The life sciences vacancy rate has jumped two percentage points for the second quarter to 16.7% as net absorption of 294,390 square feet was offset by 4.6 million square feet of vacant new deliveries, according to the CBRE 2Q Life Sciences market report. However, year-to-date absorption is negative 325,197 square feet due to the sluggish first quarter.
Total leasing activity fell during the quarter to 2.6 million square feet, while the percentage of new leases and expansions increased to 57% from 46%. Average asking rent increased by 2.7% quarter-over-quarter to $71.84 NNN per square foot due mainly to increased availability and new supply of top-tier space, the report said.
Total lab and R&D space under construction fell to 21 million square feet, the lowest quarterly total since Q2 2021. Nearly five million square feet of lab space was delivered during the quarter, only 7% of which was pre-leased, and an additional 10 million square feet is scheduled to be delivered later this year.
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Venture capital funding for life sciences companies hit its highest quarterly total since Q2 2022. Total life sciences employment fell slightly in May from its record high in April, when biotech R&D employment set a new high.
All but three of the leading life sciences markets had positive net absorption during the quarter with San Diego leading all markets at 204,166 square feet. The city's asking rents were $77.28 NNN and vacancy was 17.7%.
The Boston-Cambridge market followed with net absorption of 192,276 square feet. Rents in the market were $92.66 and vacancy stood at 16.3%. New supply continued to outpace demand with nearly 1.5 million square feet delivered in Q2 accounting for 81% of the increase in activity in Boston, said CBRE.
Meanwhile, Los Angeles had net absorption of negative 10,478 square feet, a vacancy rate of 9.6% and an average asking rent of $53.52. Early-stage venture-backed companies are focused on cash conservation and conservative real estate expansion plans in L.A., which has translated into low leasing velocity, according to the report.
Also contending with negative absorption was Raleigh-Durham (-32,625), where the largest vacancy during the quarter came from Bayer Crop Science's expiring 61,500 square-foot lease. However, Novo Nordisk announced plans for one of the largest expansions in its history totaling $4.1 billion in its Johnston County facility.
The San Francisco Bay Area had negative net absorption of 380,680 square feet, which represented a quarter-over-quarter and year-over-year improvement, signaling a slowdown in the market's occupancy losses, the report said. Multiple vacant construction deliveries caused a significant increase in vacancies to 24.6% during the quarter.
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
