Lab spaces were the hottest commercial real estate bet. Now, landlords are facing headwinds from DC and Silicon Valley.

• Lab space real estate faces challenges as funding from Washington, DC and Silicon Valley declines.

• Federal research grants and venture capital are crucial for the life sciences sector’s growth.

• High vacancy rates and oversupply in top markets, such as Boston and San Diego, exacerbate these issues.

Developer IQHQ made one of the hot real estate bets of the pandemic era when it acquired the triangular-shaped office building in Redwood City, California, for $164 million in late 2021.

The San Diego-based landlord planned to raze the property at 10 Twin Dolphin Drive and erect a trio of lab buildings on the 15-acre site catering to the life sciences sector. At the time, the industry was booming as it played a leading role in combating COVID.

IQHQ has put the property up for sale this month, the firm confirmed to Business Insider.

The offering is the latest sign of retreat in a once-soaring segment of the real estate market, as life sciences properties across the country face record vacancy rates and tenants in the sector struggle with funding challenges that could drag on for years.

“We routinely evaluate our portfolio for opportunities to recycle capital by selling land assets that may not be strategic to IQHQ at this point in time,” an IQHQ spokeswoman said in a statement.

The sector’s problems have also been reflected in the stock market, where shares of Alexandria Real Estate Equities, a large public life sciences real estate company, have tumbled from a record high of about $220 per share in late 2021 to roughly $80 today.

Chief among the ongoing disruptions is a pullback in federal research funding, which is critical to the ecosystems of startups that eventually fill commercial lab spaces. The National Institutes of Health, which doles out the majority of federal money to the life sciences sector, is running roughly $5 billion behind on grant awards this year compared to 2024, according to the Association of American Medical Colleges.

Venture capital, another key source of funding for the industry, has also pulled back. Life sciences companies raised $24.9 billion in venture investment through September, putting 2025 on pace for the lowest venture haul since before the pandemic, according to PitchBook.

Compounding the situation is a building boom in recent years that has left the market oversupplied just as leasing activity has slowed.

“Cycles in the past, you might see dips in venture funding, but federal funding remains stable — or there might be record layoffs occurring, but venture funding and research funding remains high,” said Travis McCready, the chair of the real estate services firm JLL’s global life sciences advisory practice. “This is the first cycle I can think of in my professional history where all of the black squirrel events are happening at the same time.”

The average vacancy rate for life sciences spaces in leading markets across the country has ballooned from 6.6% in 2022 to 27% today, according to JLL — a record level. That number exceeds the 22.5% average vacancy for office space nationally, according to JLL, an area of the commercial real estate market that has grabbed attention for its headwinds.

Unlike the office market, where new buildings are outperforming, brand-new labs have been a focal point of the brewing problems. Projects completed between 2022 and 2024 have a 48% vacancy rate, according to JLL, demonstrating how newly delivered real estate to the sector has been met with moribund demand.

Boston, the Bay Area, and San Diego, which are the top three life sciences markets, have been beset with once-unthinkable vacancies, in part, because they were magnets for new construction in the sector. About 51.7 million square feet of the roughly 70.8 million square feet of life sciences space built in the last five years in the US was erected in those three markets.

According to JLL, Boston and San Diego now have a 33% availability rate, a statistic that measures the total amount of space landlords are marketing to potential takers, and the Bay Area’s availability rate is 35%.

Even incubators, collaborative and multi-tenanted spaces that are usually resilient to downturns because they cater to larger constellations of small users, have begun to feel the strain.

Louis Kassa, the CEO of the Baruch S. Blumberg Institute, which operates incubator spaces in Doylestown, Pennsylvania and Philadelphia, said the nonprofit has delayed plans to expand both facilities because of budding vacancies.

The space in Doylestown, called the Pennsylvania Biotechnology Center, has grown steadily since opening more than a decade ago to about 150,000 square feet today and has never had appreciable vacancy, Kassa said.

Now, about 16% of its lab space is empty, Kassa said, and it has delayed plans to enlarge the facility by about 38,000 square feet. In Philadelphia, it leases almost 100,000 square feet from the large landlord Brandywine Realty Trust at an office property known as Cira Center. That space, called B+labs, has also accrued vacancy and Kassa said the Blumberg Institute has similarly postponed plans to take another floor.

