We spoke exclusively with Schoneman about life-science transaction activity and where he sees this sector going in 2017.

GlobeSt.com: Why has there seemingly been a sudden spurt of life-science deals in the San Diego market?

Schoneman: I wouldn't categorize the spurt of life-science deals in San Diego as sudden. Following the recession, activity in San Diego life sciences sector started to pick up in 2011 and has been exceptionally strong during the past 30 months. Both 2014 and 2015 have each recorded over 1.6 million square feet of gross leasing activity, about 25% higher than the trailing five-year average for annual gross leasing. This surge in activity during the past two years has produced more than 1.8 million square feet of net new company growth, and 2016 is on track to match the activity from the past two years. Year-to-date, the market has secured 1.1 million square feet of gross leasing activity, with another 470,000 square feet of deals currently under lease negotiation. Net new company growth in 2016 is also forecasted to be more than 1 million square feet.

GlobeSt.com: Is this activity out of character for Q3 in this market?

Schoneman: When compared to third quarter in 2014 and 2015, leasing activity for Q3 2016 was about 20% slower than the quarterly average during the past two years. This year has seen local biotech companies become more conservative on their space needs and move at a slower pace when compared to 2014 and 2015. Part of this is slower pace is partially due to the biotech index being down over the year, which has hurt the valuations of a number of local publicly traded biotech companies. This slowdown in third-quarter leasing activity has caused market rental rates to remain flat during the past few months, but hasn't caused the market to move backwards. Starting rents for new class-A space in the Torrey Pines and UTC/Campus Point submarkets continue to remain in the high-$3 to low-$4 range.

GlobeSt.com: What is anticipated with deal volume in this sector next year?

Schoneman: Deal volume for the San Diego life-sciences market is expected to remain strong going into 2017. As I mentioned earlier, there are approximately 470,000 square feet of deals currently under lease negotiation, and trailing behind that is another 760,000 square feet of deals that are trading proposals. Companies that are in early stages of evaluating market alternatives total just above 300,000 square feet of projected space needs, producing a solid pipeline of market demand. Q4 2016 is expected to have strong activity, ending the year on a high note, and providing a good springboard for the first half of 2017.

GlobeSt.com: What else should our readers know about life-science deals in San Diego?

Schoneman: With a strong base of existing tenant demand and continued sector growth forecasted, San Diego landlords continue to evaluate future opportunities to expand the local biotech market. Torrey Pines, which currently has a direct availability rate of 3.9%, has raw land that could accommodate approximately 250,000 square feet of future ground-up development, along with more than 500,000 square feet of planned future redevelopment of older, antiquated facilities. Likewise, the UTC/Campus Point submarket has over one million square feet of future development and more than 700,000 square feet of potential redevelopment opportunities. San Diego's major landlords are focusing their development and redevelopment resources on the Torrey Pines and UTC/Campus Point submarkets, but look for opportunistic developers to evaluate the Sorrento Mesa and Sorrento Valley submarkets for lab-conversion opportunities.

In order to meet the needs and demands of the changing healthcare industry, real estate professionals need to adapt their strategies to new circumstances. Join us at RealShare Healthcare Real Estate on Dec. 7 and 8 for insights on succeeding in both the right markets and product types as well as navigating and finding opportunities in the more challenging ones. Learn more.

SAN DIEGO—Activity in San Diego's life-sciences sector started to pick up in 2011 and has been exceptionally strong during the past 30 months, but JLL SVP Grant Schoneman tells GlobeSt.com he wouldn't characterize the spurt of deals here as sudden.

According to the company's Q3 life-sciences report for San Diego, the fourth quarter looks like it will be active as well, with three completed leases already, totaling more than 131,000 square feet. Also, there are 14 companies in lease negotiations, totaling more than 470,000 square feet. Behind those deals are another 14 companies negotiating proposals on space, representing an additional 760,000 square feet.

