TULSA, OKLAHOMA (November 14, 2022) - Amid the rising interest rates and uncertainty of the U.S. economy, the life science sector has remained a strong performer. But, as noted in a Wealth Management Magazine story titled "The Once Red-Hot Life Sciences Sector Returns to Normalcy," signs off a slowdown are even permeating here.
In the third quarter, occupancy dipped to 94 percent across the top 12 U.S. life sciences markets—from a peak of 95 percent in the first quarter of 2022. A 30-basis-point increase, largely due to a significant amount of new supply hitting the market, has led to the addition of available, has led to the addition of available new space to outpace absorption.
In terms of construction, about 38 million sq. ft. of new life sciences is currently being built in the country. About 88 percent of it is being constructed on a speculative basis, while roughly 28 percent is pre-leased. The strong amount of speculative development is a bullish indicator of the confidence investors have in the sector, as prior to the pandemic spec lab construction was rare.
That was because at that time, life sciences projects were large and pricey to build, typically costing up to $1,000 per sq. ft. and requiring an overall investment of at least $50 million, according to Oklahoma-based Craig Tomlinson, investment sales broker at real estate services firm Northmarq.
But since big private equity firms entered the sector, the sales price of life sciences assets has doubled, making new construction worth it. In the third quarter of this year, for example, Biogen sold one of its lab buildings in Boston to Boston Properties for more than $2,000 per sq. ft., Tomlinson notes. The Carlyle Group also sold the Good Start Genetics lab in Boston to GI Partners for roughly the same price per sq. ft.