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'Insatiable Appetite' For Life Sciences Space Seeds Downtown San Diego Lab Boom

San Diego’s booming life sciences market is poised to enter a new territory: downtown. 

A massive adaptive reuse project in downtown San Diego, Campus at Horton, signals the start of an urban lab boom.

Stockdale Capital Partners plans to resurrect the former Horton Plaza Mall, a 1980s-era shopping plaza, into a massive, 1M SF mixed-use urban campus, with 40% of the space turned over to life sciences tenants.

Boasting floor plates between 40K and 70K SF and an underground tunnel system that would ferry supplies in and out of biotech labs, Campus at Horton will be filled with great attributes for life sciences tenants, Stockdale Capital Managing Director Leo Divinsky said. But most importantly, it offers available space in a region desperate for more labs, with delivery expected in the second half of 2022.

With the regional market for lab space setting records in 2020 and on pace to break them again in 2021, Stockdale and others are investing in urban lab space in downtown San Diego, a new frontier for the industry. 

“We’re tracking 3.5M SF of active demand in the San Diego life sciences market,” Divinsky said. “We don’t see any other release valve for that other than downtown.” 

Stockdale’s mall conversion, along with a handful of other new downtown projects, underscores how the growth in San Diego’s life sciences ecosystem is pushing developers and startups to look beyond traditional clusters, such as Torrey Pines, Sorrento Mesa and UTC/Campus Point, which all have single-digit vacancy and “more demand than we’ve ever seen before,” JLL Senior Managing Director Grant Schoneman said.

Last year, the market saw 2.2M SF of leasing activity — and 1.6M SF of leases have already been signed in 2021. Schoneman points to the recent boom in venture capital funding as a big reason; from October 2020 to June 2021, VCs invested nearly $5B in San Diego startups. A recent JLL report found that companies are looking for space 36 months in advance.

There’s a “race to deliver product to groups that need product quickly,” Newmark Knight Frank Senior Managing Director Steve Bruce said.

That, in part, is accelerating a push to downtown in a region traditionally focused on more suburban, office park-type developments.

“There’s a new generation of startups, and there’s no space or land left to build on,” said Joe Panetta, the president and CEO of Biocom California, a local life sciences advocacy group.

The market in Sorrento Mesa is “on fire” with new renovations and ground-up projets.

Urban lab in San Diego is still in its infancy; Panetta notes that major projects have yet to attract any big tenants, and says they’re a “big bet.” Those projects, such as IQHQ’s 8-acre waterfront Research and Development District — expected to deliver 1.6M SF in late 2023 — and Phase 3’s Genesis project, which will see 200K SF delivering early next year, will benefit from the expansion of the trolley system, proximity to the airport and a more urban lifestyle that helps attract talent. 

The ongoing undersupply of space is also changing more traditional clusters, especially Sorrento Mesa. Long a core cluster market that was always second place behind the high-end labs of Torrey Pines, Sorrento Mesa has been “on fire,” Bruce said. The area of office parks that was mostly known for being the headquarters of Qualcomm is now seeing rapid growth, including a number of new office conversions and ground-up projects that will change the look of the area, and add new Class-A lab options. 

“We’re seeing a lot of redevelopment, and significant rent increases, 14% year-over-year in Q2,” Schoneman said. “Development in Sorrento Mesa is going to outpace Torrey Pines in the next 12 months, if not sooner.” 

These upcoming projects include Longfellow’s purchase of the Foundry, a conversion project, and a massive campus-in-the-making by Alexandria Real Estate Equities; the firm acquired five buildings on Sequence Drive for roughly $500M, totaling 487M SF. As leases run out for the current tenants over the next few years, the buildings will be transformed into life sciences spaces, eventually forming a larger 1.9M SF megacampus when joined with some ground-up projects ARE also has under development.

Just last month, Shorenstein sold a 300K SF office complex in Sorrento Mesa for $146M, a roughly $150-per-SF premium above the median sale price in the area. 

“The appetite is insatiable, we haven’t seen anything like it,” said Voit Senior Vice President Chris Duncan, whose firm has recently invested in a pair of properties in Sorrento Mesa. 

The current San Diego boom, in addition to reshaping downtown and Sorrento Mesa, has also led to some spillover development in emerging clusters in the region, including Del Mar Heights and even Carlsbad. The pace of growth and investment has shown Biocom’s Panetta that while San Diego is a top three market, it’s still getting the word out.

“We’re not a hidden secret, but we don’t have the global rep Boston and San Francisco do,” he said.