The Triangle was flooded with biotech space that now waits for tenants
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A rendering of the planned eight-story tall lab building in RTP, courtesy of Longfellow Real Estate Partners
It's not just traditional office space that is seeing an uptick in empty spaces across the Triangle. The vacancy rate for lab space and life sciences-related manufacturing space has also grown in the past year.
Why it matters: The Triangle has become one of the most attractive markets for biotech investments since the pandemic due to its talented workforce and its lower cost than more established markets, like Boston or San Francisco.
- But now it has a lot of potential space that needs to be filled, as construction is completed on new lab and manufacturing space projects, and as some tenants exit leases.
Driving the news: Vacancy rates at Triangle life sciences buildings have risen to 14.3% as of the second quarter of 2024 — up from 8.7% in the same period in 2023, according to data from CBRE.
- But life sciences vacancy throughout the Triangle is still significantly less than the roughly 20% vacancy rate that exists for traditional office users, according to data from CBRE.
- At the same time, more than a million square feet of life sciences space at the Spark LS and Pathway Triangle developments in Morrisville — two projects that were built on speculation without any tenants signed — are expected to come on the market before the end of the year.
- Spark LS has both lab and manufacturing components, while Pathways is only manufacturing space.
What they're saying: "You can spin that one of two ways," said Vinnie Durand, life sciences director for the Raleigh office of Savills, a real estate company.
- "We either overbuilt or we are built to get a lot of these relocations for [companies with] drugs that have hit FDA approvals."
Zoom in: Durand tells Axios he still sees a lot of bright spots when it comes to the biotech industry's growth in the Triangle.
- Venture capital investment into Triangle biotech startups through the first half of this year has almost equaled all of last year's investment.
- And there are expected to be several large projects looking to expand in the coming months that the Triangle will be competing for, Durand said. CBRE is forecasting leasing activity to increase in 2025.
State of play: At the same time, construction on new lab space — much like the traditional office market — could pause until existing space starts getting filled again, with developers eyeing how well the Spark LS and Pathway Triangle spaces do once they are completed.
- Two projects that are waiting to pre-lease before starting construction include Via Labs, a potential 8-story lab building being built by Longfellow at Hub RTP, and Research Square, an 11-story lab building in downtown Durham being built by Sterling Bay.
What's next: Despite construction slowing, Durand said he expects more large life sciences developers to invest in the Triangle if interest rates decrease.
- He said the Triangle has a lot of outdated suburban office parks that "are primed for repositioning to life science parks."
- "You can't find those projects in [places like San Francisco or Boston] and convert it because they are already built out," he added. "We will get large investments from those landlords in the next five years."