The office market has long been a struggling commercial sector. But one bright spot had been lab space: Investors and tenants alike craved life sciences and lab space. Now even this slice of the office sector is struggling.
CommercialEdge, in its September office report, said that investor appetite for lab space has crated after this sector’s peak following the pandemic.
In 2022, the country saw $6.2 billion in life science sales across 62 properties. These sales came with an average price of $890 a square foot. Those are strong numbers.
But in 2023? Sales volume in the life sciences sector fell to $1.8 billion over just 20 transactions. Properties traded at a lower $631 per square foot, too. And so far in 2024, CommercialEdge has logged just three sales of life science properties in the country.
The news isn’t all bad, though. CommercialEdge says that some of this lessened demand is a result of a building boom in the life sciences sector. Since the start of 2020, 33.5 million square feet of lab space has been delivered across the country, and an additional 26.4 million square feet are currently under construction.
CommercialEdge researchers predict that once the excess space in this sector is filled, investors and tenants will again flock to life sciences and lab space. As CommercialEdge says, most life science work remains immune to remote and hybrid work. The company predicts, too, that venture capital dollars should flow again to the life sciences space as interest rates fall.
Because of these factors, CommercialEdge says, life science should remain one of the top-performing office subsectors over the long run.
“Oversupply isn’t a unique problem within the office sector, but there is currently too much space in life sciences due to recent deliveries,” said Peter Kolacyznski, director of CommercialEdge, in a statement.
“Unlike traditional office space, the long-term fundamentals for life sciences remain solid,” Kolaczysnki said.”Still, it will take longer than originally anticipated for the space to be absorbed, as these projects are delivering into markets with more availabilities.”
Overall, the national office vacancy rate stood at 19.4% in August, according to CommercialEdge. That is up 200 basis points on a year-over-year basis. Vacancy rates have risen in almost every market during this time, CommercialEdge said.
