Emeryville Epicenter of East Bay Life Science Downturn

There’s more than one Bay Area commercial real estate market where the vacancy rate has been hovering around 37%.

The travails of San Francisco’s downtown office market since the end of the pandemic are well known. Now, the life science sector in the East Bay is experiencing the malaise of sagging demand and oversupply.

Emeryville appears to be the epicenter of the East Bay life science downturn, with a vacancy rate that topped out at 37.5% in the first quarter of 2024 and held steady at 37% in Q2, according to CBRE data.

The East Bay life science market as a whole, where well over 1M SF of square feet of new lab space is nearing delivery, posted a vacancy rate of 12.4% in the second quarter.

During the pandemic, East Bay markets including Emeryville, Berkeley and Alameda saw a surge in life science development backed by VC funding, with close to 2M SF of deliveries between 2022 and 2023.

Emeryville, a two-square-mile city, had more than $650M in life science building permit applications between 2021 and 2023. The new development grew the city’s inventory to about 1.5M SF, the same size as Berkeley’s life science sector.

Now, with another 285K SF of life science space under construction in Emeryville, demand has fallen sharply and there are signs of distress.

According to a lawsuit filed in Alameda County Superior Court this week, Boston-based life science developer Longfellow Real Estate Partners has not complied with a lease termination notice from its landlord, PSAI Real Estate Partners, for a 128K SF building at 1650 65th Street in Emeryville, part of a life science campus known as Atrium Labs.

The lawsuit alleges that Longfellow, which entered a four-decade-long ground lease for the property in 2021, with plans to build a 750K SF life science campus, has fallen behind on rent payments for the scaled-back campus, the San Francisco Business Times reported.

In 2022, Longfellow converted an existing office building at the 65th Street site into the lab space. The developer also purchased a neighboring property at 6601-6603 Shellmound Street with plans to renovate a 63K SF building into lab space and create a life science campus across the two properties.

According to city records, the two renovation projects have been completed, but remain vacant. Swiss biotech firm Lonza Group signaled interest in leasing 150K SF at the campus in late 2022, but scrapped those plans last year, the report said.

Longfellow listed the Shellmound property for sale last month and could be facing eviction from the 65th Street building.

In its lawsuit, PSAI is seeking restitution and possession of the property, forfeiture of the lease, $670,833 in past due rent, damages totaling $11K per day following the Aug. 3 termination of the lease, and legal fees. Citizens Bank, which in 2022 originated a $113M construction loan backed by the property, also was named in the lawsuit, the report said.

In a statement provided to the Business Times, Longfellow said it is “pivoting” on its plan for Atrium Labs and is negotiating with the landlord to modify the terms of the ground lease for the property.

“After careful consideration, we have made the strategic decision to pivot on our business plan at the Atrium Labs campus,” the statement said. “Longfellow and the ground lessor for the 1650 65th Street building are in discussions to modify the terms of the ground lease to ensure the long-term success of the project.”

“Longfellow remains a big believer in the Bay Area life science and innovation market, especially at our existing campuses and projects located between Mission Bay and Palo Alto,” the statement said.

Biomed Realty is building a 1.3M SF life sciences campus in Emeryville now called Emery Yards, formerly known as Biomed Innovation Center. The first 285K SF of the project has been delivered.

Other life sciences developers are pulling back from plans for speculative development. Last year, Chicago-based CA Ventures scrapped plans to build a 350K SF life sciences project in Emeryville.