The Bay Area, long recognized as a global epicenter for life sciences and biotechnology, is gearing up for another transformative boom in 2025. This dynamic sector, which has already solidified the region as a leader in innovation, is expected to experience unprecedented growth, fueled by advancements in technology, increased investment, and a thriving ecosystem of startups, research institutions, and established companies. In this article, we’ll explore the factors driving this anticipated boom, the key players shaping the industry, and what this means for the future of the Bay Area’s economy and the broader life sciences landscape.

The Foundation of the Bay Area’s Life Sciences Ecosystem

The Bay Area’s prominence in life sciences and biotechnology is no accident. The region is home to some of the world’s most prestigious research institutions, including Stanford University, the University of California, San Francisco (UCSF), and the University of California, Berkeley. These institutions have consistently produced groundbreaking research, attracting top-tier talent and fostering a culture of innovation.

Additionally, the Bay Area boasts a dense network of biotech companies, ranging from cutting-edge startups to industry giants like Genentech, Gilead Sciences, and Roche. This ecosystem is further bolstered by a robust venture capital presence, with firms like Andreessen Horowitz, Khosla Ventures, and Sequoia Capital actively investing in the region’s biotech startups. The Bay Area’s unique combination of academic excellence, entrepreneurial spirit, and access to capital has created a fertile ground for innovation.

The Catalysts for the 2025 Boom

Several key factors are converging to set the stage for the Bay Area’s next biotech boom:

1. Technological Advancements: The rapid pace of technological innovation is a primary driver of growth in the life sciences sector. Breakthroughs in areas such as gene editing (CRISPR), artificial intelligence (AI), machine learning, and personalized medicine are revolutionizing research and development. Bay Area companies are at the forefront of these advancements, leveraging cutting-edge technologies to develop novel therapies, diagnostics, and digital health solutions.
2. Increased Investment: The life sciences sector has seen a significant influx of investment in recent years, and this trend is expected to accelerate. According to a report by CBRE, the Bay Area consistently ranks as one of the top markets for life sciences venture capital funding. In 2022 alone, the region attracted billions of dollars in investment, enabling companies to expand their operations, invest in new research, and bring innovative products to market.
3. Collaborative Ecosystem: The Bay Area’s collaborative ecosystem is another critical factor driving the anticipated boom. The region’s research institutions, biotech companies, and venture capital firms work closely together, creating a synergistic environment that accelerates innovation. Organizations like the California Life Sciences Association (CLSA) play a pivotal role in fostering collaboration and advocating for the industry’s growth.
4. Talent Pool: The Bay Area benefits from an unparalleled talent pool. The region’s universities and research institutions produce a steady stream of highly skilled graduates, while its reputation as a global biotech hub attracts top talent from around the world. This deep talent pool is essential for driving innovation and ensuring the continued growth of the sector.

The Impact on the Bay Area’s Economy

The anticipated biotech boom is expected to have a profound impact on the Bay Area’s economy. The life sciences sector already contributes tens of billions of dollars to the regional economy annually, and this contribution is expected to grow as the sector expands. The boom will create thousands of high-paying jobs, from research scientists and engineers to business development and marketing professionals.

Moreover, the growth of the life sciences sector will have a ripple effect on other industries, including real estate, construction, and hospitality. As biotech companies expand, they will need more laboratory and office space, driving demand for commercial real estate. This, in turn, will create opportunities for construction firms and boost the local economy. Cities like South San Francisco, often referred to as the “Birthplace of Biotechnology,” are already experiencing a surge in lab space development to meet this growing demand.

Challenges and Opportunities

While the outlook for the Bay Area’s life sciences sector is overwhelmingly positive, there are challenges that must be addressed to ensure sustained growth. One of the primary challenges is the availability of affordable laboratory and office space. As demand for space increases, so too do rental prices, which could make it difficult for startups and smaller companies to afford the space they need to grow.

