How Life Sciences Real Estate Is Adapting to a New Era of Value, Infrastructure, and Restraint
By: Todd Christensen
The life sciences market finds itself at an inflection point. Just a few years ago, it was the darling of commercial real estate and venture capital. Today, the sector faces mounting challenges, from rising construction costs, to increasing tariffs, dwindling funding and an uncertain regulatory landscape. Yet, even amid this disruption, there are signals of opportunity. Tenants are recalibrating their needs, AI is driving new infrastructure demands, and a possible political shift may usher in a more pro-development era.
Construction Costs in Flux
Construction costs remain a major stress point. Despite recovering supply chains, inflation and rising labor costs are persistent. Intense competition has thus far kept prices in check, but new tariffs on steel, aluminum, and electronics threaten this balance.
For lab space, which is already costlier than traditional offices due to specialized systems, these price shocks could be especially disruptive. The result? Budgets in flux, extended timelines, and financial models that no longer add up. In this climate, capital efficiency isn’t just smart, it’s essential. Developers and tenants must embrace flexible models that adapt to market shifts without compromising functionality.
Funding Gaps
Funding constraints are adding pressure. Venture capital is cautious, private equity is sidelined, and government R&D grants are shrinking. Early-stage life sciences firms, often pre-revenue, now face tighter budgets and longer funding cycles.
Efficiency is key, firms that maximize insights with less capital through automation, smart lab design, or leaner operations will have the best chance of survival. This shift is reshaping space demand, with tenants prioritizing value over premium locations and Class-A labs.
Flight from Quality to Value
The market is shifting from a “flight to quality” to a “flight to value.” Gone are the days when tenants were willing to pay top dollar for brand-new, trophy lab buildings in prime urban cores with long leases. Today, we see tenants becoming more focused on affordability, shorter lease terms, flexible space, and speed to occupancy.
Adaptive reuse, light-lab configurations, and second-generation spaces are gaining popularity. Function now trumps flash. For developers, this is a call to rethink how we design and deliver lab environments not just building for prestige but building for utility and resilience.
AI and the Race for Power Infrastructure
At the same time, a powerful new force is emerging, one that could dramatically reshape both the life sciences and the built environment around it: Artificial Intelligence.
AI is already used to model proteins, accelerate drug discovery, and optimize clinical trials. However, deploying AI at scale requires serious computational power and significant infrastructure: power, cooling, fiber, and space for high-performance computing clusters.
This demand is beginning to blur the line between lab space and data center infrastructure. Projects that can anticipate and accommodate these energy needs will attract not only life science tenants but also the adjacent AI-driven R&D firms that increasingly define the edge of innovation. Cities and campuses that can invest now in resilient, high-capacity power grids will have a long-term advantage.
A Regulatory Reset on the Horizon?
Underlying all this is policy, and we might be entering an inflection point. The books “Why Nothing Works” by Marc Dunkelman and “Abundance” by Ezra Klein capture the current zeitgeist: frustration with a system that feels overregulated, overly complex, and increasingly incapable of delivering basic functionality. A great example is the now infamous Noe Valley Public Toilet, a case study in regulatory dysfunction where one of the most populous cities in the country planned to install a single pre-fabricated public restroom to improve urban cleanliness. However, endless review boards and approvals stymied an essential public benefit that should have been affordable and straightforward. The project gained notoriety in 2020 when the city held a press conference to announce the new project, and it was revealed that it would cost an eye-popping $1.7M with an astounding two-year timeline.
In commercial real estate development, that dysfunction is all too familiar. Overlapping jurisdictions, slow permitting, and unpredictable entitlements make it hard to deliver even basic projects, let alone the specialized scientific developments. However, there are signs that the pendulum may be starting to shift. The current Administration has signaled a prioritization of efficiency, and we may see a deregulatory push aimed at development, infrastructure, and industrial growth.
We know speed is possible. The collapsed Francis Scott Key Bridge in Baltimore is being designed, permitted, and prepped for construction in record time. The bridge collapsed in March of 2024, and in just one year, the project has already completed its design and received construction permits as a result of special regulatory exemptions. Early estimates show that this project, which would typically take 8-10 years, should be completed in four to five. In the wake of the devastating LA wildfires, the California Coastal Act Suspensions were passed to allow for expedited re-development. Furthermore, in January Stargate was announced, a US led initiative investing $500B to fast-tracking AI research and expedite infrastructure development in ways that have yet to be seen.
These examples prove that when urgency meets demand, red tape is cut back in the interest of progress. If that mindset reaches development policy, it could unlock the agility more akin to the days of Robert Moses and the “Power Brokers” that created some of the most iconic parks and infrastructure works of a generation, allowing developers to move much faster with much less uncertainty.
Conclusion: A New Formula for Growth
The life sciences market is not in decline, it’s in transition. For developers and tenants, the winners in this next cycle will be those who understand today’s constraints while preparing for tomorrow’s acceleration.
For developers, this is a time for caution but not inaction. Capital efficiency and flexibility are essential in the current environment. Focus on projects that can deliver speed-to-market, functional flexibility and value over first-in-class. Look closely at adaptive reuse, modular systems, and right-sized lab specs. However, keep your teams and capital ready. If the anticipated regulatory shift materializes, entitlement and permitting timelines could compress significantly, opening the door for faster, more responsive development. Those prepared to move, both operationally and financially, will be best positioned to deliver speculative lab space just as demand rebounds.
For tenants, now is the moment to recalibrate. Many early-stage companies are being asked to do more with less, and that means choosing space that prioritizes efficiency, adaptability, and infrastructure readiness. Secure flexible leases with expansion rights, such as rights of first offer (ROFOs), to accommodate future growth without major upfront capital exposure. Avoid overcommitting based on a projected headcount or unproven growth. Instead, prioritize spaces that are lean, functional, and AI-capable. As AI becomes more integral to research, facilities with sufficient power, cooling, and digital infrastructure will become increasingly valuable for today’s workflows and tomorrow’s competitive edge.
This is a flight to efficiency, not just in space but in strategy. We’re entering a phase where discipline, adaptability, and timing will define success. The most prepared teams won’t be those who overextend now but who can move fast when the moment is right.