NEW YORK – In commercial property, the once hot investment, life sciences property, may now become office space, rather than pharmaceutical or biotech property.
With a glut of lab space on the market, developers are looking to fill these empty spaces with offices, and sometimes at a discount. Many of these spaces have climate-controlled laboratories and specialized systems to control vibrations that can interfere with experiments, as well as state-of-the-art ventilation, fire safety and power systems.
As more office spaces downsized during the pandemic, developers created lab spaces. Real-estate services firm JLL found that in 2020’s first quarter, more than 59 million square feet of new space was added, with an additional 19.1 million square feet in the pipeline across the United States. By comparison, an average of 3.7 million was added annually in the five years leading up to the pandemic.
However, since the pandemic’s peak, the demand for life-sciences space has dropped significantly, as many pharmaceutical and biotech firms are no longer rapidly expanding because of weak venture-capital financing, an uncertain economy and high interest rates.
Travis McCready, head of life sciences, Americas markets for JLL, said, “This is the age-old story of real estate developers over-responding.”
Projects that have hit the market in the last three years have had little to no leasing, and Dylan Burzinski, analyst at real-estate analytics firm Green Street, said that due to high interest rates and supply and demand pressures, high-quality life sciences property values have declined 15% to 20% since their peak in 2022.
JLL said that the decline in value and distress in the market will have little impact on the broader economy, as the sector accounts for fewer than 175 million square feet. The distress of the office market is more worrisome, with its 4.8 billion square feet of available space.
Source: Wall Street Journal (09/03/24) Grant, Peter
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