'More Than A Blip': San Diego Life Sciences' $1B Q3 Shows Subtle Market Rebound

Venture capital funding for San Diego life sciences firms hit $1B in Q3, a development that may foreshadow an upturn in biotech, with data indicating the market might have hit bottom and is now bouncing back with increased activity expected in the coming months.

“It’s more than just a blip, it’s a trend going in the right direction,” JLL Senior Associate Taylor DeBerry said. “It’s more a sign of things coming out from the bottom of the market.”

The $1B raised in Q3 is up from $600M in Q2 and well above the market’s historical quarterly average of $380M, according to JLL’s Q3 industry insight report. Two local firms, Turnstone Biologics and RayzeBio, went public in Q3 as well, raising a combined $438M.

Part of the reason for this activity is the recent disconnect between the valuations of life sciences firms, according to DeBerry. In the last two years, startups typically looked for values reminiscent of the Covid-era boom in 2020 and 2021, while investors had a more muted view. With firms now coming back to Earth, in a sense, after months of decreased funding and financial uncertainty, there’s more agreement, creating activity in the funding market. 

That has not translated to real estate yet. Nationally, life sciences real estate transaction volumes were down 60% year-over-year in Q3, per JLL. Boston data shows increased negative net absorption in Q3 after more firms added sublease space to the market. The Bay Area has also struggled with increased vacancies and negative net absorption, and Alexandria Real Estate Equities chairman Joel Marcus just described market conditions as “de facto recession” during an earnings call earlier this week.

But DeBerry said he believes those above-average fundraising figures will translate directly into demand for new space and a fourth quarter in San Diego lab real estate that’s stronger and more sustainable, with incremental leasing growth. JLL is tracking 300K SF of leases under negotiations in core submarkets.

This new demand will have plenty of options. By JLL's count, there is 5.4M SF of development in the San Diego market that is just 30% pre-leased, what DeBerry called an “unprecedented” time for new construction that mirrors the national supply increase. There is significant Class-A, first-generation lab space on the market, and there will be through the middle of 2025. He said he believes so-called megacampuses, offering amenities and cross-collaboration, will be very attractive to tenants. 

If the market has started to bounce back, that means a foreseeable future of very tenant-friendly rent and lease terms in San Diego and elsewhere, DeBerry said. There are similar signs of funding increases and future lease activity in the Bay Area and greater Boston. 

“There’s a lot of wood to chop,” DeBerry said. “It’s going to be a competitive, mostly tenant-friendly market, and there’s going to be a lot of competition from the landlord side to secure deals.”