You would need to look through a microscope to see the crumbs that are the life sciences investment sales market this year.
Only three assets have traded hands in the sector this year, the Commercial Observer reported. It’s a significant step back for the life sciences field — and real estate’s heavy belief in it in recent years — though not everyone is ringing alarm bells yet.
The three properties to sell this year mark a steep departure from the previous two years, according to a report from CommercialEdge. That’s down from $1.8 billion transacted in 20 sales last year and $6.2 billion transacted in 62 sales in 2022.
It’s not just the investment sales market that’s faltering in the sector. Since the end of last year, the vacancy rate in the sector has soared by 350 basis points, according to a Cushman & Wakefield report. The factors driving availability include more sublease space on the market and a surge in spec deliveries lacking tenants.
That’s leading to a softening in rents in a few markets, Cushman’s Sandy Romero said in a statement. Demand is cooling down, even though 33.5 million square feet have been completed since 2020 and another 26.4 million square feet are in the pipeline, CommercialEdge’s report stated.
“This year, it has become clear that developers over-responded to demand for lab space, leading to a supply glut in the sector,” the report said.
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Despite the tailwinds facing the sector, the fundamentals that made it so strong after the onset of the pandemic remain. Spaces need to be controlled and set up in a particular way, so remote work isn’t as prevalent for those in the industry. And in line with other real estate sectors, activity could be poised to rebound amid the shifting interest rate environment.
“The strong appetite for highly amenitized, newly constructed Class A space is expected to push asking rents higher as a significant amount of new space delivers in the sector through 2025,” Romero predicted.