Houston’s burgeoning life sciences market, aimed at nurturing emerging companies engaged in early-stage research, is confronting significant challenges as proposed budget cuts by the Trump administration threaten vital funding from the National Institutes of Health (NIH).
The reliance on NIH grants is particularly acute for early-stage startups, with local insiders warning that any disruption in this funding could stymie new business formations and slow growth in a sector already characterized by an oversupply of real estate.
Many in the industry are concerned that as federal funding appears to tighten, fewer startups will be inclined to lease space in a market that is already experiencing a surplus of newly constructed facilities, following an extensive period of development.
The first three months of the year witnessed substantial funding cuts to NIH totaling between $1.8 billion and $2.7 billion, and ongoing proposed budget reductions could see NIH funding slashed by as much as $18 billion by 2026.
In addition to these funding cuts, tariffs and other economic policies are inflating construction costs, further complicating the landscape for life sciences developments, as noted by Zach Leger, a life sciences broker with Stream Realty Partners.
“There’s a new angry feeling every six hours from the president,” Leger commented, reflecting on the volatility that potential funding cuts introduce into the sector.
Life sciences emerged as a distinctive real estate category around the mid-2010s, garnering interest from primary development companies, according to industry figures like Allen Crosswell, managing principal at NewQuest Crosswell.
Crosswell oversees a 21-acre parcel next to the Texas Medical Center in Houston, which has seen significant development activity in recent years with projects like Levit Green—a 53-acre mixed-use life sciences district developed by Hines—and TMC’s Helix Park, an expansive 37-acre life sciences campus.
Despite this growth, the demand for leased spaces has slowed down even before the current administration’s funding cuts, exacerbating the situation as many recent projects were initiated without a clear understanding of the market’s demand metrics.
“It kind of got overcooked, and the capital markets kind of dried up. The product is now absorbing,” Crosswell explained, reflecting on the overall challenges faced by life sciences developments in the area.
Houston’s life sciences market recorded a vacancy rate of 14.3% in the first quarter, as outlined in a report from Stream Realty Partners. This figure is even more pronounced within the Texas Medical Center, where three new buildings totaling 870,000 square feet have opened since the beginning of 2023, resulting in a vacancy rate climbing to 22.7%.
“The whole theory was, ‘If we build these buildings, the tenants will come,’” added Leger, emphasizing the current disconnect in the market.
This vacancy issue is not isolated to Houston; established life sciences hubs like Greater Boston are reportedly facing vacancy rates as high as 25%. However, Houston, still an emerging player in the field that attracts early-stage research firms, may be more susceptible to the fallout from NIH funding reductions.
Funding for drug developers who have not yet reached commercial viability primarily derives from NIH grants, venture capital, and angel investors since these companies lack marketable products.
Venture capital firm Portal Innovations has taken up an entire floor at the TMC3 Collaborative Building, providing essential lab facilities and resources for life sciences startups, while emerging biotechnology company PranaX secured a lease for 7,400 square feet at Levit Green Phase 1.
While some local medical institutions may access state funding programs like the Cancer Prevention and Research Institute of Texas, this financial support typically favors established institutions rather than nascent companies seeking early-stage funding.
“What could benefit us here longer term is the fact that we have CPRIT and some of these other companies. It’s a different avenue for funding and money,” noted Leger, emphasizing the importance of diversifying funding sources amidst uncertainties at the federal level.
The Texas Medical Center is reportedly planning to announce developments on two previously undeveloped parcels within Helix Park, according to CEO William McKeon, although no new construction updates have surfaced to date.
Shehzad Roopani, a partner at medical office developer Edloe Ventures, indicated that while Houston’s population growth gives him confidence in leasing out projects staying under 50,000 square feet, the company opts for a more cautious approach in light of current economic uncertainties.
“It’s a little bit more of a wait-and-see,” Roopani remarked, signaling a shift in strategy regarding potential projects.
Leger also posits that institutions are likely cautious about commencing new construction, a trend driven by the uncertain landscape of NIH funding as well as escalating construction costs and swiftly evolving policy directives from the administration.
Crosswell believes the current turbulence in Washington will likely have a stalling effect on life sciences construction ambitions, but he also maintains optimism for a future when funding supports vital health initiatives will resume.
“I trust that there is a plan in place, and he’s going to turn the spigot back on for those things that are beneficial to the health and wellness of a U.S. citizen,” Crosswell stated, despite acknowledging the disruption.
Conversely, Leger expressed more pointed frustration towards the administration’s policy directions, describing some of the current proposals as “absolutely cuckoo for Cocoa Puffs.”
Nonetheless, amidst the challenges posed by proposed funding cuts, some see potential opportunities for growth in Houston’s life sciences sector. For instance, the administration may expand approvals for innovative treatments such as stem cell and gene therapies, positioning Houston uniquely to take advantage given its leadership in cancer treatment research through institutions like MD Anderson.
“Every shake-up is an opportunity,” remarked Leger, suggesting that the right strategic approaches could yield positive outcomes despite near-term uncertainties.
Furthermore, geopolitical factors are encouraging drug manufacturers to consider reshoring their operations, a shift potentially beneficial for Houston as Eli Lilly and Co. evaluates the establishment of a $5.9 billion biomanufacturing plant in the city.
As developments unfold against this backdrop of uncertainty, stakeholders in Houston’s life sciences market are steeling themselves for both challenges and opportunities that lie ahead.
image source from：https://www.bisnow.com/houston/news/life-sciences/oversupply-federal-research-funding-cuts-push-houstons-life-sciences-market-boom-further-out-of-sight-129450