Development and redevelopment of laboratory space is at an all-time high, the report also shows, since the San Diego cluster has seen its inventory grow by 10% over the past two years, adding more than 1.3 million square feet of new lab space. Further growth is on the horizon as more than 375,000 square feet of new ground-up development is currently under construction.

San Diego's major landlords are focusing their development and redevelopment resources on the Torrey Pines and UTC/Campus Point submarkets, but look for opportunistic developers to evaluate the Sorrento Mesa and Sorrento Valley submarkets for lab-conversion opportunities, JLL says. Direct availability remains in the single digits, and market rents have stabilized at record highs as tenant demand has remained strong despite a slow-down in activity during the third quarter.

We spoke exclusively with Schoneman about life-science transaction activity and where he sees this sector going in 2017.

GlobeSt.com: Why has there seemingly been a sudden spurt of life-science deals in the San Diego market?

Schoneman: I wouldn't categorize the spurt of life-science deals in San Diego as sudden. Following the recession, activity in San Diego life sciences sector started to pick up in 2011 and has been exceptionally strong during the past 30 months. Both 2014 and 2015 have each recorded over 1.6 million square feet of gross leasing activity, about 25% higher than the trailing five-year average for annual gross leasing. This surge in activity during the past two years has produced more than 1.8 million square feet of net new company growth, and 2016 is on track to match the activity from the past two years. Year-to-date, the market has secured 1.1 million square feet of gross leasing activity, with another 470,000 square feet of deals currently under lease negotiation. Net new company growth in 2016 is also forecasted to be more than 1 million square feet.

GlobeSt.com: Is this activity out of character for Q3 in this market?

Schoneman: When compared to third quarter in 2014 and 2015, leasing activity for Q3 2016 was about 20% slower than the quarterly average during the past two years. This year has seen local biotech companies become more conservative on their space needs and move at a slower pace when compared to 2014 and 2015. Part of this is slower pace is partially due to the biotech index being down over the year, which has hurt the valuations of a number of local publicly traded biotech companies. This slowdown in third-quarter leasing activity has caused market rental rates to remain flat during the past few months, but hasn't caused the market to move backwards. Starting rents for new class-A space in the Torrey Pines and UTC/Campus Point submarkets continue to remain in the high-$3 to low-$4 range.

GlobeSt.com: What is anticipated with deal volume in this sector next year?

Schoneman: Deal volume for the San Diego life-sciences market is expected to remain strong going into 2017. As I mentioned earlier, there are approximately 470,000 square feet of deals currently under lease negotiation, and trailing behind that is another 760,000 square feet of deals that are trading proposals. Companies that are in early stages of evaluating market alternatives total just above 300,000 square feet of projected space needs, producing a solid pipeline of market demand. Q4 2016 is expected to have strong activity, ending the year on a high note, and providing a good springboard for the first half of 2017.

GlobeSt.com: What else should our readers know about life-science deals in San Diego?

Schoneman: With a strong base of existing tenant demand and continued sector growth forecasted, San Diego landlords continue to evaluate future opportunities to expand the local biotech market. Torrey Pines, which currently has a direct availability rate of 3.9%, has raw land that could accommodate approximately 250,000 square feet of future ground-up development, along with more than 500,000 square feet of planned future redevelopment of older, antiquated facilities. Likewise, the UTC/Campus Point submarket has over one million square feet of future development and more than 700,000 square feet of potential redevelopment opportunities. San Diego's major landlords are focusing their development and redevelopment resources on the Torrey Pines and UTC/Campus Point submarkets, but look for opportunistic developers to evaluate the Sorrento Mesa and Sorrento Valley submarkets for lab-conversion opportunities.

In order to meet the needs and demands of the changing healthcare industry, real estate professionals need to adapt their strategies to new circumstances. Join us at RealShare Healthcare Real Estate on Dec. 7 and 8 for insights on succeeding in both the right markets and product types as well as navigating and finding opportunities in the more challenging ones. Learn more.