San Francisco Life Science Vacancy Rate Tops 56%

Converting underused commercial space into life science labs in the Bay Area is no longer as popular as two years ago when the biotech boom during the pandemic drove life science leasing activity to record highs.

The wave of new supply generated by that surge of activity now is cresting over a much cooler market with surging vacancy rates.

At the end of the second quarter, the total inventory of life science facilities in the Bay Area stood close to 42M SF, of which nearly 25% currently is unoccupied. This includes 8M SF of direct vacancies and 2.2M SF of vacant sublease space, according to CBRE’s latest market report.

The erosion of occupancy in the largest Bay Area submarket, the San Francisco Peninsula, deepened in the second quarter. The rate in the Peninsula, with an inventory of nearly 21M SF of life science space, rose to 29.3% in Q2, a 710 bps jump from Q1.

The San Francisco submarket, encompassing about 1.4M SF, posted a life science vacancy rate topping 56% in Q2 2024, CBRE reported. However, despite the highest vacancy rate in the Bay Area, the city still notched the highest average direct lease rate of $7.77 per SF NNN.

San Francisco-based Swift Real Estate Partners acquired 101 Utah Street, a 70K SF industrial building, for $21M in 2018. In 2022, the company secured a five-year $47.6M floating-rate loan to convert the Showplace Square property into Class A lab space.

Swift now has handed the keys for 101 Utah Street back to the lender, transferring ownership to BMO Bank in a deed-in-lieu transaction, the San Francisco Business Times reported.

The report referred to the transfer as a “friendly foreclosure.” Swift, which had $31M in outstanding debt on the loan, was never served a notice of default.

A marketing brochure for 101 Utah Street released last year indicated that the lab conversion of the property was aiming for completion in the first quarter of this year. Building permit records for the project do not list the job as completed, the report said.

A total of 10 life science project deliveries, including ground-up construction and conversions, added nearly 2M SF to the Bay Area’s inventory in the second quarter, CBRE reported.

The largest ground-up delivery in Q2, the 600K SF first phase of the Kilroy Oyster Point life science hub in South San Francisco, was delivered fully vacant. The largest conversion delivery of the quarter, Alexandria’s 352K SF 651 Gateway project in South San Francisco, was 19% pre-leased.

The Bay Area life science sector posted a net absorption of negative 381K SF in the second quarter. The development pipeline includes 29 projects encompassing 5M SF.