When the Sure Bet Stops Paying Off: Lessons From the Life Sciences Surplus
The post-pandemic real estate boom treated life sciences lab space as an infallible asset class, triggering a wave of development across major tech and research hubs. Today, rising vacancy rates and softening tenant demand have made it clear that the strategy was far from foolproof. However, the current lab surplus signals more than a routine real estate correction—it serves as a warning for innovation districts writ large.
When cities, developers, and anchor institutions rush to replicate a singular “innovation” formula, they risk overlooking the underlying ecosystem fundamentals required for long-term viability: capital availability, tenant pipelines, workforce alignment, and multi-sector adaptability.
Josh Parker, chairman and CEO of Ancora, examines the lab glut signals, what separates resilient innovation districts from overbuilt ones, and how the next wave of district investment can avoid repeating the same mistakes.
CM: What changed in the life sciences market, and which early signs of weaker demand did developers and cities miss?
JP: The market extrapolated an exceptional period of biotech funding into years of future lab demand. Developers committed to highly specialized buildings that would take years to deliver, while the financing available to their prospective tenants could change much faster.
Many investors understood that laboratories are expensive to relocate. They paid less attention to the conditions that allow a company to keep using them. Developing a therapy can take a decade or more, but the company still has to fund successive scientific and clinical milestones. A long path to approval does not guarantee continuous access to capital.
The early demand warnings were in the financing and operating data. There was also inconsistent data points on whether companies formed in one geography would in fact grow locally. Formation or early research strength alone was an insufficient forecast of commercial occupancy.
CM: How much of today’s lab vacancy reflects excess construction, and how much reflects changes in biotech funding and company formation?
JP: Both contributed, and I would be cautious about assigning a single national percentage to either as life science markets are still fairly clustered with unique drivers of demand and unique supply considerations in the last cycle. The construction pipeline expanded around expectations formed during the post Covid exuberance for new therapies and attendant funding boom. Commercial real estate investment is often a crowding in story. Anyone could see the excess supply being created against historical absorption averages, but all assumed it would be someone else holding the bag. But you can’t compare Boston to St. Louis or even San Diego.
Company formation matters because today’s small, funded business can become tomorrow’s larger tenant. If fewer teams secure their first institutional round, or cannot raise follow-on capital, the knock effect on leasing will persist for years.
We are seeing green shoots in funding and tenant-demand indicators, even as vacancy remains elevated, especially in major markets. But total dollars raised are an incomplete measure. A handful of large rounds can lift the headline without producing a broad group of new tenants.
CM: Are the effects of the downturn different in established clusters such as Boston-Cambridge, the San Francisco Bay Area, San Diego and Greater Philadelphia than in newer or secondary life-sciences markets?
JP: Established clusters have deeper pools of scientific talent, experienced company builders, investors and institutional partners. That gives them more potential sources of replacement demand when a company fails or consolidates. Boston-Cambridge, the Bay Area and San Diego also attracted substantial development, however, so their underlying strengths did not prevent overbuilding, and probably contributed to it as everyone wanted to get in on the action.
Philadelphia illustrates why even established clusters need a more specific analysis. Demand for specialized manufacturing can strengthen while research labs remain vacant. A manufacturing announcement does not automatically absorb a multitenant lab building.
In newer markets, demand can depend on a smaller number of companies or one institution’s expansion. A single setback can therefore have a larger effect. But a smaller market with a distinctive research strength, affordable space and a committed anchor, like a university, can support a compelling investment. At Ancora, we focus on the relationship between the institution, its research and the proposed facility. The market’s reputation is useful context; the building still needs a credible role in the work happening there.
CM: What should a developer measure before deciding a market can support another lab building?
JP: At Ancora, we start upstream with the universities, health systems and research institutions that can generate future demand. We want to understand the fields attracting research dollars, whether new awards and faculty recruitment are expanding activity, and which programs have credible paths into industry partnerships or new companies.
Then we translate that activity into specific space requirements. For each prospective user, we examine committed funding, the next milestone requiring capital, when space is needed, and how much work will take place in its own lab versus a shared facility or contract provider. The relevant measure is funded demand for a particular type of space at an affordable total occupancy cost.
That demand has to be tested against existing vacancy, sublease space and buildings already under construction, or in this moment, still sitting vacant from the last construction boom. A tenant moving across town may leave another vacancy behind. I also want to know whether a university’s support for a research area is opportunistic, episodic, or sustained.
CM: How can universities, hospitals and research institutions demonstrate that their commercialization pipelines will generate sustained demand for space?
JP: Institutions can demonstrate a repeatable process, although no commercialization pipeline can guarantee occupancy. The strongest evidence follows several years of research projects and spinouts through licensing, outside financing, company survival and actual space use. The relevant questions are how many companies raise follow-on capital, remain in the region and grow into paying tenants. Licensing to a company elsewhere can be a scientific success without creating local lab demand. We often work with universities who are trying to distinguish between these outcomes and pull levers that will generate longer term demand in their local geography.
The ecosystem matters and we have seen better outcomes when researchers have low barrier access to shared equipment, proof-of-concept funding, experienced talent for scaling, and industry partners. Incubator occupancy should be evaluated alongside how many companies graduate into local space. A full incubator with the same companies for too long is not a good indicator.
The universities’ own needs should be evaluated independently. Funded research programs, clinical expansion or industry sponsored programs may create direct demand with a different risk profile from startup leasing. The most useful evidence connects a funded activity to a facility that helps it succeed. We work to understand whether that space will remain useful to the university and its partners when one grant ends or one company leaves.
CM: When specialized lab space sits vacant, what can owners realistically do with it? What limits its conversion to other uses?
JP: Some buildings can compete through smaller turnkey suites, shared laboratory operations or partnerships with universities that have funded space needs. Those approaches still require tenants and an operating model that covers the costs which is tough unless you take the medicine and see a rest in basis. Unfortunately, many properties were built in locations that just aren’t as competitive for the type of demand we see as most resilient.
We see other technology and research uses including robotics, materials science and certain advanced tech platforms value attributes like power, ventilation, structural capacity, and vibration mitigation that would have been included in properly constructed life science buildings.
Office, education or residential conversion may be possible, but the constraints are locational, physical and financial. Floorplate depth, daylight, plumbing, mechanical systems, zoning and code requirements all matter. An unfinished shell presents a different problem from a highly customized lab that is decommissioned.
Owners also have to be realistic about value. A new use may support much less rent than the original lab underwriting assumed. Conversion will require fresh equity, lender cooperation, and recognition that some specialized improvements will not earn back their now sunk cost.
CM: What is the central lesson from the life-sciences lab correction for developers and cities seeking to finance the next generation of innovation districts?
JP: Financing an innovation district requires understanding how research becomes sustained economic activity. Research support, company financing, and real estate capital have different jobs, and each needs to be available at the right stage.
Municipalities should tie public investment to credible institutional commitments, including funded research and occupied space. Developers should build in phases, and investors should provide capital with enough duration and reserves to support leasing and reinvestment. A district also needs a variety of space types that allow companies to matriculate and evolve as research priorities change.
The federal government is pushing a new vision where the research models, shared infrastructure and closer connections with industry could change where and how space is used. If more support flows directly to researchers or new organizations, those users will still need access to laboratories they cannot build individually. Shared facilities and flexible ownership structures could become more valuable, provided there is a reliable way to pay for their operation and upkeep.
Our view is that long-term private capital can help universities provide that infrastructure while preserving their mission and control. Those facilities still depend on sustained funding for the research and operations inside them.