Published on Monday, August 18, 2025
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Leasing velocity and active demand slackened in many markets during Q2.
Hundreds of terminated or frozen life sciences grants have been reinstated, but policy surrounding federal funding remains uncertain and the impact on commercial real estate is unclear, according to Newmark’s latest life science market trends report.
Leasing velocity and active tenant demand slackened in many markets during the second quarter as vacancy rates increased 170 basis points quarter over quarter and 500 bps year over year. An overhang of new laboratory supply continues to impact vacancy in several markets, giving creditworthy lab users the upper hand in negotiations, the report said.
Supply risk is likely to moderate as developers and investors shift their focus to other asset types. Conversions of functionally obsolescent space to other uses could reduce inventory further, said the report.
The market is experiencing fallout from shifting federal funding priorities, layoffs at the FDA and a subsequent drop in new drug and biologics license approvals, even as active clinical trials and domestic pharmaceutical production have been growing. In response to tariffs, occupiers have front-loaded imports of pharmaceutical ingredients, about 70% of which are produced abroad.
The pharmaceutical industry is planning to invest in domestic manufacturing operations, which could represent a tailwind for the U.S. life sciences industry, said the report. According to Manufacturing Today, 15 of the world’s largest pharmaceutical companies plan to invest $270 billion in U.S.-based manufacturing and research infrastructure.
The majority of key life science hubs reported negative net absorption year to date as laboratory users continue to consolidate and downsize. Both the Bay Area and San Diego posted sizable occupancy losses in the second quarter, while net absorption has been trending more favorably in Boston over the past several quarters.
Nearly every market reported higher vacancy rates during the second quarter, driven by weaker demand-side fundamentals and new supply. Well over half of the existing laboratory space remains vacant in Chicago, while more than one-third of inventory is vacant in New York City and Boston. Los
Angeles maintains single-digit vacancies, but rates are up 260 basis points over the past year, said Newmark.
Pricing continues to slide across the country, with steeper asking rent losses characterizing many regions, said the report. Another 2 million square feet of purpose-built laboratory space came online during the second quarter, marking the seventh consecutive quarter of above-average deliveries.
“As developer appetite shifts to other commercial uses, including housing, the square feet under construction has reached a cyclical low with the life science sector,” said the report.