By Kate Snyder
The life science industry continues to normalize after the past couple of years of increased growth. A recent report from CBRE shows that the fourth quarter of 2022 was a varied one for the Puget Sound region’s life science market.
According to the report, “Despite Economic Headwinds, Life Sciences Market Finishes 2022 with Solid Fundamentals,” some of the key trends in 2022 for the Seattle area’s life science industry included significant activity but no new construction leases. The market maintained its strength with consistent employment growth and steady venture capital funding, and Seattle saw $341 million allocated to the life sciences sector in the fourth quarter, making it the highest fourth quarter on record. At the same time, the lack of new construction leases in the fourth quarter also shows the hesitation by tenants to make large capital commitments to move or expand.
The Puget Sound’s vacancy among lab and research and development facilities also rose throughout the region from 8 percent in 2022’s third quarter to 8.9 percent in the fourth quarter. In both Seattle and Bothell, average asking rental rates increased as well to $79.14 and $32.91, respectively, and demand for space from tenants declined. The report shows that currently 14 companies are looking for a cumulative 325,000 square feet across the region, down from 400,000 square feet of space in the third quarter and a pandemic-era high of 1.2 million square feet in the third quarter of 2021.
Seven life sciences projects totaling nearly 1.5 million square feet are under construction in the region as well. Those projects were 33 percent pre-leased as of Dec. 31.
Seattle’s venture capital funding aligned with national trends and rebounded at the end of the year. In addition to recording the highest fourth quarter on record, the region also saw the National Institutes of Health funding increase, reaching $1.4 billion at fiscal year’s end, which was up from $1.3 billion the year prior.
“There’s reason for optimism in Seattle’s life sciences sector,” Hans Kemp, executive vice president and co-leader of CBRE’s Life Sciences practice in the northwest, said in a released statement. “Venture capital funding is near record levels, rental rates are at an all-time high, and the vacancy rate remains below equilibrium. Yet, the economic environment is making tenants hesitant to commit to real estate. Demand and transaction volume is extremely low. It will be interesting to see what unfolds in 2023 in markets like Seattle that are comprised primarily of early-stage organizations. When they are ready to move or expand, these companies will have an uncharacteristically large number of good options.”
Much of what’s happening in the Seattle area isn’t unique, however. Across the country, several life science markets saw new supply outpacing demand, according to the report. Additionally, the overall rate of life sciences employment growth slowed in the fourth quarter as companies reduced job openings and laid off staff to maintain cash flow.
Vacancy also rose across most markets, increasing the national average from 5.1 percent in the third quarter to 5.7 percent in the fourth quarter. The report notes, however, that this rate is still less than any quarter before 2021, which suggests that vacancy is beginning to return to normal levels after the activity of 2021 pushed vacancy to historic lows. Lab space under construction also grew nationally to 40.3 million square feet in the fourth quarter, up roughly 8 percent from the third quarter. Meanwhile, demand for space declined by 8.4 percent to 18.5 million square feet.
“The past two years set the bar quite high for growth,” Matt Gardner, CBRE’s Americas life sciences leader, said in a release. “It’s natural for a red-hot market to cool a bit after such a strong run. A broad perspective of the current market should include record life sciences employment, continued rent growth and a rebound in venture capital, along with nonrecurring events like increases in sublease space.”
