More than a half-billion square feet of tenant demand and record levels of venture capital and National Institutes of Health (NIH) funding are positioning Denver-Boulder among the nation’s top-performing life sciences real estate markets, according to a new report from CBRE.
Fourteen companies are currently seeking a cumulative 506,000 square feet of lab space across the Denver-Boulder market, which includes Aurora. The region was one of only three among the 13 largest life sciences markets in the U.S. to see tenant demand increase in the fourth quarter of 2023.
Another proxy for demand is net absorption, which measures the amount of space newly occupied in a timeframe against the amount newly vacated. The Denver-Boulder life sciences market saw over 130,000 square feet of positive net absorption in 2023, the sixth-greatest total among the 13 leading markets.
Demand is spurred by record levels of funding for the life sciences sector in the Denver-Boulder area. Funding for life sciences organizations from both NIH and venture capital sources reached record levels in Denver-Boulder in 2023; $519 million from the NIH and $288 million from venture capital, according to CBRE research. Both are up 8% from their previous records, standing in contrast to national VC funding for the life sciences, which declined 24% year over year.
“Long-term fundamentals supporting life sciences industry growth in Colorado are solid. There are some recent indicators showing 2024 may outperform expectations, including the performance of biotech stocks, which are up nearly 40% since October. This year will see the peak in construction deliveries, so availability will increase and rents could soften. Assuming the capital markets improve as expected, Colorado should see better tenant demand in 2025 against a much-reduced pipeline of supply,” said Erik Abrahamson, senior vice president with CBRE’s Life Sciences practice in Boulder.
On the national level, among the strongest headwinds for life sciences real estate is a wave of lab construction this year and last, which is putting upward pressure on vacancy rates. Developers completed construction of 7.7 million sq. ft. in the top 13 life sciences markets in the fourth quarter, pushing the 13-market vacancy rate to 13.1%, up 2.3 percentage points from the third quarter. CBRE forecasts completion of another 20.7 million sq. ft. of labs this year.
The Denver-Boulder market saw 370,000 square feet of lab space delivered in 2023, with another 560,000 square feet under construction or renovation. Despite the new deliveries, Denver-Boulder’s lab vacancy rate rose just 0.6 percentage points quarter-over-quarter. At 9.1%, the vacancy rate is the second lowest among the top 13 markets.
