Seattle Life Sciences Real Estate Market Normalized in Q4 After Robust Growth of Previous Two Years

Metrics gauging the life sciences sector varied in the fourth quarter as the industry normalized after robust growth in 2021 and much of 2022, according to a new report from CBRE.

Vacancy among lab and R&D facilities rose across the Puget Sound region to 8.9%, up from 8.0% in the third quarter. Average asking rental rates increased in both Seattle and Bothell, while demand for space from tenants declined. There are currently 14 companies looking for a cumulative 325,000 sq. ft. across the region, down from 400,000 sq. ft. of demand in the third quarter and a pandemic-era high of 1.2 million sq. ft. in the third quarter of 2021.

There are seven life sciences projects under construction in the Puget Sound region, totaling nearly 1.5 million sq. ft. Those projects are 33% pre-leased as of December 31, 2022.

Aligned with national trends, venture capital funding rebounded in Seattle at the end of the year. The fourth quarter saw $341 million allocated to the Puget Sound life sciences sector, the highest fourth quarter on record. National Institutes of Health (“NIH”) funding also increased, reaching $1.4 billion at fiscal year’s end, up from $1.3 billion the year prior.

“There’s reason for optimism in Seattle’s life sciences sector. 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,” said Hans Kemp, executive vice president and co-leader of CBRE’s Life Sciences practice in the Northwest.

New supply of life sciences real estate outpacing demand is not unique to Seattle and is the case in many top U.S. life sciences markets in the fourth quarter.

                                    Top Life Sciences Markets: Select Q4 Stats

Nationally in 2022, life sciences employment growth slowed from earlier rates but still progressed at a 4% year-over-year pace. Average vacancy across the 13 largest U.S. life sciences markets rose to 5.7% in the fourth quarter from 5.1% in the third, but it stayed even with the year-ago figure and below pre-2021 levels. Vacancy figures include space listed for sublease. Lab space under construction grew to 40.3 million sq. ft. in the fourth quarter, up roughly 8% from the third quarter. Meanwhile, demand for space declined by 8.4% to 18.5 million sq. ft.

“The past two years set the bar quite high for growth,” said Matt Gardner, CBRE’s Americas Life Sciences Leader. “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.”