Small Users Drive Life Science Leasing in San Diego

Small life science companies in San Diego are dominating leasing activity. According to research from JLL, life science companies requiring 17,000 square feet or less of space have made up 75% of the total leases. While this is an eye-catching stat, experts in the market say that it is more of an anomaly than a trend.

“There is no specific event or trend that is causing this, but just how the quarterly activity played out,” Grant Schoneman, a managing director at JLL, tells GlobeSt.com. “The San Diego life science cluster is historically a smaller tenant market, with approximately two-thirds of all biotech deals signed each year being under 17,000 square feet. So the fact that small biotech companies led leasing activity in the third quarter is no cause for alarm or surprise.”

Small tenant and start-up demand is typical for the life science market in general, and particularly in a hub like San Diego. Landlords have adapted their portfolios to capture the demand. “Landlords are used to strong activity from smaller biotech tenants,” says Schoneman. “San Diego’s larger landlords are always balancing their portfolios to provide space for new startup and early-stage biotech companies.  Case in point is the new Alexandria GradLabs facility that is currently under construction and due to be completed in December of this year.  The building will offer a number of speculatively built-out wet lab suites in the 4,000 to 10,000 square foot size range to accommodate the needs of smaller biotech companies.  Biomed Realty, HCP, Phase 3 Real Estate Partners and Longfellow Real Estate Partners also have the same mindset to provide speculatively built-out lab space for smaller companies that need to occupy space quickly.”

While demand from small tenants is typically strong, don’t count out large users. Historical biotech leasing in San Diego has been led by smaller companies, but larger company activity has been very healthy the past few years, as well as in 2019,” says Schoneman. “Year-to-date, the San Diego life science cluster has recorded a total of nine completed lease transactions above 35,000 square feet.  Compare that to prior years, which saw 2017 secure a total of nine completed transactions and 2018 complete ten transactions.  And with multiple larger transactions currently in the market at the final negotiation stage, 2019 larger tenant activity is expected to exceed the totals from the prior years.”

Looking ahead, Schoneman expects continued strong activity. “Tenant demand continues to be strong with about 1.5 million square feet of active requirements,” he says. “There are several local San Diego biotech firms evaluating the market for space to accommodate their growth needs; with the bulk of active requirements landing in the 15,000 to 30,000 square foot size range—so stronger growth among the mid-sized biotech companies. Additionally, the market is seeing a steady stream of companies that have their headquarters outside of San Diego look to the local marketplace to expand their R&D operations, taking advantage of the strong pool of local talent.”