How Biotech Is Fueling The San Diego Development Boom
The local biotech cluster is home to more than 600 life sciences companies and 80 research institutes. San Diego’s biotech industry is a major player in the San Diego economy, employing about 50,000 people in well-paying jobs and accounting for 14.2M SF of the city’s commercial real estate in a biotech cluster. Bisnow spoke to JLL's Grant Schoneman, who specializes in the life sciences real estate sector, to get an insider view of how biotech dynamics are impacting the market.
Grant (here snow skiing in Park City, UT, with wife Katherine, daughter Lauren, 5, and son Will, 3) tells us the cluster includes some of the city's most attractive submarkets, including Torrey Pines, University Towne Centre/Campus Point, Sorrento Mesa and Sorrento Valley.
With the region’s biotech industry raising nearly $445M in venture capital, growth and expansion within the sector is having a tremendous impact on commercial real estate, noted a new JLL Life Sciences Outlook report.
Grant tells us strong growth and expansion among San Diego companies boosted biotech employment by 6.6% in 2015 and resulted in a flurry of leasing activity.
The report noted record leasing and healthy rent growth in 2014 carried over into 2015, with 1.7M SF of gross leasing activity secured during the year—1.28M SF of which was in the Torrey Pines and UTC submarkets. The total 2015 life sciences leasing activity represents a 31% increase over the region’s five-year average.
Among the bigger moves is Eli Lilly adding 175k SF to its UTC/Campus Point facility (pictured here), essentially doubling its research space.
Grant says smaller companies are exiting, selling out to big pharma, and then that same executive team will turn around and create a new startup, like a rotating wheel.
He says the most active leasing has occurred within suites that are 7k SF or less, noting while large and midsized companies are expanding, the strong activity within small spaces indicates that a lot of investor capital is pouring into growing small R&D companies.
Vertex Pharmaceuticals signed a lease at the end of November for 171k SF in the Torrey Pines submarket, expanding its footprint by more than 89k SF.
Grant says new redevelopment deals are transforming traditional office and industrial buildings to biotech lab space and more than 800k SF of former office buildings are in the process of being converted to Class A wet-lab space, of which 400k SF is already leased.
The fact that half of this new redevelopment space under construction is already leased proves that the San Diego biotech sector is a growing industry, which continues to push rents.
He says rents for new build-to-suit facilities are now in the mid-$4/SF, which is a 10% to 15% increase from year-end 2014, with newly redeveloped lab space securing starting rents in the mid-$3 per SF to low-$4 per SF range—a 10% increase from year-end 2014.
Grant stresses, however, the key is that these new redevelopment projects must be close to other biotech buildings—the Torrey Pines and UTC submarkets are the most desirable.
Overall asking rents in the biotech cluster ranges from $2.45 and $4.50 per SF, but Torrey Pines and UTC/Campus Point generate the highest rents—$3.75 to $4.50 per SF, despite vacancy of 5.7% and 24%, respectively, according to the report.
The report predicted that rents will remain steady in 2016, with some rent growth, but not at the pace of the last two years. Similar to the creative office trend, the highest tenant demand will be for space in Class-A campuses with amenity-rich environments.