The Life Sciences Divide: Opportunity and Risk in a Bifurcated Market
May 5, 2026
The Life Sciences Divide: Opportunity and Risk in a Bifurcated Market
In February, a two-year-old life sciences building near Seattle’s Space Needle sold for less than 30% of its assessed value. But that same month, CBRE released its 2025 life sciences report for New York City, which noted that annual leasing velocity for 2025 exceeded 2024’s total by 138%.
What do these contrasting numbers tell us about the life sciences real estate sector?
They underscore a market defined by sharp divergence. Life sciences has become one of the most closely scrutinized niche sectors in commercial property investing, with both strong upsides (like durable, long-term income streams) and risk.
What Makes a Life Sciences Building Different?
Life sciences buildings are not upgraded medical office properties. While medical offices are designed for patient care, life sciences buildings are highly engineered facilities designed for laboratory research and production (i.e. biotechnology and pharmaceutical tenants).
The risk of these investments is that build outs for laboratory space are substantially more expensive than conventional office or medical space — often multiples higher per square foot — because the interior improvements are so technical and tenant-specific, including:
- Wet lab infrastructure (chemical handling, specialty plumbing, floor drains)
- Advanced HVAC systems
- Redundant power and backup generators
- Heavy floor loads to support specialized equipment
The Investment Appeal
According to CBRE, “Life sciences properties have yielded superior returns compared to other asset types.” And “rents continue to command a substantial premium over traditional office space,” averaging 40% higher across the 12 markets tracked by Cushman & Wakefield Research.
PwC predicts that the life sciences sector will stabilize in 2026 and see substantial growth beyond this, due to AI-driven efficiency gains. Over the past five years, lab space demand, pharmaceutical R&D spending has accelerated, with U.S. biotech sector R&D revenues forecast to grow to more than $350 billion in 2028.
Life sciences investment can be appealing because tenants often sign extended lease terms due to the cost and complexity of relocating lab infrastructure. When leased to strong biotech or pharmaceutical tenants, these assets can generate durable cash flow.
In addition, the high cost of entry – the cost of construction and specialization – limits supply, so the market is not as crowded as other sectors. This means the risk of oversupply is lower within established clusters, though asset-level execution remains high. Life sciences real estate is not a generalist strategy; it requires long-duration capital, a high tolerance for execution risk, and access to specialized operating expertise.
The Structural Risk
However, that same specialization that creates value also creates vulnerability. If a tenant vacates, the building’s re-tenanting pool is narrow and conversion costs can be substantial. In weaker markets, value may decline dramatically because alternative uses are limited.
Unlike a medical office building, which can often be reconfigured for another healthcare user, a vacant lab building in a secondary market may trade at a significant discount.
Additionally, life sciences real estate market growth has been heavily concentrated in a small number of markets, such as Boston, Cambridge, San Francisco, and San Diego, but has not been as strong in other cities.
Risk Mitigation for Lenders
From a lending perspective, structural protections are critical. Strategies may include:
- Hyper-amortization structures to reduce principal exposure more rapidly.
- Strong tenant credit underwriting and milestone tracking.
- Lower loan-to-value thresholds relative to conventional office.
- Careful market selection, focusing on established life sciences clusters.
The underwriting must reflect the difficult nature of these buildings: fully leased, these assets perform exceptionally; vacant, they can become highly specialized liabilities.
Summary
Life sciences buildings are infrastructure-intensive property whose value is deeply tied to tenant stability, geography, and long-term capital planning. They represent a high-barrier, high-specialization sector that rewards disciplined underwriting.
There can be significant opportunities for lenders and investors if deals are structured in a way that proactively mitigate the downsides.
About Jack Mullen of Summer Street Advisors:
As Founder & Managing Director of Summer Street Advisors, Jack Mullen leverages decades of experience in valuation, underwriting, and risk management to lead multi-million and multi-billion dollar CRE transactions.
Previously with GE Capital and large institutional banks, he has shaped investment strategies for some of the industry’s largest deals. A recognized leader, his insights are featured in GlobeSt.com and CREFC Finance World, and he is a sought-after speaker at industry conferences and top universities.
For strategic advice on your portfolio or transaction, contact:
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