 

“The high amount of pre-leasing activity in metro Denver shows the confidence life sciences companies have in their ability to grow their operations in Colorado,” said Erik Abrahamson, senior vice president of CBRE. “The greater Denver-Aurora-Boulder region has long held a competitive advantage in terms of talent, relative affordability and geography, and now our growing inventory of high-quality life sciences real estate is cementing that leadership position.”

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