San Diego’s Life Sciences Market Poised for Further Growth

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Life Science Completed Transactions

The San Diego life sciences market continues to be a major player both nationally and globally. The region is home to more than 600 life sciences companies and over 80 research institutes that employee around 50,000 people. Biotech employment grew by 6.6 percent during 2015, the highest posted growth rate for the local industry since 2005 and the highest growth rate among the region’s major industries during 2015.

The local life sciences cluster, which consists of the Torrey Pines, UTC/Campus Point, Sorrento Mesa and Sorrento Valley submarkets, accounts for 14.2 million square feet of real estate. 1.7M SF of gross leasing activity was 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.

In a recent Bisnow article JLL’s Grant Schoneman, Vice President specializing in the life sciences real estate sector gave his insight on how the life sciences dynamics are impacting the market:

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. The most active leasing has occurred within suites that are 7k SF or less, 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.

Grant also noted:

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.

Subsequently, rental rates continued to rise throughout 2015.

Grant 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. The Torrey Pines and UTC/Campus Point generate the highest rents—$3.75 to $4.50 per SF; the most desirable submarkets because they are close to other biotech buildings.

After peaking in late 2015, rental rates are expected to remain steady in 2016, with rent growth projected to occur, just not at the pace seen in 2014-2015. Tenant demand for Class A campuses that offer the combination of new space in amenity rich environments is expected to continue. To request a copy of the San Diego Winter/Spring 2016 Life Sciences Outlook and learn more about the life sciences market click here.

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