C
onstruction costs for life sciences real estate have risen by 20-25% since before the pandemic, according to a new report from CBRE. The analysis found that lab-construction costs increased due to inflationary pressures and rising materials costs, particularly for specialty equipment like air handling units and generators.

    Lab construction surged during the pandemic as investors and startups flooded into the life sciences sector, but the economic slowdown has since sapped momentum. Construction activity has declined by nearly half since peaking at 40 million sq. ft. in last year's third quarter, with CBRE predicting a return to pre-pandemic levels by 2026.

    "Lab landlords are returning to a more cautious approach," said Matt Gardner, CBRE Americas Life Sciences Leader. "The temporary peak was an aberration, not a new normal." Conversion of buildings to labs has also declined, from 35% in early 2022 to 20% this year's second quarter, as occupiers found more options with new, unleased space coming online.

    CBRE studied construction costs across 25 U.S. cities and found significant variations for different types of life sciences facilities, ranging from $165 to $306 per sq. ft. for warehouses to $1,083 to $2,011 for vivariums. Tenant-improvement allowances have also increased by an average of 38% since 2021, with some markets seeing increases of up to $250 per sq. ft.