SAN DIEGO—The strong leasing activity from smaller life-sciences firms in the San Diego market is a product of a healthy biotech community that is highly entrepreneurial, JLL managing director Grant Schoneman tells GlobeSt.com. According to the firm's Q4 2017 life-sciences report for the market, growth and leasing activity among San Diego's small-to-mid-size companies was exceptionally strong throughout the year, with the market seeing 87% of the completed lease transactions signed with companies that had space needs under 35,000 square feet.
Furthermore, the region's small companies, with space needs under 7,000 square feet, accounted for 37 percent of the total leasing activity.
Adding to the local organic growth was the expansion of firms from outside of the region that elected to expand operations in to San Diego. Together, these new leases produced nearly 200,000 square feet of positive net occupancy growth in the market.
The total availability rate for the San Diego life-sciences cluster (Torrey Pines, UTC/Campus Pointe, Sorrento Mesa, Sorrento Valley) ended the fourth quarter at 9%, a 70-basis-point increase from the third quarter of 2017. A main culprit for the increase in availability were a few large listings that came to market during the quarter: Thermo Fisher Scientific, which leases space in Torrey Pines, elected to put its 54,000-square-foot lab facility on the market for sublease, and Roka Bioscience and Tandem Diabetes also chose to vacate space during the quarter.
The report also says the first quarter of 2018 has already started off on a strong note, with the month of January having recorded five completed transactions, totaling over 111,000 square feet of gross leasing activity. There are also 25 active requirements currently negotiating on space or touring the market within this size range.
We spoke with Schoneman about the high percentage of smaller life-sciences firms in the market and what it means for the sector in San Diego.
GlobeSt.com: Why are smaller life-science firms interested in the San Diego market—does it have to do with the lack of availability of large spaces in this market?
Schoneman: The strong leasing activity from smaller life-sciences firms is a product of a healthy biotech community that is highly entrepreneurial. Every year, the San Diego life sciences cluster sees a number of new startup companies formed. These companies are often formed by seasoned executives, who have started multiple companies in the past, as well as new biotech entrepreneurs who are looking to further develop their breakthrough technologies and in need of new lab space to do so.
GlobeSt.com: Is this trend expected to continue here?
Schoneman: The trend of strong leasing among smaller companies is expected to continue. Historically, two out of every three (66%) biotech leases signed in the San Diego life-science cluster (Torrey Pines, UTC/Campus Pointe, Sorrento Mesa and Sorrento Valley) is with a firm that has space needs under 17,000 square feet. Further segmentation shows that around 40% of completed biotech deals are completed with companies that have space needs under 7,000 square feet and less than 25 people. In 2017, we saw strong activity among smaller companies. This is expected to continue in 2018.
GlobeSt.com: Does it hurt San Diego as a life-sciences market not to have depth of inventory in the larger spaces?
Schoneman: While options for larger companies are definitely waning, ground-up development and office-to-lab conversion opportunities are able to provide space options for larger companies. Because the life-science market has been so robust for the last four years, and activity is forecasted to remain that way for the coming years, developers are continuing to entitle ground-up developments to attract larger life-science companies as well as acquire new redevelopment opportunities.
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
