In the early days of the COVID-19 pandemic, life-sciences real estate became one of the most sought-after sectors in commercial property investment. The urgency for research and development in biotech and pharmaceuticals created a demand for laboratory space that was unprecedented. Investors, developers, and property owners, eager to capitalize on this surge, flooded the market with new life-sciences developments. However, the boom that once appeared unstoppable has since cooled, leaving a glut of specialized properties with limited demand. Today, a significant portion of these buildings, designed for the most advanced scientific research, are being rebranded as office spaces—an ironic twist in the narrative of pandemic-era real estate.
The Rise of Life-Sciences Real Estate
At the height of the pandemic, the life-sciences sector was seen as the savior of commercial real estate. Traditional office spaces were losing tenants due to the shift to remote work, but life-sciences properties seemed immune to this trend. The need for laboratories that could handle cutting-edge research, especially in the biotech and pharmaceutical sectors, meant that developers could charge premium rents. In cities like Boston, San Diego, and the Bay Area, life-sciences spaces were commanding rents upwards of $100 per square foot, far outpacing the traditional office market.
The market response was swift and dramatic. Developers, sensing an opportunity, converted conventional office spaces into life-sciences labs. Investors poured billions into these projects, driving the total square footage of life-sciences properties to new heights. According to JLL, over 59 million square feet of new life-sciences space have been added since the first quarter of 2020, with another 19.1 million square feet still under construction.
The Glut Begins
However, as quickly as the life-sciences sector grew, the market began to show signs of strain. By late 2023 and into 2024, the demand for life-sciences space had fallen significantly from its pandemic peaks. Several factors contributed to this slowdown: rising interest rates, a decline in venture-capital funding for biotech startups, and broader economic uncertainties. The very same developers who had rushed to meet the demand were now facing a market with more supply than it could absorb.
In established life-sciences hubs like Cambridge, Massachusetts, and South San Francisco, vacancy rates have soared. In the Boston area, for example, the vacancy rate for life-sciences properties jumped from less than 6.2% in late 2020 to 27.7% in 2024. Despite these alarming numbers, construction continues on an additional 5 million square feet of space, which could push vacancy rates even higher.
The Pivot to Office Space
With an oversupply of life-sciences properties and dwindling demand, developers and property owners are now making a surprising pivot: they are marketing these high-tech laboratories as conventional office space. In Boston alone, at least ten life-sciences properties are now being offered for office use, according to local brokers.
This shift is not without financial consequences. Life-sciences spaces were built to exacting specifications, with climate-controlled laboratories, advanced ventilation systems, and specialized infrastructure for controlling vibrations and other environmental factors. These features made life-sciences properties some of the most expensive to develop and operate. Yet, with the downturn in demand, landlords are finding themselves forced to accept office tenants at significantly lower rents. For instance, while lab spaces might have commanded rents of $100 per square foot during the peak of the boom, landlords are now willing to accept $70 per square foot or less for office use—a 30% haircut on their expected income.
The Financial Ripple Effects
The glut of life-sciences properties is not just a problem for landlords; it is sending shockwaves through the financial system as well. The value of even high-quality life-sciences properties has dropped by 15% to 20% from its 2022 peak. This decline is due not only to oversupply but also to rising interest rates, which have increased the cost of borrowing for developers and investors alike.
The situation is particularly dire for projects that are heavily leveraged. For example, Bank OZK, which provided nearly $915 million in construction financing to IQHQ for a major life-sciences development in downtown San Diego, saw its stock take a hit when Citigroup downgraded the bank due to weak demand for the project. The San Diego project, which was touted as the city’s first major life-sciences campus, is nearing completion but has yet to announce any life-sciences tenants. In response, IQHQ has hired an advisory firm to explore financing options, while the bank has negotiated a two-year extension option, acknowledging that the leasing cycle will be longer than anticipated.
The Broader Market Impact
Despite these challenges, the distress in the life-sciences sector does not pose as significant a risk to the broader economy as the ongoing issues in the office market. Life-sciences real estate accounts for less than 175 million square feet in the U.S., compared to 4.8 billion square feet of office space. Moreover, the highest quality and best-located life-sciences properties, such as those owned by Alexandria Real Estate Equities and Blackstone’s BioMed Realty, continue to perform well, with healthy occupancy rates and stable rents.
However, for newer developments or those in secondary markets, the outlook remains bleak. Some developers, like Greystar Real Estate Partners, have the financial strength to weather the storm. Greystar’s $600 million life-sciences project in Somerville, Massachusetts, has not yet secured any tenants, but the company has funded the development entirely with equity, allowing them to be patient in a challenging leasing environment.
Lessons for Investors
The life-sciences real estate boom and subsequent bust offer several key lessons for investors. First, it is a stark reminder of the cyclical nature of real estate markets. Even sectors that seem immune to downturns can quickly become oversupplied if developers and investors overestimate demand.
Second, the pivot of life-sciences properties to office space highlights the importance of flexibility in real estate investment. Properties that can be adapted to different uses are more likely to retain value in changing market conditions.
Finally, the current challenges in the life-sciences sector underscore the need for careful due diligence and conservative financial planning. Projects that are heavily leveraged or dependent on a narrow range of tenants are particularly vulnerable in a downturn. By contrast, developers and investors with strong balance sheets and a long-term perspective are better positioned to navigate market fluctuations.
A Cautionary Tale
The story of life-sciences real estate is a cautionary tale for investors and developers alike. What was once the hottest sector in commercial property has quickly cooled, leaving behind a trail of overbuilt and under-leased properties. While some of these spaces are finding new life as offices, the financial and operational challenges are significant. For those invested in life-sciences real estate, the road ahead will require patience, adaptability, and a clear-eyed assessment of market realities.
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