Life science treading water: Less funding and slow industry recovery keeps vacancy rates high

The Peninsula’s life science market also saw 1.3 million square feet of negative net absorption, meaning significantly more space was vacated than occupied.

Unlike the traditional office market, which has seen stronger year-over-year improvements, the life science market — characterized by research and development laboratories — is undergoing a sluggish recovery from the pandemic-era boom, when funding was high, construction was robust and biotechnology firms were signing massive, long-term leases.

“As far as new development coming out of the ground, we’re pretty much done,” said Joe Cammarata, executive vice president and partner at Kidder Matthews. “None of these companies are signing leases for growth space … there is growth in the market, but there is no new development in the market. It’s going to take awhile to absorb the millions of square feet that have just been built.”

No longer blessed with low interest rates, pandemic-induced funding and free-flowing dollars from the National Institutes of Health, venture capital firms are getting more stringent about the companies they decide to keep funding.

“Now VCs are much more picky on what they’d invest in,” Cammarata said. “Whereas before they said, ‘You’ve got a good team, you've got a proven scientist … we are willing to give you $50 million.’ That’s not where we’re at now. They want actual data and more of a proven track record.”

About $7.5 billion in VC funding went toward the life science sector nationwide, a year-over-year decrease from last year’s first quarter and a 28% drop from Q4 2025.

Especially in light of a stronger focus on clinical data, life science companies are leaning heavily on artificial intelligence technology to speed up the process to get to trial quicker and secure funding. Cammarata is also seeing more companies starting to outsource their scientific functions to other parts of the country, or even internationally.

“There are still lots of C-level execs who have the experience of taking a company public so you have that rich talent pool here,” Cammarata said. “But their actual science doesn't necessarily need to be here anymore, so those C-level execs … are taking office space instead.”

The Peninsula market is also shifting geographically. Rather than traditional concentration in the northern part of the county, especially South San Francisco, there has been more growth in the mid-Peninsula. Redwood City led the market in positive net absorption last quarter, and Belmont and San Carlos saw 20% vacancy rates, compared to roughly 30% in South City.

"San Carlos and Menlo Park have probably had some of the best success. There are lots of tenants that like to be down there, and that wasn't the case 10 years ago," Cammarata said. "If you weren't in South San Francisco, you weren't taken seriously. Now a lot of people like being in San Carlos. You are still close to public transportation, and you can still attract talent from the East Bay and San Francisco."

South City has already extended some development agreements with life science developers, allowing them to build their already-entitled projects within the next decade, rather than the next couple years. Still, some of the largest life science leasing transactions in the Bay Area took place in South City, including Confidential and Epic Bio. Neuralink also signed a lease in South San Francisco toward the end of 2025. Other large transactions on the Peninsula include Natera in San Carlos and Billion to One in Menlo Park.