The U.S. life sciences market continues to expand, with notable activity in Boston, the Bay Area, and San Diego. Over the past three quarters, these markets have shown an impressive 17% average growth in lab space demand, signaling a strong resurgence in the industry. For life sciences companies, developers, and investors, this upward trend presents both opportunities and challenges as they navigate a competitive landscape.

According to the U.S. Life Sciences Property Report, five major trends are shaping the lab space market, underscoring new opportunities for growth. Quality of assets and neighborhoods is a major draw for tenants, and the success of leasing efforts is increasingly tied to these factors. Additionally, while some markets are still working toward full normalization, key indicators suggest declining vacancy rates and positive macroeconomic fundamentals across the board.

One thing is clear: now is a prime time for life sciences companies to secure high-quality lab space before demand intensifies. For those navigating the San Diego market, the agents at SanDiegoLabSpaces.com offer invaluable expertise. Their team works closely with clients to assess their unique needs and connect them with the perfect lab spaces tailored to their scientific and business goals. By leveraging market insights and local property knowledge, SanDiegoLabSpaces.com helps clients find properties that offer not only the right facilities but also the ideal neighborhood environment for their practice.

With the market’s competitive trajectory, SanDiegoLabSpaces.com stands ready to support life sciences professionals in making strategic, informed decisions about their lab spaces—securing the foundations for their future success in this thriving industry.

San Diego, one of the top three life science hubs in the U.S., recently hosted the BIO International Convention, where over 18,000 industry professionals gathered to explore the future of biotechnology. This event highlighted San Diego’s significance within the life sciences sector and drew attention to the challenges and opportunities companies face, from funding difficulties to the need for collaborative ecosystems.

At the convention, companies from all development stages — startups, R&D, preclinical, and clinical research — highlighted the growing challenges of securing investment. As Chris Durbin, a life science specialist, noted, “Venture capital and other investors are much more selective than during the frothy era of 2021–2022.” Companies now face longer and more demanding paths to secure funding, pushing them to explore more resourceful ways to achieve their goals.

One of San Diego’s unique draws for life sciences companies is its collaborative ecosystem, making it an attractive location for startups seeking synergy with other innovators. Durbin shared that San Diego’s culture of cooperation continues to attract top talent and encourage company growth. Beyond just property transactions, he stressed the importance of connecting life sciences businesses with local resources and networking opportunities.

However, San Diego’s life sciences market has faced its share of challenges. In Q1, vacancy rates for lab and office spaces reached 14.3%, an all-time high. This spike is partly a result of new developments initiated during the pandemic, with millions of square feet still in the construction pipeline. Despite these challenges, major players like Pfizer and Alexandria have made long-term commitments in the region, signing substantial leases for future R&D projects. Meanwhile, venture capital investments remain robust, with San Diego securing $1.57 billion across 55 deals in Q1 2024. NIH and NSF research funding, totaling $2.2 billion, further reinforces the market’s future.

For companies navigating this dynamic landscape, the agents at SanDiegoLabSpaces.com provide an invaluable advantage. Their team works closely with clients to assess their specific needs and find lab spaces that align with their scientific and business goals. With extensive market knowledge and a strong network, SanDiegoLabSpaces.com helps clients connect with ideal properties in San Diego’s life sciences cluster, positioning them to succeed in one of the most collaborative and innovative environments in the country.

As the demand for life sciences space rises, SanDiegoLabSpaces.com stands ready to support companies in making strategic real estate decisions that will drive growth and innovation in San Diego’s thriving life sciences market.

San Diego’s industrial market is currently facing significant challenges, with prolonged negative absorption now reaching a fifth consecutive quarter—the longest streak since the Great Recession. High-profile vacancies, particularly from Amazon and biotech firms, have driven total vacancy rates upward, and larger spaces above 50,000 square feet are struggling to rebound to pre-pandemic leasing levels. Many landlords of these large facilities are prioritizing cost control over leasing, which has led to increased availability. In contrast, smaller multi-tenant properties, especially in North County’s incubator parks, maintain high demand and low vacancy rates, with sublet space in flex and lab buildings hitting a 20-year high.

Looking ahead, construction in 2024 will add significant new flex and industrial spaces concentrated near the Otay Mesa port of entry. While demand in Otay Mesa remains robust, broader economic uncertainties might delay a substantial market recovery until 2025. Rent growth has stabilized to long-term averages, reflecting an overall market settling into a pattern of contrasting dynamics between small-bay properties and large logistics facilities.

