Although the U.S. life sciences sector has experienced robust construction completions that pushed the vacancy rate to 19.7%, net absorption was positive for the fourth quarter, according to a CBRE report.
Net absorption has increased for three of the past five quarters, reaching 920,000 square feet during the fourth quarter. The San Francisco Bay Area and San Diego led net absorption growth. Momentum could carry through to this year as fourth-quarter numbers showed gradual improvement across the 13 largest life sciences markets, the report said. Leasing activity for lab space grew 28% year-over-year to 3.4 million square feet.
Record high employment driven by new drugs receiving federal approval and an increase in venture capital funding boosted the life sciences sector. CBRE said VC funding was up 19% to $30.4 billion for the year.
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A surge in lab construction that began during the pandemic that pushed the national vacancy rate higher is now beginning to ease. During the fourth quarter, there were 12.1 million square feet of labs in progress, about two-thirds less than at the peak in 2024.
CBRE said the sector should benefit from some of the same factors in 2025 that it enjoyed during the fourth quarter, including an improving economy, strong sector employment and more receptive capital markets. The 10-year Treasury yield also is a factor in driving life sciences real estate value and investment activity. A recent uptick in yields has negatively impacted some of the positive momentum in life sciences capital market indicators, but the market is expected to stabilize later this year and could see increased investment activity, said CBRE.
In addition, demand for lab and R&D space has stabilized and could increase this year while negative absorption eases. CBRE noted the sector is in a period of unprecedented innovation and discovery, including the approval of 48 novel drugs last year, one of the highest totals in 40 years.
However, vacancy is likely to remain elevated as about eight million square feet of lab space is expected to complete construction this year, especially in Boston, the San Francisco Bay Area and San Diego. These three markets have recorded 5.3 million square feet of negative net absorption since 2023, said CBRE.
“The life sciences sector operates on longer cycles than the real estate sector, especially since drug discovery, development and marketing can take more than a decade in some cases," said CBRE Americas life sciences leader, Matt Gardner. “But shorter-term, economic influences come into play, too. Several economic and financial indicators point to better conditions for life sciences real estate this year.”
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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.
