A contemporary report on the U.S. life sciences sector is again from the lab with an inconclusive prognosis regardless of an improved funding surroundings in 2024.
The area of interest business struggled all through 2024 in stark distinction to the whirlwind years of demand highs and emptiness lows within the quick wake of the pandemic. Report-high emptiness charges and declining hire progress have since grow to be the norm as an increasing number of lab house entered the market, in accordance with a brand new report from Cushman & Wakefield (CWK). But the sector is concurrently poised for a sea change this 12 months as traits surrounding AI and home drug pricing come into clearer focus.
The business’s emptiness price continued to climb in a lot of the 16 markets tracked by C&W, together with main city hubs within the Americas and Europe, with a mean price of 20.5 p.c within the fourth quarter of 2024 — a rise of 250 foundation factors since simply the second quarter final 12 months. A number of the worst offenders had been New York Metropolis, Boston and the San Francisco Bay Space, which reached emptiness charges of 42 p.c, 30.3 p.c and 26 p.c, respectively.
The emptiness spikes within the Bay Space and in San Diego, which reached 20.4 p.c in This fall, had been notably doubtful. Emptiness charges in each markets almost doubled in comparison with the ultimate quarter of 2023. In San Diego, the excessive emptiness price comes regardless of a number of offers for properly over 100,000 sq. toes, together with Pfizer’s 230,000-square-foot lease at Breakthrough Properties’ 10-acre Torrey Heights campus.
The dribble of demand has naturally led to the slowing of common hire progress, which was down year-over-year, however nonetheless constructive at 3 p.c by the top of 2024. But perspective is essential, as asking rents had been nonetheless 22 p.c greater than in 2022, per C&W.
There’s additionally some gentle on the finish of the tunnel. A lot of the occupancy and hire progress decline was pushed by vacant sublease house, which ought to ease all through this 12 months because the development pipeline rightsizes and tenants take extra obtainable house, in accordance with the report.
Whole internet absorption throughout U.S. markets was unfavourable for the second 12 months in a row because of the sheer quantity of latest house, however that’s not true in all places. 4 of the U.S. markets surveyed — Chicago, New Jersey, Boston (regardless of a notable emptiness hike year-over-year) and Los Angeles/Orange County — reported constructive absorption in 2024. The L.A./Orange County market specifically was a much-needed success story for all times sciences final 12 months, as total emptiness dipped under simply 2 p.c by the top of 2024.
Most of the largest leases within the area final 12 months had been secured by landlord The Irvine Company, which signed Becton, Dickinson and Company to over 116,000 sq. toes and Tarsus Pharmaceuticals to about 60,000 sq. toes at its 70-acre Spectrum Terrace workplace campus within the metropolis of Irvine, in addition to signing Willow Laboratories to about 63,000 sq. toes on the College of California Irvine Analysis Park.
“Most of the submarkets throughout Los Angeles and Orange County are viable places for the life sciences business resulting from their proximity to world-class establishments, or as a result of they’re anchored in areas with vital workforce tailor-made towards the business,” C&W’s report notes.
Certainly, the area acquired one of many largest chunks of funding from the Nationwide Institutes of Well being final 12 months, some $1.9 billion, resulting from proximity to analysis and better studying establishments similar to UCLA, College of Southern California, City of Hope and Caltech.
Life science funding gross sales throughout the U.S. ticked up by the top of final 12 months to $7.2 billion, a soar of 33 p.c year-over-year, as did the sheer variety of offers, with 32 p.c extra closing in comparison with 2023’s figures. But each path behind the 10-year common, and are properly under the 2021-2022 peaks, which broke previous $20 billion.
Deal quantity will seemingly stay inhibited this 12 months resulting from an elevated and unsure rate of interest surroundings, per C&W. Pricing per sq. foot has additionally trended steadily downward because the 2021 peak, dropping by about 38 p.c since then and dipping 14 p.c year-over-year.
But there are some rising traits that would upend the life sciences market inside the foreseeable future. Chief amongst them is the business’s embrace of AI for numerous completely different purposes (and the adjoining increase in private and non-private capital funding), together with discovery of latest medication, improved workflows and accelerating the scientific trial course of. Funding for AI in life sciences throughout the globe spiked by 31 p.c final 12 months in comparison with 2023, and the 2024 Nobel Prize in chemistry was awarded to a joint U.S. and English workforce that used AI for protein design, C&W notes.
The price of medication is a possible curveball. Practically 50 p.c of all lively pharmaceutical elements utilized by U.S. drug producers are produced overseas, all of which might be affected by potential tariffs that the Trump administration has floated for months. Elevated drug prices may have an effect on each stakeholder from producers to well being programs to shoppers, per C&W, that means that the way forward for funding in lab and R&D might be very a lot up within the air — or depending on a pen stroke.
Nick Trombola may be reached at ntrombola@commercialobserver.com.
