As the COVID-19 pandemic continues on, demand in the life science sector has surged across the United States. According to a national life sciences market report from CBRE, the sector is seeing increased demand in high-value markets across the West Coast, causing high vacancy rates and even higher rental rates.
Across the nation, vacancy rates for current lab and research and development space have reached an all-time low of 4.9 percent. At the same time, average asking rents have soared, jumping 7.5 percent since March 2021.
“Life sciences labs have quickly become a highly sought-after property type for both tenants and investors,” said Ian Anderson, head of office research for CBRE. “This intense demand for lab space is the natural result of a global push for new medicines begetting strong funding and hiring in the life sciences sector.”
Vacancy rates have lowered across the United States. as some of the nation’s major markets have seen growth in life science employment. The Boston-Cambridge life sciences market remains the top life science market in the United States with a 1.1 percent vacancy rate.
Many markets across the West Coast also have seen exponential growth. Following the Boston market is San Diego and San Francisco with 2.2 percent and 2.6 percent vacancy rates, respectively. While slightly higher than the U.S. average, other West Coast life science markets also saw low vacancy rates, including Los Angeles, which reported a 5.3 percent vacancy rate and Seattle, which reported a 7.1 percent vacancy rate.
At the same time, these markets have observed higher-than-average growth in rental rates. According to the report, rental rates in San Francisco currently average $75.48 per square foot, and in San Diego, rents average $67.08 per square foot. Other markets saw slightly lower rates, such as in Seattle, where rent averaged $32.16 per square foot.
“Due to the pandemic, we have seen approximately four million square feet of Class A and B offices slated to be converted to lab and office space. Rental rates have been on the climb since 2010, with the overall Central San Diego asking rate having grown 133 percent. More recently, we have seen rates increase approximately 20 percent across all the core markets over the last 12 months,” said Ted Jacobs, vice chairman and leader of CBRE’s regional life sciences office.
As vacancy rates lower, demand only increases. According to the report, life sciences companies sought nearly 23.8 million square feet of new lab space across the U.S. during the third quarter alone, exceeding the amount of lab space under spec construction by nearly 2.8 million square feet.
Along the West Coast, San Francisco reported the most life sciences inventory at 32.7 million square feet. San Diego also reported 17.7 million square feet of total inventory, while smaller life science markets like Los Angeles and Seattle reported 7.8 and 8.9 million square feet of life science inventory, respectively.
Many factors are causing the demand for more inventory in the sector, particularly the growing need for vaccines fueled by the COVID-19 virus. This need has caused historic amounts of funding for life science companies across the United States, with venture-capital funding for U.S. life sciences companies exceeding $30 billion this year.
Approximately 70 percent of all funding across the country. was reported in Boston, San Francisco and San Diego. Venture capital funding in San Diego has grown the fastest among all the top life sciences clusters over the past three years, growing approximately 248 percent to $5.1 billion.
In comparison, other top performing markets are seeing millions in investments. Seattle, for instance, reported $898 million in life science investment while Portland reported $247 million. Additionally, Los Angeles reported $350 million in growth.
Top markets are also aided by significant employment growth, according to CBRE. Approximately 98 percent of specialty life science PhDs are granted in the nation’s top 12 life science clusters. Additionally, job growth in U.S. biotech and research and development sectors has grown 12.1 percent over the past year.
Growth in the nation’s top markets will likely cause demand to continue on an upward trajectory. As vacancies lower, CBRE suggests life science developers will likely turn to office conversions due to the large gap in office-to-life-science vacancy rates across many of the leading life science clusters.
Across the nation, office vacancies remain high at 16.8 percent. This remains true for many large markets, including in both San Francisco and San Diego where office vacancies reached over 14.5 percent.