For companies seeking space in San Diego’s industrial market, SanDiegoLabSpaces.com offers a strategic advantage. Their team can help businesses navigate this complex landscape by providing access to available properties that meet their unique needs, especially in high-demand small-bay and multi-tenant spaces. SanDiegoLabSpaces.com’s agents bring deep local market insights, helping clients find spaces that align with current trends and emerging opportunities.

From an occupier’s perspective, tenants facing high renewal rents can benefit from strategic negotiation tactics in this shifting market. SanDiegoLabSpaces.com’s agents work with clients to secure favorable terms, helping smaller tenants in high-demand spaces and larger tenants leveraging the rising availability. Whether it’s securing short-term leases or navigating concessions, SanDiegoLabSpaces.com is committed to helping clients achieve cost-effective and strategically beneficial leases in San Diego’s evolving industrial landscape.

Lab construction has slowed over the past two years due to the end of the pandemic and economic challenges, with a CBRE report predicting a return to pre-pandemic construction levels by 2026. While lab building costs have risen by at least 20%, largely driven by inflation, material costs, and longer equipment lead times, there is currently an oversupply of lab spaces, especially in major life sciences markets like Boston-Cambridge, San Francisco, and San Diego. Building owners in these areas face record-high vacancies, sparking increased competition to attract tenants.

During the pandemic, lab construction surged to meet demand in Covid-19-related R&D, leading to nearly 40 million square feet under construction at its peak in 2023 across the top 13 U.S. life sciences markets. However, the current slowdown in life sciences funding and market shifts have led to decreased construction and more available space. In the Bay Area, for example, negative net absorption has reached nearly 2 million square feet in the past year, although opportunities exist for adapting some of this vacant lab space to industries like cleantech.

Lab conversions to other uses, such as office spaces, have also slowed, as more new, unleased lab spaces enter the market. Despite this shift, markets like San Diego and New Jersey have seen significant increases in lab construction over the past five years, but not enough to create an oversupply.

To stay competitive, lab owners are increasingly offering tenant-improvement allowances to help tenants customize their spaces. Since 2021, these allowances have grown by an average of 38% in top markets, reflecting landlords’ response to rising competition and the high costs associated with building out highly specialized spaces, like vivariums and clean rooms.

For companies navigating this evolving lab market, SanDiegoLabSpaces.com provides invaluable expertise. With a deep understanding of the San Diego market and connections across the industry, the agents at SanDiegoLabSpaces.com help clients identify and secure lab spaces that meet their specific needs, whether they’re looking for cost-effective solutions or highly specialized facilities. As landlords adapt to pre-2021 development approaches and more lab space options become available, SanDiegoLabSpaces.com can guide clients through these changes, ensuring they find optimal spaces that align with their operational goals. In this competitive market, SanDiegoLabSpaces.com empowers life sciences companies to make strategic, informed decisions about their lab spaces, helping them succeed in a rapidly shifting landscape.

Net Absorption Negative in 2024

• In Q3, the Central San Diego laboratory market recorded 352,928 sf of negative net absorption, primarily driven by new significant vacancies in Sorrento Mesa. This follows 3 straight quarters of positive net absorption, which followed 4 straight negative quarters. 2024 YTD figure is also now in the red, standing at negative 159,022 sf.
• Central San Diego leasing activity had been down since late 2022, but thus far in 2024 we’ve seen over 1 million sf of leasing activity (nearly 300,000 sf in Q3), the largest over a two-quarter span since the first half of 2022. 2024 ytd has nearly doubled the overall total for 2023.

Rental Rates Feeling The Pressure

• Asking rental rates in Central San Diego have leveled off over the last 2 years, as demand has slowed significantly from the highs during the Covid-19 years. Now $6.28 NNN.
• Downward pressure on effective rents is accelerating, as concessions continue to increase with the rise in available inventory

Large Pharma Helps Demand Levels

• –Tenants looking for lab space remain cautious, as they continue to extend their existing cash runway and take a more conservative approach in the short term.
• Big pharma requirements have kept demand above historical pre-pandemic levels, as 2 requirements make up 50% of the overall tenant demand (1.88 msf at end of Q3).
• VC funding has been very solid in 2024, despite the economic environment, as San Diego firms raised nearly $1.11b in Q3, pushing the YTD total to $3.26b…on pace to finish the year as the 2nd highest yearly figure of all time, and over 3x the annual average over the last 21 years.