Lab Tenants Hesitant To Lease As Surge Of Life Sciences Space Comes To Market
As New York aims to become a national life sciences hub, development of labs and incubators has boomed. And leasing has followed suit — until now.
By the end of last year, 2.4M SF of lab space was in New York City's construction pipeline, set to swell the 3.6M SF of inventory already in existence, according to a CBRE report.
The investment by developers made sense. After all, in 2021 and 2022, New York notched record life sciences leasing. But last year, leasing dropped 13% from the previous year’s high and rents decreased 9%, according to CBRE.
“What we have seen over the past 24 months coming off of the pandemic was a contraction in a number of the clients,” Pearl River Labs Head of Operations Lugene Maher said at the Bisnow New York Life Sciences and Biotech event last week.
Maher said she has seen some firms switch focus from areas related to the coronavirus vaccine to work in oncology and gene therapy, instead of having to slow their programs entirely.
However, early stage and midsized companies have especially struggled to make that shift without funding.
In 2023, global life sciences venture capital funding in North America totaled $29B, a 20% decrease year-over-year, according to a Cushman & Wakefield report. In 2020 and 2021, VC funding hit $37.5B and $49.4B, respectively.
“The capital available for early stage companies has not been there, so it's changed the dynamic. They're taking less risk,” NYU Langone BioLabs Director Glennis Mehra said. “They have not hired and there's been more of an entrenchment, a very conservative outlook of their growth trajectory.”
Artificial intelligence has also begun to impact companies’ footprints, especially as firms are pressured to reduce their budgets.
“Rather than hiring five or six people to do the work, they now need just two people,” Mehra said. “They only need a small space.”
Speakers onstage at Hudson Valley iCampus offered advice to the developers hoping to fill new space.
NewYorkBio CEO Jennifer Bland said the city’s life sciences hubs are spread across the metro area in places like Kips Bay, Long Island City and upstate, where the event was held. She said building up those hubs could boost growth, which the city and state are aiming for with a $1.6B development in Kips Bay.
“Idea sharing and community within our ecosystem are really important, and we do a really good job of it now, even though we're spread out in clusters across the city and across the state,” Bland said. “The potential for organic exchange of ideas, employees, people could be even better as we create larger clusters in areas that will facilitate that kind of exchange.”
Others said the existing real estate could be improved. The field is responsible for as much as 5% of global greenhouse gas emissions, part of which is attributed to its real estate and infrastructure, according to a 2023 study.
As a result, tenants have become more mindful of building and lab sustainability, regardless of regulatory scrutiny. That has been a challenge for landlords, which have had trouble measuring the carbon footprint of lab buildings.
“We're seeing this already in terms of some of our founders and some of the teams where the youth are activating sustainability measures and conservation measures,” Mehra said. “Trying to bring some standards and low-hanging-fruit solutions to the issue of sustainability, I think, is going to be crucial within the next two years, because I do think that it's going to be a fault line that we have to make sure we have bridge over.”
