The delivery of new R&D lab buildings over the last three years, along with tighter capital markets resulting from Fed rate hikes, has impacted dynamics across major life sciences real estate markets. While this has been the story for the past 2 years, the cumulative effect has led to a contraction phase, says Joe Fetterman, EVP at Colliers, where the current level of demand for lab space cannot begin to address the oversupply of recently delivered lab product in major markets.
"In the major cluster markets, the industry is working through a significant oversupply of newly delivered, purpose-built lab space, combined with a contraction in demand driven by tighter venture capital and broader capital markets constraints," says Fetterman.
Additionally, the Colliers 2026 Life Sciences Market Outlook shows vacancy rates reached 23.5% by the end of 2025, as new supply outpaced demand in key markets. Several underlying trends, according to Jeff Myers, research director at Colliers, are driving current challenges and impacting future demand.
Oversupply and Soft Demand Push Vacancy Higher
Myers explains the increased vacancy is the result of a "perfect storm," with a wave of deliveries hitting the market just as early and mid-stage biotech companies pulled back sharply.
He further notes that more than 50 million square feet of new life sciences lab space was completed across major markets over the past five years, representing a 30% increase in inventory. However, consecutive years of negative net absorption have limited the market's ability to absorb that supply.
As a result, Myers notes that many key life sciences hubs have several years of supply based on historical absorption trends, suggesting a more gradual recovery rather than a rapid correction. Developers and lenders are responding to the current conditions by pulling back on speculative construction.
"The pause in speculative development of new lab product is both necessary and healthy," says Fetterman. "It will allow the market to absorb existing inventory and begin to bring vacancy back down over time."
In response, many developers are pivoting, delivering pre-built lab suites within existing assets rather than full-building speculative projects—effectively lowering barriers to entry and time to market for tenants and positioning themselves to capture demand more quickly as the market recovers.
Onshoring and Innovation Trends Point to Future Growth
Fetterman notes that despite near-term challenges, emerging trends may support future growth, with pharmaceutical manufacturing onshoring being one to watch. "In just the first quarter of 2026, the Greater Philadelphia region alone has seen roughly $5 billion in announced manufacturing investment."
At the same time, Myers notes that AI-driven drug discovery has the potential to fundamentally transform R&D. "It will improve efficiency, accelerate timelines, and expand the range of viable therapies, whether they be new therapies or expanded uses for existing therapies."
Myers notes that AI initiatives could drive a broad expansion of innovation activity. "If that plays out, the net impact could be an increase in overall demand for life sciences real estate over the next decade."
Fetterman notes that, overall, life sciences remains a high-conviction sector in the long term. "Capital is still targeting well-located, high-quality assets with strong leasing visibility," Fetterman says, "but underwriting is more conservative and execution risk is being priced much more carefully.
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