In the rapidly evolving world of life sciences, the real estate sector is experiencing significant shifts and opportunities. JLL’s latest report, U.S. Life Sciences Property Report, explores the dynamics of leasing, occupancy rates and market conditions.
To learn more about the life sciences market in Washington, D.C., we sat down with local experts, JLL Research Manager Kate Paine and Executive Managing Director Pete Briskman to delve deeper into these trends and gain valuable insights.
In the D.C. market, how have lease terms in the life sciences sector changed over time and what factors have influenced these changes?
Mirroring national leasing trends, lease terms in the D.C. market are shortening, especially among new leases and relocations. The average lease term for new leases (non-renewals) has fallen to just over five years, down from nearly 10 years in 2022. Shortening of lease term is a response to supply outpacing demand, which is giving the leverage back to tenants and allowing startups and pre-revenue tenants to negotiate for shorter terms. A key contributor to shortening lease terms over the past few years is the influx of spec suites that have delivered to the market, which are designed to be flexible space options for early-stage companies.
The report indicates that newly added vacancies are set to fall after 2024. What are the reasons for this projected decrease and its implications for the overall market and D.C.?
There has been a cooling in the demand for additional space beyond existing offerings. As a response to softening tenant demand, speculative construction has ground to a halt across all markets, including in D.C. Developers in the region have put millions of square feet of lab space on hold while they lease out newly delivered or existing space. Similarly, other developers are adopting a conservative approach, waiting for anchor tenants to sign leases before starting construction. As a result, deliveries of new vacant product are set to taper off in the coming quarters, which will provide relief to the supply dynamic to match current demand levels.
What is your perspective on the current state of the life sciences real estate sector in D.C.?
Undoubtedly in the past year, the biotech sector, as well as its accompanying real estate markets, has entered a downturn. Venture capital funding is down, leasing volumes have significantly declined, and vacancy ticks upwards, with near-term supply continuing to grow.
But looking ahead, the biotech “supercycle” will regain its footing and drive growth as it has for much of the past decade. The Greater D.C. and Baltimore life sciences market is returning to the long-term growth path of the sector and requires recalibration of expectations that calcified during the sugar high of 2020-2022.
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