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Office buildings in Philadelphia, an emerging life science market. Image by Olga Kaya/iStockphoto.com
In 2023, the life science sector faces a slowdown due to rising interest rates, bank failures and economic uncertainty, according to the latest CommercialEdge office report. Despite this, niche properties maintain value premium, backed by strong supply pipeline and positive long-term prospects. Lab space sales dropped to $387 million by July 2023 from $6 billion in 2022, but sold properties averaged $770 per square foot, far exceeding the $196 office building average.
Despite a 33.5 million-square-foot potential supply surplus, risks are concentrated exclusively in markets such as Boston, San Francisco and emerging ones such as Philadelphia and Houston. The sector is anticipated to expand with investments in mRNA and CRISPR, although VC funding decreased in 2023.
The office-using sector lost 1,000 jobs in July, for the first time since April 2020. While the financial sector saw an addition of 20,000 jobs, professional and business services lost 8,000 jobs, and the information sector saw a 12,000-job decline. Throughout this year, the information sector has seen a total loss of 46,000 jobs. While the layoffs that impacted the sector during the previous winter slowed down, they still persist this year.
READ ALSO: How Greystar Is Breathing New Life (Science) Into Its Strategy
The national office vacancy rate continued to climb, clocking in at 17.1 percent at the end of July, a 200-basis-point increase from the same period last year. Vacancy has surged across the country since the start of the pandemic, with the most notable increases occurring within tech-centric markets such as Seattle (560 basis points year-over-year), Austin (490 basis points), San Francisco (370 basis points), San Diego (350 basis points) and Twin Cities (330 basis points).
National full-service equivalent listing rates averaged $37.89 per square foot in July, up 40 basis points year-over-year and 7 cents more than in the previous month. Average in-place rents increased dramatically in Boston (14.3 percent year-over-year), San Diego (9.9 percent), Twin Cities (5.6 percent), Orlando, Fla., (5.5 percent) and Atlanta (4.5 percent).
Office construction slows amid changes
The under-construction pipeline continued to contract, featuring 108 million square feet of new office space underway at the end of July, or 1.6 percent of total stock, CommercialEdge shows. Meanwhile, office deliveries in the first seven months of the year totaled 27.4 million square feet. In 2023, office construction starts have slowed down due to higher interest rates and an increase in remote work. As of July, developers broke ground on only 16 million square feet of new office space, a significant decrease from the 34 million square feet recorded during the same time in 2022.
At the end of July, Boston had 13.9 million square feet of office space underway, accounting for 5.7 percent of total stock. Manhattan followed with 7.4 million square feet underway, or 1.6 percent of stock. Seattle had 6.6 million square feet of office space under construction (4.8 percent), while Austin’s pipeline featured 6.2 million square feet, or 6.9 percent of total stock. Office investment year-to-date in July totaled $17.5 billion, with the average sale price for a property standing at $196 per square foot.
Read the full CommercialEdge office report.
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