Philly’s life sciences real estate market has cooled. Brokers hopeful for recovery

For the first time in nearly a decade, demand for life sciences and biotech real estate in Philadelphia is showing signs of slowing, if only temporarily.

The state of the U.S. economy, particularly over the last couple of months, is one of the main reasons why.

Tyler Vandegrift, managing director at JLL Philadelphia, said a precarious stock market and record inflation have contributed to some companies hitting the pause button on their search for space, including lab, manufacturing, and office. Other companies, he said, are still looking but want to take less space, marking a “cool down” for what has otherwise been a hot sector year after year.

“Whereas probably a year or two years ago, it was kind of full speed ahead with those plans, evolving their real estate and facilities operation. Now it’s ‘Okay, let’s relook at what we’ve been planning. Let’s think about how much space we need. Let’s think about the impact to our balance sheet,” said Vandegrift.

By his agency’s calculations, there are roughly 20-25% fewer tenants in the market, as well as total square feet compared to the same time last year.

But while the sector is down, it is nowhere near free fall. And other big cities, including Boston, are experiencing sharper declines.

One indicator: For the first time, a handful of developers are building lab space on spec in Philadelphia, meaning they’re creating space based on market demand, not at the request of a specific tenant. Until recently, that only happened in the country’s leading life sciences markets, including San Francisco and San Diego.

In March, a pair of developers — Mosaic Development Partners and Ensemble Real Estate —  announced they were partnering with Oxford Properties Group to create up to three million square feet of life sciences properties.

The deal covers more than 100 acres at the Navy Yard in South Philadelphia and includes five existing biotech buildings and two planned biotech buildings — a lab, an office building, and a drug-manufacturing plant, according to the Philadelphia Inquirer.

Separately, Spark Therapeutics, a Philadelphia-based gene therapy company, is building a $575 million laboratory and manufacturing center on Drexel University’s campus in University City. And Achilles Therapeutics, a UK-based biopharmaceutical company, recently signed a three-year lease for space on North Broad Street. It will be the site of its US headquarters.

What’s more, Vandegrift said, all of Philadelphia’s incubator spaces for biotech companies are full.

“Generally speaking, we still feel really positive and bullish about the future of this industry. We don’t think it’s going backwards,” said Vandegrift.