Life Science Vacancy Rate Tops 20% in Bay Area
New supply is outpacing demand as leasing activity plateaus.
SAN FRANCISCO—A wave of new supply—including conversions as well as ground-up development—is outpacing demand in the Bay Area’s life science sector, pushing the vacancy rate for Q1 2024 up over 20%.
The leasing market slowdown in the Bay Area continued in the first quarter, with gross leasing activity totaling just 394,000 SF for the entire region, a tick down from the previous quarter and 41% below the 10-year quarterly average.
Net absorption for life science space remained in negative territory, totaling minus 648K SF, according to a new market report from CBRE. The overall vacancy rate in the Bay Area reached 20.4% in Q1. The life science vacancy rate in the San Francisco Peninsula submarket hit 22.2%, up 460 bps from the fourth quarter.
Nine new projects encompassing almost 1million square feet were delivered in the first quarter in the Bay Area. The largest delivery, Phase 3′s 561,000-square-foot Genesis Marina project, arrived 60% pre-leased; the largest conversion project, the 52K SF 3600 Bridge building from Longfellow, delivered unleased, the report said.
On the brighter side, CBRE measured demand from prospective life science tenants encompassing 2.3M SF based on 62 requirements in the first quarter, an increase of 500K SF over the Q4 tally. CRBE attributed the demand to a rebound in venture capital and increased NIH funding.
“The rebound in venture capital investment and elevated NIH funding should translate to greater deal certainty through the balance of 2024,” CBRE’s report said.
“As access to capital begins to improve throughout the remainder of the year, growth in this sector will be supported by an abundance of premier lab space, which has been scarce until now,” the outlook continued.
The life science construction pipeline in the Bay Area is bulging, fueled by projects initiated last year to convert empty offices into lab space.
At the end of Q1 2024, there were 33 life science projects encompassing nearly 7.4M SF under construction, including 5.2M SF of ground-up development and 2.1M SF of full building conversions to life sciences.
“Life Sciences employment has remained elevated which should help stabilize further occupancy losses through the balance of the year,” CBRE said.
Life science companies added 890 Bay Area jobs in the first quarter, bringing overall employment for the sector to 148,870, the report said.