Denver area one of nation’s hotspots for life sciences industry

By Bernadette Berdychowski February 29, 2024 | updated 1 year ago

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Last year was a difficult one for biotech and pharmaceutical companies as venture capital funding dried up.

But Denver’s life science industry — primarily concentrated in Boulder and including Aurora — was one of the top performing hotspots heading into 2024, according to a new report from commercial real estate firm CBRE released Wednesday.

Demand for labs shrunk in most of the industry’s 13 biggest markets, but the metro Denver area was one of three that saw tenant demand go up in the last quarter of 2023.

“The reason we aren’t seeing the downturn that you hear about in the top three markets is we’re so new, that we’re just getting started,” said CBRE Senior Vice President Erik Abrahamson, a specialist on life science real estate market in Boulder.

Denver’s industry is the 10th largest in the country, according to CBRE, but it’s considerably smaller with 3.2 million square feet of lab real estate compared to the biggest three markets: Boston (56 million), San Francisco (39 million) and San Diego (25 million).

The biggest life science centers have seen more funding dried up and could face an oversupply of lab real estate, according to CBRE’s 2024 outlook report. Demand is better in smaller hubs like Denver-Boulder, a sign the industry is noticing these markets have matured.

In the last few years, “the secret of the Front Range got out” in the tech industry, Abrahamson said, and the metro Denver area climbed rankings as a life science center.

The region is catching up to the demand from companies, developers and investors, putting it in a better position during this slowdown, he added.

Fourteen companies were seeking more than half-a-million square feet of lab space in metro Denver at the end of the year, according to the report.

Funding keeps coming

The demand correlates with record funding for the Denver region’s life science industry in 2023.

Companies in the area got more than $800 million from venture capital and the National Institutes of Health in 2023, according to CBRE, up 8% from previous records.

That’s a stark contrast to the national trend as VC funding in the sector dropped 24% in Q4 from the same period in 2022 due to rising interest rates.

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“There was still dollars available for really good science. And there’s a lot of good science that is happening in our market … we’re in our growth phase still.” Abrahamson said.

CU Boulder campus — FILE PHOTO: Students stroll across campus at the University of Colorado-Boulder. The university got $18 million for 2024 from the National Institutes of Health in a record year of funding for Denver's life science industry.
Denver Gazette file photo

FILE PHOTO: Students stroll across campus at the University of Colorado-Boulder. The university got $18 million for 2024 from the National Institutes of Health in a record year of funding for Denver’s life science industry.

Denver Gazette file photo

Denver has the second-lowest vacancy rate of the largest markets at 9.1%. Lab vacancy is climbing nationwide, Denver included, as a wave of new construction is set to peak this year. Denver added 360,000 square feet of lab space in 2023 and has nearly 560,000 square feet under construction or renovation.

Many are “spec labs,” facilities built on speculation that it will fill with a tenant rather than being developed with a specific company or research center in mind.

“Five years ago, we didn’t see that,” Abrahamson said about the rise of spec labs.

Breakthrough Properties, a California-based life science real estate developer, entered the Boulder market in 2022 when it bought a 9.3 acre site to redevelop it into a research campus. The company was attracted to the growing local industry, proximity to University of Colorado Boulder and the outdoor lifestyle.

“We are excited about playing a role in advancing the life science market by creating a high-quality research campus that supports a blue-chip set of users,” said Breakthrough Properties Director Kayla Wagmeister via email.

Its Boulder, 38 campus can accommodate biotech companies like Edgewise Therapeutics and Think Bio, or established pharmas such as Loxo Oncology or Eli Lily, she said.

This spec lab went onto the market in the last quarter, the CBRE report said, and was 67% pre-leased.

2024 is expected to be a better year for the national industry as biotech stocks have been up 40% since October, Abrahamson said. Funding is already outpacing forecasts for this year and reports that the Federal Reserve might drop interest rates is a potential motivator for investors.

And Denver started the year in a better position than other markets.

“There’s already, eight weeks in, a lot of positive signs,” Abrahamson said. “I’m personally cautiously optimistic.”