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Obsolete San Diego Industrial Buildings Getting New Life As Creative Life Sciences Space

A recent industrial market report from brokerage Newmark Grubb Knight Frank found growing investor interest in Class-C industrial buildings, because they are easily adapted to creative space for the life sciences industry.

As a result of the region's growing life sciences sector, obsolete industrial buildings throughout San Diego County—the least attractive to industrial users—are being reincarnated as creative office and lab space, the San Diego Union-Tribune reports. Pictured above is a two-building industrial complex at 3911 Sorrento Valley Blvd converted to creative space by Cruzan and now occupied by a pharmaceutical company and a building contractor.

The report's authors said San Diego’s life sciences industry is “red hot, as is demand for creative office and lab space. This gives owners of under-performing assets something to consider via space conversions and also presents opportunities for investors.” (Want to hear more on the life sciences industry? Join us at our San Diego Healthcare Leadership and Life Sciences Forum on Sept. 28.)

Locally based Cruzan is known for recycling obsolete office and industrial assets to create open, collaborative, airy space. The company's leasing director, Stacy Meronoff, says what makes these buildings attractive to users is maintaining some of the real outward components, while refurbishing the interiors so they feel like a new building.

In redesigning the 54k SF industrial complex at 3911 and 3931 Sorrento Valley Blvd, Cruzon retained the building's industrial exterior (below), but customized the interior makeover to suit tenants and added outdoor gathering spaces. This project was attractive to tenant Ligand Pharmaceuticals due to its proximity to partners in Torrey Pines and the modern, open collaborative interior. Building contractor Wyting-Turner also occupies one of the buildings.

A life sciences sector report from JLL San Diego found the San Diego industrial market has peaked in terms of landlord leverage, due to decreasing vacancy in the life sciences cluster from 16% in 2013 to 11.8% in 2016, causing asking rents to rise to up to $4.25/SF per month.

Life sciences companies prefer to locate close to UCSD, JLL broker Grant Schoneman says, and these companies are now seeking obsolete office buildings in the area that have been converted to lab and research space. He says investors have purchased more than 800k SF of office buildings in the UTC and Torrey Pines submarket. Grant says upgrades of this type can cost up to $225/SF—three times as much as standard tenant office improvements—and not all office buildings are suitable for conversion.

Meanwhile, he says this market will continue to peak over the next 12 months, and there are no signs of a supply glut or falling rents. JLL reported 875k SF of transactions are in negotiations and life sciences companies are considering taking more than 600k SF of additional space. [SDUT]