During the COVID-19 pandemic, demand for life-science real estate exploded. Now, economic turmoil and ballooning interest rates have gotten so extreme that this recently white-hot sector is now coming under pressure.
Pharmaceutical companies have continued to push demand for life-science buildings with their need for spaces designed specifically for laboratory work. Projections from commercial real estate services firm CBRE show that life-science space is expected to increase from 180 million square feet at the end of 2022 to 220 million square feet by 2025, and that demand is prompting an influx of new supply in major industry hubs. However, most of this new supply is hitting the market against a backdrop of recessionary worries which has only grown stronger with the Fed’s latest interest rate hike. Vacancy rates for life science properties have already starting ticking up and some are worried that could get even higher.
Despite the challenges facing the life-science market, the industry is still positioned for long-term growth. The pandemic underscored the importance of life-science and biotechnology investment. Additionally, the aging population and the rise of chronic diseases are driving demand for new therapies and treatments, which will require more lab and research space. Advancements in technology and innovation are enabling new discoveries and breakthroughs that will continue to drive demand for life-science real estate. While the short-term outlook may be uncertain, the long-term prospects for the industry (and its real estate) remain bright.