Life Science Real Estate Is A Rocky Horror — Come Down To The Lab And See What's On The Slab

Life sciences businesses are feeling the impact of a slowdown in venture capital (VC) funding, but real estate in the sector is still trading at a premium.

The first half of 2023 saw the lowest amount of VC funding since 2019, but investment this year is expected to beat any year before 2018, according to a report from Pitchbook and the National Venture Capital Association.

Sales activity slowed this year for all real estate asset classes, including the life science sector. After more than $6 billion in sales last year, just $386.6 million in lab space has sold through the end of July, according to Yardi Matrix’s August National Office Report. Properties that have sold commanded an average of $770 per square foot — nearly four times higher than the $196-per-square-foot national average for all office buildings.

Life science accounted for 5% of all office construction over the last decade, but in the last two years, it has made up for more than one-quarter of construction starts with 23 million square feet of lab space starting development since 2022.

But the life science sector could see an overabundance of supply in the coming years. Since the beginning of 2021, 16.3 million square feet of new life sciences facilities have been delivered, and more than 33.5 million square feet are under construction, according to the Yardi Matrix report.

But oversupply is expected to be concentrated in a few markets where the industry is clustered. Boston has 12.4 million square feet of space under construction; San Francisco has 5.6 million square feet being built; and San Diego is building 4.5 million square feet of life science space.

Emerging markets include Philadelphia with 2.2 million square feet under construction; Houston with 1.4 million square feet and Seattle at 1.1 million square feet.

“We expect the life science sector to continue expansion in the future, albeit not at the blistering pace seen in the last few years,” the Yardi Matrix report states.

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