Life sciences companies, rapidly expanding amid a race for new drug development, collectively sought nearly 23.8 million square feet of new laboratory space in those markets in the third quarter.
That exceeds the amount of lab space under spec construction – meaning space being built without a tenant already signed – by nearly 2.8 million square feet. The gap has widened steadily since last year – even as construction has ramped up considerably, growth in demand continues to outpace it.
The San Diego research and development lab vacancy rate currently sits at 2.2%, tighter than the Bay Area.
“We are currently tracking life sciences tenant demand in San Diego at 3.5 times historical averages,” said Ted Jacobs, vice chairman and leader of CBRE’s regional Life Sciences Practice.
Due to the pandemic, he said, approximately 4 million square feet of other spaces are slated to be converted for lab and office leases. As a result, tental rates have been on the rise since 2010, with the overall central San Diego asking rate having jumped 133%.
“More recently, we have seen rates increase approximately 20% across all the core markets over the last 12 months,” Jacobs added.
The issue extends far beyond San Diego. The U.S. vacancy rate for existing lab and R&D space sits at a record low of 4.9% – including at around 1% in both the Boston and New York City markets.
That has boosted the average asking rents in the top 12 markets – they jumped 7.5% in September as compared to March 2021.
Part of the reason for office demand can be tracked via employment in the life sciences industry. It has grown faster than the U.S average over the past 15 years, according to CBRE, in San Diego, Boston, the Bay Area, Raleigh-Durham and Seattle.
Boston, San Francisco, and San Diego remain the top markets. Meanwhile, the researchers said, Phoenix and Dallas are beginning to emerge.
“Life sciences labs have quickly become a highly sought after property type for both tenants and investors,” said Ian Anderson, CBRE Americas head of office research. “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.”