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Public-Private Partnerships Key To Revitalizing Bay Area's Life Sciences Leasing Market

Times are tough in the Bay Area life sciences sector, leading to a sluggish leasing environment for the region’s lab spaces. CRE professionals in the space are on the hunt for solutions in the form of public-private partnerships that can rekindle the kind of innovation the area is known for, and a subsequent swath of new leases.

Life sciences rents are down more than 25% in the Bay Area since the pandemic, and vacancies are above 20%. Though a recovery is at least three to five years away, expanding partnerships with big tech, venture capitalists, private equity companies and academia may help right the ships more quickly, according to panelists at Bisnow’s June 20 Bay Area Life Sciences Conference held at the San Carlos Research Center. 

Allen Matkin's Tony Matsis, SOM's Danielle McGuire, Trammell Crow Co.'s Adam Voelker, Doxel's Reid Senescu, Wareham Development's Geoffrey Sears, Rossi Builders' Sherif Eldash, Transwestern's Alex Browne

These partnerships aim to leverage the kinds of technological advancements the Bay Area is known for into a resurgent life sciences ecosystem.

“AI is dominating headlines right now. But there's also robotics, sensors, [internet of things], wearables and all kinds of ways that tech is doing healthcare. I see the industry continuing to partner to take these technologies forward,” Biocom Executive Director Michelle Nemits said during the event. “We are working on partnerships where these technologies converge.” 

One example is Gilead’s use of Amazon Web Services for its Big Pharma data, Nemits said. Gilead, which focuses on the treatment of HIV, Covid, cancer, inflammatory diseases and viral hepatitis, plans to deliver 10 new drugs to patients by 2030. To achieve this goal, Gilead required a more seamless way to capture a mountain of data for the project.  

The pharmaceutical company worked with AWS to adopt a “data mesh approach” that decentralizes data consumption and product delivery “to improve agility, accelerate insight generation and increase its return on investment.”

Life sciences startups in their first or second stages of clinical development have struggled the past few years in the Bay Area. To help these companies stay in business, panelists said the private sector should continue to expand its relationships with academia.

Although it also includes physical sciences uses, the 1.4M SF Berkeley Space Center at NASA's Ames Research Park at Moffett Field in Mountain View exemplifies the powerful nature of these partnerships, said Darek DeFreece, founder and executive director of Berkeley Space Center.

DeFreece said plans are now in the works to develop a 200K SF climate-ingenuity lab in Berkeley that combines both life sciences and physical sciences disciplines.

Getting these projects to the finish line is no easy task and often requires a combination of funding sources. At the moment, venture capital funding for new pharma and life sciences declined in 2023, while government funding in the form of National Institutes of Health grants has increased.

NIH funding has steadily grown from 2013 to 2023. As of mid-May, Statista reported that funding in 2024 is expected to total $8.7B in funding, slightly less than 2023’s total. In 2025, NIH will front an estimated $9.3B in funding to life sciences companies. 

MGAC's Cynthia NeSmith-Montanez, Biocom's Michelle Nemits, Berkeley Space Center's Derek DeFreece, SFSU's Carmen Domingo, GMC Commissioning's Alex Mathers, CoBuild Construction Services' Ed Wood, HGA's Deepa Balgi

“NIH funding is very important,” said Deepa Balgi, science and technology principal for HGA Architects & Engineers, and that spigot is likely to always flow heavily into the sector.

Life sciences companies that partner with public universities can help the industry create and cultivate talent, said Carmen Domingo, dean of the college of science and engineering at San Francisco State University. “It’s important to prepare students for the workforce demand,” she said. “The California State University system really doesn’t have a lot of funding,” so it relies on private sector support. 

SF State is constructing a new science building, but one of the institution’s concerns involved “instrumentation,” she said. “We didn't want to take a bunch of old, outdated equipment and put it into this really nice new building. It wasn't really going to help our students get to where they needed to be,” said Domingo. 

Assistance from big names in the life sciences sector, including Genentech, Gilead and Agilent, solved SF State’s instrumentation problems. “It gave us funding not for the building, but for the instrumentation, because they wanted to ensure that the students would be exposed to what’s currently being used in the industry,” she said. 

CORRECTION, JUNE 27, 11:20 A.M. PT: This story has been updated to accurately reflect a quote by Adam Voelker on net absorption totals.

Paradigm Structural Engineers' Kurt Lindorfer, Forge Architecture's Jamie Salvo, Srmernst Development Partners' Laura Billings, Syska Hennessy Group's Robert Fagnant, Wood Stock Development's Andres Orphanopoulos, Suffolk Construction's Abel Gonzalez

The decline in VC funding and ongoing layoffs have left roughly one-fifth of the Bay Area’s life sciences facilities empty, placing a drag on leasing demand. 

“For the first time in 10 years, net absorption was negative in 2023 [on the Peninsula],” said Trammell Crow Co. principal Adam Voelker. 

Companies that are renewing leases or absorbing sublease space remain in the driver’s seat when it comes to negotiating lease terms. Landlords are offering concessions and improvements to fill their facilities, said a number of panelists.

In spite of the bleak state of the life sciences real estate market, most of Bisnow’s panelists were optimistic about the future.

“We have been in this kind of market before. I am not ready to call the bottom but we will wait and see,” Wareham Development partner Geoffrey Sears said. “This is a very slow time, as slow as it’s been in a long time.

Brian Hecktman, founder and CEO of Graymark Capital, said that the leasing market will eventually make a comeback. “So much science has happened, on cosmetics, food tech and AI in this area. Flat demand will catch up and in five to seven years, you will see the next wave of buildings come up. Eventually, the capital is going to come back. We will be here ready for the next wave of tenants.”

Manatt Phelps & Phillips' Michael Polentz, Tartan Properties' Jeff UIittenbogaard, Oxford Properties Group's Lauren Krause, Rubicon Point Partners' Razmig Boladian

When the cranes start dotting the Peninsula and East Bay again, builders will be ready with the next iteration of modern Bay Area lab space. They know that many life sciences companies prefer to cluster near innovation centers, and they also know that young scientists don’t want to work in traditional lab spaces. 

For instance, Rachel Lee said her company will focus on the construction of lab spaces for neurodivergent workers and narrower buildings that allow for more natural light.

Panelists are poised for another boom in the area’s life sciences sector due to the country’s aging population, the breadth of talent that still wants to live in the Bay Area and work at its innovation centers, as well as its industry-leading research universities. 

CBRE's Mark Kol, Blue Rise Ventures' Mark Romney, Graymark Capital's Brian Hecktman, McCarthy Building Cos.' Kris Barr, DES Architects' Kevin Norman, Beacon Capital Partners' Banasha King

“What we've heard from some of the panels earlier today is that the science is very strong, and the macro fundamentals around life sciences are still very much there,” said Oxford Properties Vice President and Head of Development Lauren Krause. “The population is aging and with the integration of AI with CRISPR and other technologies, the outlook is fairly positive.”

“The Bay Area is the incubator of the world,” CBRE Executive Vice President Mark Kol said. “Unless they’re going to close UCSF, Berkeley and Stanford, capital investment continues to come into the sciences.”