In Doylestown, Kassa said that four tenants had recently been denied Small Business Innovation Research, or SBIR, grants from the NIH, which is a division of the US Department of Health and Human Services.

“What’s really ironic is the MAGA platform — and I don’t want to get too political — is make America great again,” Kassa said. “Well, we are great in science. And what’s going on this past year is basically been cutting the legs out from science. It’s disheartening.”

Mike Carnes, vice president for emerging company development at NCBiotech, a state-sponsored life sciences support initiative in North Carolina, said that 10 startup companies in the state had been recently rejected for about $15 million in SBIR funds. In 2024, a total of $124.5 million in NIH funding was awarded in the state.

President Trump’s executive budget, meanwhile, has proposed cutting NIH funding by 40%.

“The many decadeslong, stable partnership between the federal government and academia to reliably and continually advance science and scientific progress has really been interrupted in ways that we’ve not seen before,” Heather Pierce, the senior director for science policy and regulatory counsel at the Association of American Medical Colleges, said.

She added that the research funding plays a large role in the health of the life sciences sector.

The “seeds of the exploratory research that may eventually move to a commercial product,” often come out of academic research funded by federal money, she said.

Venture capital has also pulled away from life sciences.

Kassa, the head of the Blumberg Institute, said that much of the venture capital flowing into life sciences was favoring larger, more established companies over speculative startups — a concerning sign for future life sciences space demand.

“There are some investments being done, but it’s mostly larger rounds for more advanced companies and technologies,” Kassa said.

In 2020, Spear Street Capital, a San Francisco-based real estate investor, purchased a 500,000-square-foot building at 705 Mt. Auburn Street in Watertown, Massachusetts — one of the nation’s top biotech hubs — for about $300 million. The lab space has sat largely vacant ever since.

John Grassi, the CEO of Spear Street, said the ecosystem of smaller life sciences firms was a “little engine driving things” by taking space and incentivizing larger firms in the sector to follow suit.

He’s now hoping the space can be “converted to alternative uses,” including the growing application of AI to life sciences functions or even drug manufacturing, he said.

He didn’t want to specify exactly how he was planning to pivot his strategy for the property, but said he was optimistic.

“Hope springs eternal, correct?” Grassi said.

Read the original article on Business Insider

• Lab space real estate faces challenges as funding from Washington, DC and Silicon Valley declines.

• Federal research grants and venture capital are crucial for the life sciences sector’s growth.

• High vacancy rates and oversupply in top markets, such as Boston and San Diego, exacerbate these issues.

Developer IQHQ made one of the hot real estate bets of the pandemic era when it acquired the triangular-shaped office building in Redwood City, California, for $164 million in late 2021.

The San Diego-based landlord planned to raze the property at 10 Twin Dolphin Drive and erect a trio of lab buildings on the 15-acre site catering to the life sciences sector. At the time, the industry was booming as it played a leading role in combating COVID.

IQHQ has put the property up for sale this month, the firm confirmed to Business Insider.

The offering is the latest sign of retreat in a once-soaring segment of the real estate market, as life sciences properties across the country face record vacancy rates and tenants in the sector struggle with funding challenges that could drag on for years.

“We routinely evaluate our portfolio for opportunities to recycle capital by selling land assets that may not be strategic to IQHQ at this point in time,” an IQHQ spokeswoman said in a statement.

The sector’s problems have also been reflected in the stock market, where shares of Alexandria Real Estate Equities, a large public life sciences real estate company, have tumbled from a record high of about $220 per share in late 2021 to roughly $80 today.

Chief among the ongoing disruptions is a pullback in federal research funding, which is critical to the ecosystems of startups that eventually fill commercial lab spaces. The National Institutes of Health, which doles out the majority of federal money to the life sciences sector, is running roughly $5 billion behind on grant awards this year compared to 2024, according to the Association of American Medical Colleges.

Venture capital, another key source of funding for the industry, has also pulled back. Life sciences companies raised $24.9 billion in venture investment through September, putting 2025 on pace for the lowest venture haul since before the pandemic, according to PitchBook.

Compounding the situation is a building boom in recent years that has left the market oversupplied just as leasing activity has slowed.

“Cycles in the past, you might see dips in venture funding, but federal funding remains stable — or there might be record layoffs occurring, but venture funding and research funding remains high,” said Travis McCready, the chair of the real estate services firm JLL’s global life sciences advisory practice. “This is the first cycle I can think of in my professional history where all of the black squirrel events are happening at the same time.”