To address this challenge, local governments and industry stakeholders are working together to develop new lab spaces and ensure that the region’s infrastructure can support the growing sector. For example, cities like San Francisco and Oakland are investing in biotech hubs and innovation districts to attract companies and foster collaboration.

Another challenge is the need to maintain a strong talent pipeline. As the sector grows, so too will the demand for skilled workers. To meet this demand, the Bay Area’s universities and research institutions must continue to produce highly skilled graduates, while companies must invest in training and development programs to attract and retain top talent.

The Future of the Bay Area’s Life Sciences Sector

Looking ahead to 2025 and beyond, the Bay Area’s life sciences sector is poised for continued growth and innovation. The region’s strong foundation of research institutions, biotech companies, and venture capital firms, combined with the rapid pace of technological advancement, positions it as a global leader in the life sciences industry.

As the sector grows, it will create new opportunities for collaboration, investment, and innovation, driving economic growth and improving the quality of life for Bay Area residents. The anticipated biotech boom is not just a testament to the region’s past successes but also a sign of its bright future as a hub for life sciences and biotechnology.

Conclusion

The Bay Area’s life sciences and biotech sector is on the cusp of another major boom, set to take off in 2025. With a strong foundation of research institutions, a thriving ecosystem of biotech companies, and a deep talent pool, the region is well-positioned to lead the way in innovation and economic growth. While challenges remain, the opportunities for collaboration, investment, and advancement are immense. As we look to the future, the Bay Area’s life sciences sector promises to be a driving force in shaping the future of healthcare and biotechnology, not just in the region, but around the world.

For more insights into the latest trends and developments in the life sciences and biotech industry, stay tuned to BayAreaLabSpace.com, your go-to resource for all things related to lab space, innovation, and the future of science.

The life sciences industry has experienced unprecedented growth over the past decade, driven by advancements in biotechnology, pharmaceuticals, and medical research. However, as the market evolves, a new challenge is emerging: how to effectively fill empty lab space. This issue is expected to become a defining question for the industry by 2025, as the supply of lab space outpaces demand in certain regions. In this article, we’ll explore the factors contributing to this trend, strategies for addressing vacant lab space, and what the future holds for the life sciences real estate market.

The Current State of Lab Space Demand

The life sciences sector saw a surge in demand for lab space during the COVID-19 pandemic, as companies raced to develop vaccines, therapeutics, and diagnostics. This led to a construction boom, with developers rushing to build state-of-the-art lab facilities to meet the needs of biotech startups, pharmaceutical giants, and research institutions. However, as the pandemic-driven urgency subsides, the market is beginning to stabilize, and in some cases, oversupply is becoming a concern.

According to a recent report by CBRE, the U.S. life sciences market added over 30 million square feet of lab space in 2022 alone. While demand remains strong in established hubs like Boston, San Francisco, and San Diego, secondary markets such as Austin, Denver, and Raleigh-Durham are seeing slower absorption rates. This imbalance between supply and demand is creating pockets of vacant lab space that landlords and developers must address.

Factors Contributing to Vacant Lab Space

1. Economic Uncertainty and Funding Challenges
   The life sciences industry is heavily reliant on venture capital (VC) funding, which has tightened in recent years due to economic uncertainty and rising interest rates. According to PitchBook, VC investment in biotech startups declined by 30% in 2023 compared to the previous year. This funding crunch has forced many early-stage companies to delay expansion plans or downsize their operations, leaving lab space vacant.
2. Shifts in Research Priorities
   The life sciences industry is dynamic, with research priorities constantly evolving. For example, the focus on mRNA technology during the pandemic has given way to new areas of interest, such as gene editing, artificial intelligence in drug discovery, and personalized medicine. Companies that once needed lab space for specific projects may no longer require it, leading to vacancies.
3. Overbuilding in Secondary Markets
   While established life sciences hubs continue to thrive, secondary markets are struggling to attract tenants. Developers in these regions may have overestimated demand, resulting in an oversupply of lab space. Without a robust ecosystem of talent, funding, and infrastructure, these markets face challenges in filling their facilities.

