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Life sciences real estate enters year-end 2025 with a notable divergence between operating fundamentals and capital allocation trends. While vacancy rates continue to rise and leasing velocity remains subdued, several institutional investors, public-market indicators, and sector participants are increasing exposure.
This Signal evaluates that divergence and outlines its implications for sector performance heading into 2026.
➤ SIGNAL
Fundamentals Are Weakening, but Capital Deployment Is Increasing
Operating conditions remain challenged.
CBRE data indicates vacancy has increased to 23.4%, driven by a combination of reduced leasing activity and the delivery of speculative supply initiated during the prior expansion cycle. Absorption remains limited, and tenants continue to adopt conservative expansion strategies.
This dynamic is producing:
Longer lease-up timelines
Broader use of concessions
More selective lender participation
Continued downward pressure on effective rents
These readings reflect ongoing normalization following the 2020–2022 construction wave.
At the same time, capital inflows are accelerating.
Despite near-term softness in operating metrics, institutional capital is positioning for a multi-year horizon:
Breakthrough Properties has launched a $1.5B fund, securing $430M in initial commitments.
Big Pharma investment activity totaled $370B in 2025, partially influenced by reshoring and policy incentives.
The XBI Biotech Index has appreciated 34.8% YTD, outperforming major benchmarks for the first time in several years.
Alexandria Real Estate Equities reduced its quarterly dividend by 45%, prioritizing balance sheet flexibility and internal capital allocation.
Collectively, these data points indicate that capital providers view current dislocation as cyclical rather than structural.
Understanding the Divergence: Repricing and Reallocation
The simultaneous rise in vacancy and capital commitment reflects a sector undergoing repricing, not secular decline.
1. Supply initiated during peak conditions is still entering the market.
This continues to depress near-term fundamentals irrespective of underlying scientific or corporate activity.
2. Investors are positioning capital ahead of anticipated price adjustments.
Fundraising today allows managers to deploy into an environment characterized by:
Distressed sales
Reduced development pipelines
Moderated valuations
Improved risk-adjusted return potential
3. Public-market performance is signaling early recovery indicators.
Historically, biotech equity performance has led leasing demand by 12–24 months. The current outperformance suggests improving downstream utilization of lab and R&D space, though timing remains uncertain.
4. Dividend reductions reflect balance sheet discipline, not sector retreat.
ARE’s dividend adjustment underscores a shift toward capital preservation and controlled deployment, consistent with later-cycle positioning.
What This Phase Represents for the Sector
The sector is effectively divided into two trajectories:
Core clusters (Boston, San Diego, San Francisco):
Expect continued repricing, slower absorption, and conservative development activity.
However, long-term demand drivers remain intact, and institutional capital remains focused on these markets.
Emerging and secondary markets:
Oversupply and limited tenant depth may extend the recovery timeline.
Conversions and repurposing may increase as assets seek economic viability.
Across all markets, underwriting is shifting toward:
Higher preleasing thresholds
Shorter rent growth assumptions
Tighter expense controls
Greater emphasis on tenant credit and funding visibility
This environment aligns more closely with pre-pandemic norms than with the expansionary assumptions of 2020–2022.
➤ TAKEAWAY
What May Shape the Market in 2026
Positioning Indicators for 2026
Life sciences real estate is likely to experience the following trends:
Continued price discovery as elevated vacancy and speculative deliveries work through the system.
Selective capital deployment, concentrated in core markets and assets with durable tenant demand.
Wider performance dispersion between markets with established ecosystems and those with insufficient tenant depth.
Conservative development pipelines, reflecting lender requirements and cost of capital constraints.
Gradual stabilization, dependent on the timing and durability of biotech funding and corporate expansion cycles.
In summary:
The sector is not in a recovery phase, but in a reallocation and recalibration phase, where long-term capital is actively positioning while fundamentals reset.
2026 will likely reflect continued transition rather than immediate improvement.
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