News Release: Lab/R&D Space Market Remains Strong Despite H1 2022 Drop in Life Sciences Funding

After peaking in 2021, life sciences funding has plunged this year due to market uncertainty, falling company valuations and venture capital (VC) firms reducing their activity to focus on raising new funds. This decline was sharpest in the IPO market, with an 84% year-over-year decrease in H1 2022 funding. Life sciences companies averaged nearly 38 IPOs per year between 2011 and 2021 for an average annual total of $4.2 billion. The IPO market is off at a much slower pace in 2022, with eight IPOs totaling $1.0 billion.

The decline in VC funding has been less severe. While H1 2022 VC funding totaling $12.5 billion was down by 33% from a year ago, it was well above the 10-year H1 average of $6.0 billion (Figure 2). Total VC funding in H1 2022 exceeded all annual totals prior to 2017, suggesting that 2021’s record rate was an anomaly.

The average VC deal size has increased over the past 20 years, in line with an increase in overall VC funding during that time (Figure 3). The largest average deal size to date was last year’s $54.3 million among 670 companies funded. H1 2022’s average deal size of $51.1 billion was 16.2% less than a year ago and among 21% fewer companies.

The biotechnology sector has consistently attracted the most life sciences funding. More than 77% of VC funding in H1 2022 went to biotech companies, the highest percentage on record. Biotech IPOs have seen a similar pattern, with funding up by nearly 70% between 2018 and 2021. Whether or not future funding levels settle back to a more normal level, private capital sources are showing strong interest in the swiftly advancing biotech sector.

Despite the overall decrease in life sciences funding, the national vacancy rate for Lab/R&D space decreased and the average asking rent increased quarter-over-quarter in Q2 2022. Any reduction in space usage by small and mid-sized companies that are more dependent on VC funding and IPOs was well offset by larger, well-established companies, keeping the life sciences real estate market strong through the first half of 2022.