Strategies for Filling Empty Lab Space

1. Flexible Leasing Models
   To attract tenants in a competitive market, landlords are increasingly offering flexible leasing options. This includes shorter lease terms, shared lab spaces, and modular designs that can be easily reconfigured to meet the needs of different tenants. By providing flexibility, landlords can appeal to a broader range of companies, from startups to established firms.
2. Repurposing Lab Space for Alternative Uses
   In some cases, vacant lab space can be repurposed for other uses. For example, labs can be converted into offices, manufacturing facilities, or even coworking spaces for life sciences professionals. This approach requires careful planning and investment but can help landlords generate revenue while waiting for demand to rebound.
3. Incentivizing Tenants with Amenities and Services
   To stand out in a crowded market, landlords are offering a range of amenities and services to attract tenants. This includes on-site conference rooms, shared equipment, and access to networking events and funding opportunities. By creating a vibrant ecosystem, landlords can position their properties as hubs for innovation and collaboration.
4. Targeting Niche Markets
   Some landlords are focusing on niche markets within the life sciences industry, such as contract research organizations (CROs), medical device companies, or academic research institutions. By tailoring their offerings to the specific needs of these tenants, landlords can fill vacant space more effectively.

The Future of Lab Space Demand

While the current market presents challenges, the long-term outlook for the life sciences industry remains positive. Advances in biotechnology, an aging population, and increasing demand for personalized medicine are expected to drive growth in the coming years. According to a report by JLL, the global life sciences market is projected to grow at a compound annual growth rate (CAGR) of 6.5% through 2030.

However, the industry is likely to undergo significant changes in the coming years. For example, the rise of remote work and virtual collaboration tools could reduce the need for physical lab space. At the same time, the growing emphasis on sustainability may lead to increased demand for energy-efficient and environmentally friendly facilities.

Conclusion

The question of how and when to fill empty lab space is a complex one, with no easy answers. As the life sciences industry continues to evolve, landlords, developers, and tenants must work together to adapt to changing market conditions. By embracing flexibility, innovation, and collaboration, stakeholders can navigate this challenging landscape and ensure that lab space remains a valuable asset for years to come.

For more insights on the life sciences real estate market, stay tuned to BayAreaLabSpace.com, your go-to resource for the latest news and trends in the industry.

The life sciences sector has long been a cornerstone of innovation and economic growth in the Bay Area, home to some of the world’s most prominent biotech hubs. However, like many industries, it has faced significant challenges in recent years, including rising vacancy rates and economic headwinds. Despite these hurdles, there are encouraging signs of recovery and resilience in the sector, according to a recent report by Globest and other industry analyses. This article delves into the current state of the life sciences real estate market in the Bay Area, explores the factors driving its recovery, and examines what the future may hold for this critical industry.

The Current Landscape: High Vacancy Rates and Market Adjustments

The Bay Area’s life sciences real estate market has experienced a notable shift over the past few years. During the pandemic, the sector saw unprecedented growth, fueled by a surge in demand for lab space and research facilities as companies raced to develop vaccines, therapeutics, and diagnostic tools. This boom led to a flurry of new construction and speculative developments, particularly in key hubs like South San Francisco, San Francisco’s Mission Bay, and the East Bay.

However, as the pandemic-driven urgency subsided and economic conditions tightened, the market began to cool. According to a 2024 report by CBRE, vacancy rates for lab and life sciences spaces in the Bay Area climbed to 12.5%, up from a historic low of 5% in 2021. This increase has been attributed to several factors, including:

1. Overdevelopment: The rapid expansion of lab space during the pandemic led to an oversupply in some submarkets, leaving many new facilities struggling to find tenants.
2. Funding Challenges: Venture capital funding for biotech startups, a key driver of demand for lab space, has declined significantly. PitchBook data shows that biotech funding in 2023 dropped by nearly 30% compared to 2021 levels.
3. Economic Uncertainty: Rising interest rates and inflationary pressures have made it more difficult for companies to secure financing for expansion or new leases.

