A venture that includes global office developer Tishman Speyer is ramping up an already $3 billion bet on the recovery of biotech real estate with the launch of a fund meant to take advantage of lower prices stemming from a glut of space and slow demand.
Breakthrough Properties, a biotech-focused venture formed in 2019 by Tishman and equity firm Bellco Capital, said its second major fund closed at $430 million as it targets biotech property investments in major global life science hubs including Boston, San Francisco and San Diego.
Biotech landlords are dealing with a highly fluid situation, one in which several large global pharmaceutical firms have announced major manufacturing investments in the United States at the same time smaller users of core lab and office space continue to hold off on expansion because of economic uncertainties. This situation comes after developers overbuilt lab and office space in the wake of the pandemic and millions of square feet of life science properties sit vacant on the U.S. market, according to an October national report from real estate services firm JLL.
Some traditional office developers like Hines have increased their slate of life science-related projects, while others like biotech-focused Alexandria Real Estate Equities are responding to the lack of demand by pulling back on projects and selling life science properties.
Breakthrough Properties' latest fund follows its $3 billion investment that closed in 2022, with the firm now looking to deploy the newest capital into what it called “the most compelling investment window we’ve seen in years.”
Dan Belldegrun, the CEO of Breakthrough Properties, said “transitory market dynamics have generated the opportunity to acquire high-quality assets at heavily disrupted pricing and to capitalize on the sector’s long-term structural tailwinds,” in a statement from the company.
Breakthrough Properties expects to hold subsequent closings for the newest fund in 2026, with plans to invest across a range of life science regions and property categories, officials said.
“The incredible power of science is only accelerating, generalist investors are retreating, and new supply is entirely shut off,” Belldegrun said. “We believe these are precisely the ingredients for a fantastic investment” period.
'Proof of concept'
Los Angeles-based Breakthrough Properties deployed the earlier $3 billion life science fund into investments and developments across the United States, United Kingdom and continental Europe.
Officials said that first fund resulted in projects spanning nearly 6 million square feet, and more than 60% of its global portfolio is leased to top pharmaceutical firms such as Pfizer, Eli Lilly and Bristol Myers Squibb.
“Our initial fund delivered proof of concept,” Rob Speyer, co-chairman of Breakthrough Properties and CEO of Tishman Speyer, said in the statement.
U.S. biotech leasing activity improved slightly in the third quarter over the prior quarter, driven primarily by a few large leases, including one by Novartis in San Diego spanning more than 400,000 square feet and another by Lila Sciences in Boston topping 200,000 square feet, according to Newmark.
Nationwide biotech vacancy rose by 20 basis points in the latest quarter, suggesting a leveling off after several quarters of steeper increases, though the national vacancy rate remained elevated by historical standards at 26.2%, Newmark said in its third-quarter U.S. biotech report.
Still, vacancies in the five largest U.S. biotech hubs — Boston, San Francisco, San Diego, Seattle and Northern New Jersey — have more than tripled over the past four years in part because of weakening demand, Newmark said. It reported that biotech vacancy at the end of the third quarter stood at 36.1% in Boston, 29.1% in San Francisco and 26.4% in San Diego.
High vacancy
Much of the vacancy increase in the past few years was caused by oversupply as a number of investors, including traditional office developers, jumped into the biotech fray as a way to diversify their struggling office holdings, according to Newmark. It reported that roughly 16.9 million square feet of laboratory projects has been canceled or repositioned nationwide, easing future supply risk.
A number of biotech landlords are responding to lower demand by reducing rents. According to Newmark, third-quarter asking rents declined from a year earlier in most of the major U.S. biotech hubs, sliding about 6% in San Diego, 7% in Boston and 10% in the San Francisco Bay Area.
Reporting its latest quarterly earnings last month, Alexandria Real Estate Equities, among the nation’s largest holders of biotech properties, told analysts the company plans to slow its development pipeline and sell some properties because of reduced demand. Some of Alexandria's recent pullbacks stem from its properties that are not purely biotech-focused with estimated current values that have dropped below their carrying costs.
Alexandria reported generating $508 million from property sales this year through Oct. 27. It now expects land dispositions to represent 20% to 30% of total dispositions and sales of partial property interests for full-year 2025.
Alexandria CEO Peter Moglia told analysts there is “no shortage of interest” among residential and other types of developers as the company considers land deals. Alexandria officials said the current slump in U.S. biotech occupancy stems in part from overbuilding by other developers, including many non-biotech companies that sought to capitalize on pre-pandemic conditions by converting older general-office properties into biotech facilities.
While third-quarter venture capital funding in biotech rose 34% from the prior quarter, funding was still down 13% from a year earlier, and Newmark reported government funding remains uncertain amid federal policy shifts and job reductions at key agencies in charge of drug approvals. Alexandria officials said government slowdowns in drug and research approvals were exacerbated by the 43-day federal government shutdown.
For the foreseeable future, Newmark said well-funded laboratory users are expected to "maintain the upper hand as landlords contend with an overhang of vacancy in many markets.” Landlords “will likely continue to become increasingly aggressive with lease negotiations in order to attract tenancy and build occupancy within their laboratory buildings,” Newmark said.