UTC And Torrey Pines Office Buildings Get New Life As Lab Space To Meet Growth In Life Sciences Sector
Venture capital pouring into San Diego life sciences biotech companies is sparking new development and transformation of office and older industrial buildings to lab space as these companies expand, says JLL San Diego VP Grant Schoneman (below), a specialist in the life sciences sector who is presenting at Bisnow's Heathcare Leadership and Life Sciences Forum on Sept. 28.
San Diego firms attracted $1.16B in venture capital in 2015, up $834M from the previous year, according to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association. Local companies raised another $567M so far this year, the lion’s share of which went to life sciences and biotech firms, including $220M for J. Craig Venter’s Human Longevity.
Over the last year, life sciences biotech availability declined, while rental rates secured during 2015 experienced double-digit increases, peaking at $3.75 to $4/SF in the Torrey Pines and University Towne Center submarkets and have plateaued during the first half of 2016, Grant says. A total of 15 companies have signed leases during the second quarter of 2016, with activity increasing 75% from the first quarter, with 508,100 SF leased—a 30% decrease from a year ago.
While the majority of large life sciences/biotech companies are based elsewhere, many have a presence here, because of San Diego’s strong scientific community that continues to be bolstered by the University of California San Diego and other large research institutions. Some of the world’s largest pharmaceutical and research companies have significant R&D operations in San Diego, including Pfizer, Takeda, Celgene, BD, Novartis and Eli Lilly.
Among expanding companies signing leases in Q2 2016:
- Illumina, 316,300 SF at the i3 campus in UTC, which is under construction;
- Fate Therapeutics, 47,900 SF in Torrey Pines;
- Astellas Pharma, 25,500 SF at the Nautilus Campus in Torrey Pines; and
- Explora Biolabs, 5k SF at the new Genesis Campus Point 10210—Explora’s fifth SD location.
Strong leasing activity is expected during the second half of the year, as 16 companies are in active negotiations for a total of 875k SF, and companies actively looking for space to move or expand represent another 605k SF.
Pictured above is a grocery market with an in-store restaurant, which is among the amenities on the i3 campus in UTC.
“With single-digit direct availability (8.4%), there’s a half dozen or less options available for companies planning to move,” Grant says. As a result, real estate investors/developers focused on this sector are converting low-rise, Class-A and B office buildings in the UTC submarket to R&D/lab space for life sciences users. He cited three large projects underway.
Locally based BioMed Realty Trust, which is developing the i3 campus, is redeveloping Axiom, a three-building office complex with nearly 183k SF, to a life sciences campus. BioMed Realty purchased the property last year from Los Angeles-based Arden Real Estate for $83.8M. Ignyta, a biotech firm that develops cancer drugs, has signed a lease for 95k SF here and is moving its headquarters and 100 employees from Sorrento Valley to the new location. The Axiom campus is on a ridge overlooking UTC and features campus-style amenities, including a restaurant, a fitness center and conference facilities.
Shown above are outdoor amenities at the Axiom biomed campus in UTC, which includes an indoor/outdoor on-site restaurant.
Alexandria Real Estate Equities, a Pasadena, CA-based office REIT specializing in creating collaborative science and technology campuses, is redeveloping a former office building into a 300k SF lab facility that will be occupied by Eli Lilly. The new building is called Campus Point Phase 2, and Alexandria also has plans to develop Campus Point 3, another 315k SF life science building.
This three-building, LEED Platinum campus includes more than 20k SF of shared conference space, a dining facility with a pizzeria, juice and coffee bar; a lounge area with a fireplace and games; and a 12k SF subterranean fitness center with a spa and steam showers.
Pictured above is the exterior of the one building at the 300k SF Campus Point Phase 2 biomed campus.
Locally based Phase 3 Real Estate Partners is also underway on the conversion of the Genesis campus in Campus Point, a 311k SF, three-building life science campus. The former office complex, at the intersection of Campus Point Court and Campus Point Drive, is being converted to biotech space. The makeover will offer biotech suites from 9k SF and provide tenants with access to a full-service fitness center, conference center and on-site restaurant. Shown below is Phase 3 Campus Point 10210, one of three buildings on the Genesis biotech campus.
The trend to convert office space to biotech is dovetailing with converting obsolete industrial buildings to incubator R&D space for startups, particularly in Sorrento Mesa and Sorrento Valley. These facilities offer small spaces required by early stage companies, Grant says, and they provide lower rents and shorter, more flexible terms than new biotech space in the Torrey Pines and UTC submarkets.
Pictured above is a warehouse conversion in Sorrento Valley by Cruzan, now occupied by a pharmaceutical company and building contractor.
Grant says around 65% of biotech leases signed in San Diego are under 17k SF. After incubating in Sorrento Valley and Sorrento Mesa, companies generally look to grow and expand operations into larger facilities in the UTC and Torrey Pines submarkets, he says.
Another newsworthy Q2 2016 event in the life sciences sector is the formation of a partnership between GlaxoSmithKline and Sanford Burnham Prebys Medical Discovery Institute (above) to create a new Center for Translational Neuroscience, which will be on the SBPMDI campus in Torrey Pines. Under a three-year agreement, GSK will fund research that brings together scientists from both entities to seek therapeutic remedies for neurodegeneration, noted a JLL report. The number of people living with dementia worldwide is predicted to triple by 2050 to 135 million without any medications to slow its progression or cure it.
Hear more from Grant and other life sciences experts at Bisnow's Healthcare Leadership and Life Sciences Forum on Sept. 28, beginning at 7:30am with breakfast and networking at the Westin San Diego Gaslamp Quarter, 910 Broadway Circle in Downtown.