Life sciences' shrunken pipeline sets up a recovery

The construction pipeline tells you what the rent table will say later. U.S. life sciences inventory has grown from 171 million square feet in 2021 to 239 million square feet today, yet the amount still under construction now equals just 2 percent of stock, down from 17 percent at the mid-2023 peak, according to Cushman & Wakefield data reported by Commercial Observer. Deliveries in the first half of this year totaled 1.2 million square feet, an 82 percent drop from the same period in 2025, and what does break ground is increasingly pre-leased or built to suit.

The demand side has yet to catch up, as asking rents at U.S. life sciences facilities averaged $64.17 per square foot in the second quarter, down 5.3 percent from a year earlier, and vacancy climbed nearly 200 basis points to 24.3 percent. Cushman & Wakefield expects market rents to keep slipping, particularly in heavily supplied regions, before stronger funding and occupier demand stabilize rates over the next 18 to 24 months, and a two-year stabilization forecast implies another stretch of falling rents before occupancy turns—underwriting that assumes otherwise is borrowing trouble.

At 24.3 percent vacancy, roughly 58 million square feet of the 239 million square feet of inventory is empty, which is why the construction pipeline matters more than the rent number: it sets the pace at which the market can absorb that overhang.

Capital markets are reopening selectively: R&D investment sales totaled more than $9.3 billion in the four quarters ending in June, up 4 percent from a year earlier, with deal count rising 9 percent to 292, above the prior 10-year average even as average transaction size fell 5 percent. Globally, venture capital investment reached $29.9 billion in the first half of 2026, up 30 percent from last year and the strongest first-half showing since 2022; North America drew $17.9 billion of that, up 35 percent. IPO volume nearly tripled to $6.8 billion, and global M&A hit $97.2 billion, almost three times its year-earlier level.

Venture funding, IPOs and M&A are all up sharply while the construction pipeline stays flat, a combination that suggests the recovery is being led by operating companies rather than by developers betting on speculative lease-up. The average transaction size falling 5 percent fits the same pattern: capital is returning in smaller, more considered bites rather than portfolio-scale bets. That discipline is healthy, but for private allocators it means the most heavily supplied hubs will keep clearing on price, and the deals getting done today are the ones that assume another year of rent decline and underwrite the 2 percent construction pipeline as the recovery mechanism.

San Diego County is the clearest example of the hangover: it remains one of North America's largest life sciences hubs, with 26.6 million square feet of inventory and asking rents averaging $67.09 per square foot, but vacancy has reached 26.9 percent after a development surge. Another 1.3 million square feet was under construction at midyear, and roughly 70 percent was pre-leased — a rare sign of tenant commitment in a market where more than a quarter of the space is empty.

Los Angeles and Orange County offer a different starting point, with vacancy at just 3.6 percent and average asking rents of $33.32 per square foot. That scarcity is why Cushman & Wakefield points to the region's aging industrial, flex and office inventory as a conversion pipeline, with conversion opportunities emerging in El Segundo, Thousand Oaks, Pasadena and L.A.'s Westside, as well as Irvine and Tustin in Orange County. A conversion pipeline is a slower answer than ground-up construction, but in a market with single-digit vacancy it is the realistic path to near-term supply.

The contrast between the two Southern California markets is a warning for allocators who treat life sciences as a single asset class. The broader property recovery runs on supply, not demand — as this publication argued when construction froze across office, industrial and apartments, and when Hines pivoted from buying to building — and life sciences is the purest test yet of that thesis. The San Diego numbers imply the repricing is still working through the lease-up schedule, while Los Angeles shows what a supply-constrained market looks like in the same sector.

The underwrite that works today is the one that gives credit only to projects with a tenant already attached. San Diego's 1.3 million square feet of largely pre-leased construction is the template for the next cycle, and the rest of the inventory is waiting to be repriced. If funding conditions hold and the pipeline stays near 2 percent, the 2027 market will look very different from the one landlords are leasing into now.