After nearly four years of incessantly rising vacancy following a pandemic-era investment and construction boom, the long-term outlook for the life science market may finally be brightening. Multiple national reports indicate that while still historically high, vacancy rates are beginning to trend downward.
Even before the pandemic, the overall vacancy rates for life science properties, particularly in the top-tier “super-clusters” of Boston, San Francisco, and San Diego, were in the single digits. This was driven by an aging population, rising national health care spending, and the accelerating crossover between healthcare and technology. Then COVID-19 hit, and venture capital, public funding, and corporate biopharma spending surged, supporting more hiring, leasing, and expansion, driving vacancy to near-zero levels in most markets. The increase in demand led to an explosion in speculative construction and building conversions, creating a “gold rush” among investors eager to capitalize on the trend.
“By the end of 2021 and in early 2022, it seemed like everybody needed space. The axiom at the time was that two scientists and a molecule coming out of a garage were able to raise a couple of million bucks,” says Voit Associate and Life Science Specialist Chris Durbin, who operates out of the San Diego office. “I think institutional investors and life science operators were looking at the returns they could achieve from buying at a record-high per square foot basis and then underwriting $6- or $7-dollar rents that they were getting at the time… without foreseeing where the capital environment was going to end up. Biotech funding events follow the macro financial markets identically… so as the cost of capital got more expensive, fewer and fewer risks were taken. The capital flows from funding events drives leasing activity of lab space.”
In 2021, a record amount of venture capital funding was deployed in the sector, but in the subsequent years, investors pulled back to pre-pandemic levels. By 2022, demand had slowed considerably, but construction continued, with 47.3 MSF added since 2020, according to Yardi Matrix. The demand-supply imbalance widened, pushing vacancy past 25% according to multiple market reports. In the second half of 2025, the market began to correct, driven largely by three factors: a near-halt in speculative starts, a massive increase in merger and acquisition (M&A) activity as larger firms sought to backfill pipelines ahead of a wave of drug patent expirations, and the gradual absorption of existing inventory.
Construction Slowdown
According to the Yardi report, “The construction pipeline consists of only 11.3 MSF currently under construction, so yearly deliveries are on track to fall again in 2026. New supply remains concentrated in the Big Three life science markets. San Francisco delivered 3.3 million square feet in 2025, while Boston delivered 2.3 million and San Diego delivered 1.5 million. New starts are also on the decline, falling from a peak of 15.4 million square feet in 2022 to 2.4 million in 2025.”
Most new construction starts are either self-developed by the pharmaceutical/biotech company or built-to-suit by third-party developers, as exemplified by Alexandria’s development of 466,000 SF at Campus Point Megacampus in the University Town Center submarket of San Diego for Novartis (which inked a 16-year lease in 2025). This drop in construction starts over the past two years suggests that the current supply glut will need to be absorbed before new projects break ground again, but the process will be gradual.
M&A Activity
The most recent edition of “Cardiff Insights,” a newsletter written by David Crean, managing partner of M&A advisory and valuation firm Cardiff Advisory, reports that “this past week was one of the most prolific dealmaking weeks in biopharma in 2026: with nine separate transactions worth over $20 billion announced in seven days,” including deals involving Eli Lilly, Novartis, and Biogen. This follows a record $22.7 billion in Q4 2025, up 133% from Q4 2024. In a separate post, Crean noted that the $20 billion in M&A deals “were not isolated events. They were the latest proof points in a deal cycle that is, by nearly every fundamental measure, the most structurally supported in the last five years.”
“We’re seeing a lot of big pharma deals transact, and the capital recycling fuels a lot of these underfunded startups and mid-sized companies that will now be recirculated into the ecosystem,” says Durbin. “So, all of these large-scale M&A transactions are only going to accelerate the earlier stage of the cycle. Your startups and mid-size companies are going to continue to get to the point of exit, which is the goal for every life science technology company.”
The Patent Cliff
An article by asset management firm Penn Mutual reported that, according to the U.S. Food & Drug Administration, approximately 8,000 drug patents are scheduled to expire by the end of 2030. When exclusivity lapses, generic manufacturers can enter the market. This may result in the U.S. pharmaceutical market losing from $230 to $300 billion in revenue from now until 2030. In the first year after a patent expires, U.S. prices can drop by one-third and by over 80% within eight years. This incentivizes pharmaceutical companies to reload their pipelines, which they can do through a time-consuming R&D process or through external acquisitions.
“These could be massive revenue-generating assets that pharmaceutical companies could add to their balance sheets,” says Durbin. “Acquiring the technology and intellectual property can often be much easier and economically motivating than spending millions on R&D — so that’s the ultimate driver.”
The San Diego Market
Durbin and Senior Associate Miles Arnold recently prepared a report on the current state of the San Diego life science market. While vacancy is at a record high, there is room for optimism based on the fundamentals.
Vacancy across the 20 MSF-plus core cluster has ballooned to 27.9% (with availability at 31.4%), and Class A asking rents have now declined for fifteen consecutive quarters. This may be bad news for landlords, but it presents a golden opportunity for tenants as the previously discussed market conditions fuel what should be a slow but steady rebound. For starters, landlords are offering concession packages, including free rent, TI allowances, and flexible terms that would have been unimaginable during the 2020–2022 run-up. Additionally, the gap between what landlords are asking and what tenants are actually paying after concessions is the widest it has been in this cycle. The implication for real estate is direct: companies predicting future growth or space demand can take advantage of today’s environment. Companies without a multi-year capital runway should explore sublease opportunities, right-size their footprints, and preserve capital.
The Fundamentals
In the report, Durbin explains that the current market conditions don’t tell the story going forward. With the exception of Alexandria’s build-to-suit for Novartis, there are no life science construction projects underway, so new supply will eventually be absorbed. San Diego has a resilient underlying ecosystem. San Diego’s “Big Five” universities — UC San Diego (UCSD), San Diego State University (SDSU), University of San Diego (USD), Point Loma Nazarene, and CSU San Marcos — graduate 15,000 STEM students each year. According to Biocom’s 2025 Life Science Economic Impact Report, San Diego is a major innovation cluster that contributed $54.1B in economic output and directly employed 71,448 life science workers. The surge in M&A activity over the last two quarters means San Diego platforms remain prime acquisition targets. Durbin predicts that when demand recovers, San Diego will tighten faster than peer markets.
For additional insights on the life science markets, contact one of Voit Real Estate Services’ trusted real estate advisors. If you are interested in reading the Life Science Practice Group’s San Diego report, contact Chris Durbin or Miles Arnold.