Life Science Real Estate Outlook Brightens as San Diego Vacancy Eases Amid M&A Surge

After nearly four years of rising vacancy following a pandemic-era construction and investment boom, the long-term outlook for life science real estate may be improving, according to a market commentary published April 9 by Voit Real Estate Services.

Multiple national reports indicate that while vacancy rates remain historically elevated, they are beginning to trend downward in key markets, including San Diego — one of the country's three dominant life science clusters alongside Boston and San Francisco.

How the Supply Glut Developed

Prior to the COVID-19 pandemic, vacancy rates for life science properties in the top-tier markets — Boston, San Francisco, and San Diego — were in the single digits, driven by an aging population, rising healthcare spending, and increasing convergence between healthcare and technology. The pandemic triggered a surge in venture capital, public funding, and corporate biopharma spending, pushing vacancy to near-zero levels and sparking a wave of speculative construction and building conversions.

"By the end of 2021 and in early 2022, it seemed like everybody needed space. The axiom at the time was that two scientists and a molecule coming out of a garage were able to raise a couple of million bucks," said Chris Durbin, Associate and Life Science Specialist at Voit Real Estate Services' San Diego office. "I think institutional investors and life science operators were looking at the returns they could achieve from buying at a record-high per square foot basis and then underwriting $6- or $7-dollar rents that they were getting at the time… without foreseeing where the capital environment was going to end up. Biotech funding events follow the macro financial markets identically… so as the cost of capital got more expensive, fewer and fewer risks were taken. The capital flows from funding events drives leasing activity of lab space."

According to data from Yardi Matrix, 47.3 million square feet of life science space has been added since 2020. As venture capital funding pulled back to pre-pandemic levels after a record 2021, the demand-supply imbalance widened, pushing vacancy past 25% across multiple markets.

Construction Slowdown Signals Potential Rebalancing

The construction pipeline has contracted sharply. Yardi Matrix reported that only 11.3 million square feet is currently under construction, with new starts declining from a peak of 15.4 million square feet in 2022 to 2.4 million square feet in 2025. San Francisco delivered 3.3 million square feet in 2025, Boston delivered 2.3 million square feet, and San Diego delivered 1.5 million square feet.

Most new construction starts are either self-developed by pharmaceutical or biotech companies or built-to-suit by third-party developers. One notable example cited in the Voit commentary is Alexandria Real Estate Equities' development of 466,000 square feet at Campus Point Megacampus in San Diego's University Town Center submarket for Novartis, which signed a 16-year lease in 2025.

M&A Activity and the Patent Cliff

A surge in biopharma merger and acquisition activity is emerging as a key driver of potential leasing demand. According to Cardiff Insights, a newsletter written by David Crean, managing partner of M&A advisory and valuation firm Cardiff Advisory, "this past week was one of the most prolific dealmaking weeks in biopharma in 2026: with nine separate transactions worth over $20 billion announced in seven days," including deals involving Eli Lilly, Novartis, and Biogen. That followed a record $22.7 billion in Q4 2025 biopharma M&A, up 133% from Q4 2024.

Crean noted in a separate post that the $20 billion in M&A deals "were not isolated events. They were the latest proof points in a deal cycle that is, by nearly every fundamental measure, the most structurally supported in the last five years."

"We're seeing a lot of big pharma deals transact, and the capital recycling fuels a lot of these underfunded startups and mid-sized companies that will now be recirculated into the ecosystem," Durbin said. "So, all of these large-scale M&A transactions are only going to accelerate the earlier stage of the cycle. Your startups and mid-size companies are going to continue to get to the point of exit, which is the goal for every life science technology company."

Underlying the M&A wave is an approaching drug patent cliff. According to an analysis by asset management firm Penn Mutual, approximately 8,000 drug patents are scheduled to expire by the end of 2030, according to the U.S. Food & Drug Administration. The expiration of exclusivity periods could result in the U.S. pharmaceutical market losing between $230 billion and $300 billion in revenue through 2030, as generic manufacturers enter the market and prices decline sharply.

"These could be massive revenue-generating assets that pharmaceutical companies could add to their balance sheets," Durbin said. "Acquiring the technology and intellectual property can often be much easier and economically motivating than spending millions on R&D — so that's the ultimate driver."

San Diego Market: Record Vacancy, but Fundamentals Point to Recovery

Durbin and Miles Arnold, Senior Associate at Voit Real Estate Services, recently prepared a dedicated report on the San Diego life science market. Vacancy across the 20-million-square-foot-plus core cluster has reached 27.9%, with availability at 31.4%. Class A asking rents have declined for fifteen consecutive quarters.

Despite those headwinds, the Voit commentary points to several factors that may support a gradual recovery. Landlords are offering concession packages — including free rent, tenant improvement allowances, and flexible lease terms — that were not available during the 2020–2022 run-up. The gap between asking rents and effective rents, after concessions, is described as the widest it has been in this cycle.

The commentary notes that companies projecting future growth can take advantage of current market conditions, while companies without a multi-year capital runway are advised to explore sublease opportunities, right-size their footprints, and preserve capital.

On the supply side, with the exception of the Alexandria build-to-suit for Novartis, no new life science construction projects are currently underway in San Diego, according to the Voit commentary, suggesting that existing inventory will eventually be absorbed without additional competition from new supply.

San Diego's underlying talent pipeline also supports the long-term outlook. The region's "Big Five" universities — UC San Diego, San Diego State University, University of San Diego, Point Loma Nazarene, and CSU San Marcos — collectively graduate 15,000 STEM students annually. According to Biocom's 2025 Life Science Economic Impact Report, San Diego contributed $54.1 billion in economic output and directly employed 71,448 life science workers.

Durbin predicted that when demand recovers, San Diego will tighten faster than peer markets, citing the region's position as a prime target for acquisition activity given the current M&A environment.

For additional insights on the life science markets, Voit Real Estate Services directs inquiries to its real estate advisors. The firm's Life Science Practice Group San Diego report is available through Chris Durbin or Miles Arnold.