The life sciences real estate sector, a star performer during the pandemic, is now confronting an unprecedented downturn. A combination of reduced federal research funding, a sharp decline in venture capital investment, and a recent construction boom has created a perfect storm, pushing vacancy rates to record highs in key markets across the United States.
Major developers are now re-evaluating their strategies, with some selling off land previously earmarked for large-scale lab projects. This reversal of fortune signals a significant market correction for an industry once seen as one of the most resilient segments of commercial real estate.
Key Takeaways
- The average vacancy rate for life sciences lab space has surged from 6.6% in 2022 to a record 27% today.
- Federal research funding from the National Institutes of Health (NIH) is lagging, impacting the startup ecosystem that feeds demand for lab space.
- Venture capital investment in life sciences is on track for its lowest total since before the pandemic.
- An oversupply of new buildings has exacerbated the problem, with projects completed since 2022 showing a 48% vacancy rate.
A Market Saturated with Empty Space
Once a beacon of stability in commercial real estate, the life sciences sector is now grappling with an oversupply of space. The national average vacancy rate for lab space has climbed to 27%, a figure that now surpasses the average office vacancy rate of 22.5%.
This surplus is most pronounced in newly constructed facilities. According to data from real estate services firm JLL, buildings completed between 2022 and 2024 have a staggering 48% vacancy rate. This indicates that the wave of new supply, initiated during the sector's boom years, has been met with significantly weakened demand.
The nation's top three life sciences hubs—Boston, the Bay Area, and San Diego—have been hit particularly hard. These markets were the epicenters of new development, accounting for over 51 million of the roughly 70.8 million square feet of lab space built in the U.S. over the last five years. Today, Boston and San Diego report an availability rate of 33%, while the Bay Area stands at 35%.
From Boom to Bust
During the COVID-19 pandemic, investment poured into the life sciences industry, fueling unprecedented demand for specialized laboratory and research facilities. Developers responded with ambitious construction projects. However, the current economic climate, marked by funding challenges, has abruptly halted that growth trajectory, leaving many new buildings without tenants.
The Double Squeeze on Funding
The current crisis is fueled by a simultaneous decline in two critical sources of capital for life sciences companies: federal grants and private venture capital. This dual pressure is unique in recent history, creating a challenging environment for the startups and research institutions that typically occupy commercial lab space.
Federal Funding Pullback
The National Institutes of Health (NIH) is a primary engine for early-stage scientific research in the United States. This year, the NIH is reportedly running approximately $5 billion behind on grant awards compared to the previous year. This shortfall has direct consequences for academic institutions and small biotech firms.
"The many decades-long, stable partnership between the federal government and academia to reliably and continually advance science and scientific progress has really been interrupted in ways that we've not seen before," said Heather Pierce, senior director for science policy at the Association of American Medical Colleges.
This reduction in grants, such as the Small Business Innovation Research (SBIR) program, means fewer startups can get off the ground or expand their research, directly reducing the pool of potential tenants for lab space. In North Carolina, for instance, 10 startups were recently rejected for about $15 million in SBIR funds.
Venture Capital Retreats
Compounding the issue, venture capital investment has also contracted. Through the first three quarters of 2025, life sciences companies raised $24.9 billion, putting the year on pace for the lowest venture funding total since before the pandemic. Investors are now favoring larger, more established companies over speculative startups, further starving the innovation pipeline.
A Stark Contrast in Funding
The shift in investment priorities is clear. While early-stage funding dries up, venture capitalists are focusing on larger, later-stage financing rounds for companies with more mature technologies. This leaves a gap for emerging companies that represent the future demand for incubator and small-scale lab facilities.
The Ripple Effect on the Ground
The impact of this downturn is visible across the industry, from large-scale development projects to smaller incubator spaces that nurture early-stage companies.
Developer IQHQ, for example, acquired a 15-acre site in Redwood City, California, for $164 million in late 2021 with plans to build a trio of lab buildings. The company has now put the property up for sale, a clear sign of retreat from a once-promising project.
Even incubators, which are often insulated from market swings due to their diverse tenant base, are feeling the strain. The Baruch S. Blumberg Institute, which operates biotech centers in Pennsylvania, has delayed expansion plans for two of its facilities due to rising vacancies. Its Doylestown location, which had never previously experienced significant vacancy, now has 16% of its lab space empty.
"What's really ironic is the MAGA platform... is make America great again. Well, we are great in science. And what's going on this past year is basically been cutting the legs out from science. It's disheartening," said Louis Kassa, CEO of the institute, referencing the impact of funding cuts.
Looking for a Path Forward
With a glut of empty, highly specialized buildings, landlords are now forced to get creative. Some, like John Grassi, CEO of Spear Street Capital, are exploring alternative uses for their vacant properties. His firm's 500,000-square-foot lab building in Watertown, Massachusetts, has sat largely vacant since its purchase in 2020.
Grassi hopes the space can be repurposed for applications at the intersection of artificial intelligence and life sciences, or even for drug manufacturing. This pivot reflects a broader search for new sources of demand in a market where the traditional tenant base is struggling.
The downturn has also been reflected in the public markets. Shares of Alexandria Real Estate Equities, a major publicly traded life sciences landlord, have fallen dramatically from a high of around $220 per share in late 2021 to about $80 today.
As the industry navigates this challenging period, the future of life sciences real estate will depend on the stabilization of funding streams and the ability of property owners to adapt their vacant spaces for the next wave of scientific innovation, whatever that may be.
