Life Science Boosts Development As Remote Work Stresses Tech Markets

Life science developments are a bright spot in real estate markets that are suffering because their workforces are resisting returning to the office.

Demand for new lab space remains solid even as many office projects have been canceled or placed on indefinite hold, according to a recent report from CommercialEdge.

More than 120 buildings with life science components are under construction nationwide. Many of the projects are in top life science markets such as Boston, San Francisco and San Diego. Markets such as New Jersey and Atlanta are developing projects aimed at attracting life science workers and companies.

In New Jersey, for example, the HELIX Health + Life Science Exchange is entering the second phase of a $731 million development of a 4-acre mixed-use project near Rutgers University. And in Atlanta, Georgia Tech is working with Trammel Crow to build the 365,000-square-foot Science Square Labs.

Spiking Vacancy Rates

While life sciences are a bright spot for some markets, others with a high concentration of technology workers who are resisting returning to the office are struggling. The markets with the greatest share of remote workers have seen the biggest spike in vacancy rates.

In metro Denver, for example, 27.5% of workers are working remotely and the vacancy rate has increased by 3% over the past 12 months. In Austin, vacancy rates have increased by 4.4%, and they’re up by 2.8% in San Francisco.

In Seattle, where 30.6% of the workforce is remote, vacancy rates increased by 3.8%. Remote workers account for 27.5% in Portland, which saw its vacancy rates rise by 3.7%; and in the Twin Cities, where 26% of employees work remotely, the vacancy rate was up by 4.5%.

While these markets likely will see more distressed office properties in the coming months, well-positioned assets should continue to perform well. Older and poorly located properties will face more challenges.

“Six months ago, we pointed to watching how lenders behaved in conjunction with borrowers,” CommercialEdge Senior Manager Peter Kolaczynski said. “Now it’s reasonable to question if borrowers will be motivated to work with lenders on a solution. We’re expecting to see more buildings surrendered.”

Nationwide, office sales amounted to $11.9 billion in May, with assets trading at $195 per square foot — down 22% from 250 per square foot in 2022. The average U.S. office listing rate was $38.36 per square foot, up 2.1% year over year.

Los Angeles saw one of the sharpest drops in average sales prices, with the average price falling 43% to $237 per square foot from the $412 average price per square foot last year.

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