The average vacancy rate for life sciences spaces in leading markets across the country has ballooned from 6.6% in 2022 to 27% today, according to JLL — a record level. That number exceeds the 22.5% average vacancy for office space nationally, according to JLL, an area of the commercial real estate market that has grabbed attention for its headwinds.

Unlike the office market, where new buildings are outperforming, brand-new labs have been a focal point of the brewing problems. Projects completed between 2022 and 2024 have a 48% vacancy rate, according to JLL, demonstrating how newly delivered real estate to the sector has been met with moribund demand.

Boston, the Bay Area, and San Diego, which are the top three life sciences markets, have been beset with once-unthinkable vacancies, in part, because they were magnets for new construction in the sector. About 51.7 million square feet of the roughly 70.8 million square feet of life sciences space built in the last five years in the US was erected in those three markets.

According to JLL, Boston and San Diego now have a 33% availability rate, a statistic that measures the total amount of space landlords are marketing to potential takers, and the Bay Area’s availability rate is 35%.

Even incubators, collaborative and multi-tenanted spaces that are usually resilient to downturns because they cater to larger constellations of small users, have begun to feel the strain.

Louis Kassa, the CEO of the Baruch S. Blumberg Institute, which operates incubator spaces in Doylestown, Pennsylvania and Philadelphia, said the nonprofit has delayed plans to expand both facilities because of budding vacancies.

The space in Doylestown, called the Pennsylvania Biotechnology Center, has grown steadily since opening more than a decade ago to about 150,000 square feet today and has never had appreciable vacancy, Kassa said.

Now, about 16% of its lab space is empty, Kassa said, and it has delayed plans to enlarge the facility by about 38,000 square feet. In Philadelphia, it leases almost 100,000 square feet from the large landlord Brandywine Realty Trust at an office property known as Cira Center. That space, called B+labs, has also accrued vacancy and Kassa said the Blumberg Institute has similarly postponed plans to take another floor.

In Doylestown, Kassa said that four tenants had recently been denied Small Business Innovation Research, or SBIR, grants from the NIH, which is a division of the US Department of Health and Human Services.

“What’s really ironic is the MAGA platform — and I don’t want to get too political — is make America great again,” Kassa said. “Well, we are great in science. And what’s going on this past year is basically been cutting the legs out from science. It’s disheartening.”

Mike Carnes, vice president for emerging company development at NCBiotech, a state-sponsored life sciences support initiative in North Carolina, said that 10 startup companies in the state had been recently rejected for about $15 million in SBIR funds. In 2024, a total of $124.5 million in NIH funding was awarded in the state.

President Trump’s executive budget, meanwhile, has proposed cutting NIH funding by 40%.

“The many decadeslong, stable partnership between the federal government and academia to reliably and continually advance science and scientific progress has really been interrupted in ways that we’ve not seen before,” Heather Pierce, the senior director for science policy and regulatory counsel at the Association of American Medical Colleges, said.

She added that the research funding plays a large role in the health of the life sciences sector.

The “seeds of the exploratory research that may eventually move to a commercial product,” often come out of academic research funded by federal money, she said.

Venture capital has also pulled away from life sciences.

Kassa, the head of the Blumberg Institute, said that much of the venture capital flowing into life sciences was favoring larger, more established companies over speculative startups — a concerning sign for future life sciences space demand.

“There are some investments being done, but it’s mostly larger rounds for more advanced companies and technologies,” Kassa said.

In 2020, Spear Street Capital, a San Francisco-based real estate investor, purchased a 500,000-square-foot building at 705 Mt. Auburn Street in Watertown, Massachusetts — one of the nation’s top biotech hubs — for about $300 million. The lab space has sat largely vacant ever since.

John Grassi, the CEO of Spear Street, said the ecosystem of smaller life sciences firms was a “little engine driving things” by taking space and incentivizing larger firms in the sector to follow suit.

He’s now hoping the space can be “converted to alternative uses,” including the growing application of AI to life sciences functions or even drug manufacturing, he said.

He didn’t want to specify exactly how he was planning to pivot his strategy for the property, but said he was optimistic.

“Hope springs eternal, correct?” Grassi said.

Read the original article on Business Insider