Despite these challenges, the market is showing signs of stabilization and recovery.

Signs of Recovery: Leasing Activity and Tenant Demand

While vacancy rates remain elevated, there are positive indicators that the life sciences sector is beginning to rebound. According to the Globest article, leasing activity has picked up in recent months, particularly in well-established submarkets like South San Francisco, which continues to be one of the most sought-after locations for life sciences companies.

Several factors are contributing to this renewed demand:

1. Adaptive Reuse of Office Space: With the ongoing struggles in the office market, many landlords are converting underutilized office buildings into lab spaces. This trend has been particularly pronounced in San Francisco, where the city’s central location and access to talent make it an attractive option for life sciences companies.
2. Tenant-Friendly Market Conditions: High vacancy rates have created a tenant’s market, with landlords offering more favorable lease terms, including rent concessions, tenant improvement allowances, and flexible lease structures. This has made it easier for companies to secure the space they need without overextending their budgets.
3. Resilience of the Biotech Sector: Despite funding challenges, the biotech industry remains fundamentally strong. Advances in areas like gene therapy, personalized medicine, and artificial intelligence-driven drug discovery continue to drive innovation and attract investment.

The Role of the Bay Area in the Life Sciences Ecosystem

The Bay Area’s unique ecosystem of talent, capital, and innovation ensures its continued prominence in the life sciences sector. The region is home to world-class research institutions like Stanford University and UC San Francisco, as well as a dense network of venture capital firms and startups. This concentration of resources creates a virtuous cycle, attracting top talent and fostering collaboration between academia, industry, and investors.

Moreover, the Bay Area’s life sciences market benefits from its proximity to other key biotech hubs, including San Diego and Boston. This interconnectedness allows companies to tap into a broader network of expertise and resources, further enhancing the region’s appeal.

Challenges and Opportunities Ahead

While the outlook for the Bay Area’s life sciences sector is promising, there are still challenges to overcome. High construction costs and regulatory hurdles can make it difficult to bring new lab space to market, particularly in densely populated areas like San Francisco. Additionally, the sector must contend with ongoing economic uncertainty and the potential for further funding constraints.

However, these challenges also present opportunities for innovation and adaptation. For example, the growing emphasis on sustainability is driving demand for green lab spaces, which can help companies reduce their environmental footprint while lowering operating costs. Similarly, the rise of remote work and digital tools is enabling more flexible research and development models, potentially reducing the need for large, centralized lab facilities.

Conclusion: A Resilient Sector Poised for Growth

The life sciences sector in the Bay Area is at a pivotal moment. While high vacancy rates and economic headwinds have created short-term challenges, the underlying fundamentals of the industry remain strong. With its unparalleled ecosystem of talent, innovation, and capital, the Bay Area is well-positioned to remain a global leader in life sciences.

As the market continues to stabilize, stakeholders—from developers and landlords to startups and investors—must work together to address the sector’s challenges and capitalize on its opportunities. By doing so, they can ensure that the Bay Area remains at the forefront of life sciences innovation for years to come.

For more insights on the Bay Area’s life sciences real estate market, stay tuned to BayAreaLabSpace.com, your go-to resource for the latest trends and developments in this dynamic industry.

The lack of laboratory space, which is essential for life science companies to conduct research and development, has been a common problem in many cities across the country over the past year. However, in California, the situation seems even worse. Recent reports show that vacancy rates for lab space in the Bay Area and San Diego are around 3 percent; while in Los Angeles, they are as low as 1.5 percent. What are the implications for the life science industry when space is scarce? What should companies, especially startups, be aware of? We asked our members who are experts in life science spaces and commercial real estate for some answers in this three-part Q&A series. Next up in the series is the Bay Area, where we spoke with Scott W. Miller, Executive Managing Director of Life Sciences at JLL.

What is the current state of lab space availability in the Bay Area?

The current vacancy rate for genuine laboratory office space, which is synonymous with life sciences, is definitely below four percent for direct spaces and probably three percent is a realistic figure for where we are currently tracking on direct vacancy. Sublease vacancy, while also relatively low, is actually increasing from where it was three quarters ago.

It’s always better to have more balance between supply and demand in the ecosystem. Before COVID, and then during COVID, it’s increasingly been a market where demand exceeds supply–more tenants, more occupants looking for a limited amount of inventory and space. Ideally, you always want there to be more alignment and harmony within that paradigm of supply meets demand. What’s happening in the world around us with inflationary conditions and the rising cost of construction is it’s providing a relief valve for the occupiers and tenants as developers are having to provide more improvement capital.

With that said, in the Bay Area, there has also been a weakening of demand and an increase in sublease inventory (although not as much as in other marketplaces nationally). There’s been new direct inventory hitting the market, both in office-to-lab conversions and new development. I see vacancy rate numbers rising to a number [in the future] where it’s more harmonious from an occupier’s perspective and healthier on the supply-demand ecosystem.

How does the current vacancy rate affect the local life science industry? Are new companies coming into the Bay Area? If so, are they looking for space outside of the primary life science hubs?

A lot of the big pharma and big biotech groups that come to the Bay Area either come through a merger or acquisition event, or they establish a presence here by putting their metaphorical flag into the marketplace. However, many of the big pharma and big biotech organizations have already arrived here invariably over the past decade. We did see Astellas sign a large deal with Healthpeak Properties recently—a very large publicly traded life sciences developer—in our market, but we’re not seeing that big wave of large biotech or large pharma companies as we did in prior years as they have already arrived.

A considerable amount of the organic growth in our market is well-funded, mid-cap, and mid-emerging biotech companies that are looking for progression. They’re having to plan ahead in advance to accommodate and host their growth because of how limited the options [for space] have been for the past many quarters. Returning to new developments coming online, conversions, and ground-up development, there will be more options. More opportunity for those companies that are organically expanding in our market to find a headquarters location that makes sense for their operation.

There are also landlords entering the Bay Area life sciences market, with King Street Properties bringing their expertise from the East Coast, as well as IQHQ expanding operations from Southern California. Established developers and new entrants are already planning the next major clusters outside of the primary life sciences submarkets. One example is Millbrae, where Alexandria has secured Eikon Therapeutics for 285,000 square feet.

The Bay Area had the second-largest percentage gain for office-to-lab conversions this year. Will this help the current situation—especially since employees at several tech companies in the region have gone to permanent remote or hybrid work models?

The work-from-home trend that emerged from COVID has been beneficial for office occupiers in the technology and financial services sectors. However, life sciences users cannot work from home because they need laboratory workers who are essential. They have to be in buildings that are either built or converted specifically for life sciences.

This has led to a paradigm shift where office developers—who might be worried about facing long periods of vacancy—are considering converting their space to the laboratory, life sciences space. But if a conversion is done poorly, it will not be well received by the life sciences community—it’s crucial that the right developers execute that task effectively and efficiently. It’s not a simple feat. It’s a very complex and challenging operational conversion: converting an office building to a laboratory is not as easy as it sounds, it has to be done correctly. There are some developers who do it well and accurately. And unfortunately, there are some developers who do it badly and cut corners. The developers who actually know how to convert offices to laboratories/offices effectively and accurately are the ones who will succeed in the end. There is a significant reputation risk associated with any office-to-lab conversion and the good conversions are being noticed and appreciated. The same can be said about the bad conversions, they can damage a developer’s reputation.

I think the conversions will provide more options for tenants who are looking for space, but it will be clear which assets have been converted well and which assets have not been converted well.

Is there a factor that makes building more lab space in the Bay Area uniquely challenging?

There’s always a clustering effect with where these life sciences companies want to be located. First, they want to be where there’s existing talent, which is related to where existing life sciences companies already have their home. Second, being close to research institutions and venture capital is essential. You’ve seen a combination of existing locations being the beneficiary of all these attributes—this is why South San Francisco, Mission Bay, Emeryville, Berkeley, Alameda, Redwood City, Foster City, and Hayward are growing life sciences markets.

Also, you’re land-limited in the Bay Area Peninsula because you’re surrounded by a bay, existing residential neighborhoods, and the foothills on the peninsula. There are not a lot of other land opportunities to expand a life science cluster which is why so much existing real estate is re-used to create adequate laboratories to support the growth. You’d have to really expand south into Silicon Valley or farther east if you’re on the east side of the bay, up and down the 880 corridor. What we’re finding is life sciences occupiers and tenants mostly want to be where there’s already an established cluster in the Bay Area.

Strong leasing activity and rising rents are stimulating investment activity.

The industrial market in the San Francisco Bay Area continues to experience unrelenting demand as the explosion of e-commerce has retailers and outside logistics providers fiercely competing for space.

These include highly desirable urban last-mile distribution centers for rapid product delivery and warehouses to store goods to protect against supply chain pushbacks. However, demand far exceeds supply.

The space crisis is exacerbated by department store competition as life sciences and biotech companies expand in search of new R&D and laboratory space. This is creating new demand for industrial space in the Bay Area on an unprecedented scale.

Why is the market so hot?

The main driver of the industrial boom is the region’s access to major ports and airports for domestic and international sales. For example, the Port of Oakland in the East Bay is one of the busiest ports in the United States. In addition, the Bay Area provides access to major thoroughfares in California and the western states, including Highway 101 and Highway 5 and 80.

With fewer options available, companies are competing for existing space. Amazon, FedEx, UPS, Target, Walmart, and other e-commerce operators and logistics service providers consume warehouses and distribution facilities. For example, to meet the growing demand for warehousing/distribution space in the warm East Bay, that submarket will need 13 million square feet of additional inventory, while only 5.7 million square feet are planned, according to JLL’s report.

A market with high barriers to entry hampers development

The Bay Area is a region with high barriers to entry. Land availability is minimal, especially for large lots that would be required to develop large industrial plants. This complicates the development of new products.

There are also regulatory barriers to the development of new industrial sites. In addition, high property values ​​and rising construction costs make new products difficult. These and other factors will somewhat limit development work in the future.

Moderate demand drives prices up further

The vacancy rate is less than 1% in the South Bay and 3.7% in the East Bay industrial market Oakland In San Francisco, the vacancy rate fluctuates around 4%. Tight market conditions are driving rents up and tenants are willing to pay to keep their Bay Area locations.

These solid foundations are attracting investors’ attention. As demand for industrial assets increases, investors are looking to the San Francisco area for real estate, spending millions. Buyers are attracted by higher rents combined with a cap rate squeeze. The combination of these factors has created a high asset value and a strong foundation for investors who believe their value will increase over time.

San Francisco-based private REIT Prologis Inc. and private equity giant Blackstone operate in the Bay Area, as do other public and private REITs, pension funds, private equity, and family offices. Some domestic investors are looking for established assets that are leased and operating.

Creativity from a lack of space

As options dwindle, big players like Prologis are looking for high-rise buildings in tight urban areas so their tenants can get products to consumers quickly. In addition, areas previously used for other purposes were taken over and converted for commercial purposes.

Credit markets are very liquid

Lenders have always been very active in the industrial sector and especially in the post-pandemic world, the industry is considered a safe haven asset for investors and lenders.

In 2020 and 2021, industrial assets made up a significant proportion of many lenders’ portfolios, and this trend will continue in 2022. The most active lenders for medium-sized and institutional products are life insurers and banks. Life insurance companies are highly competitive in industrial assets and can offer long-term fixed-rate financing on attractive terms, including early rate freezes. In today’s volatile interest rate environment, an early freeze on interest rates eliminates the borrower’s interest rate risk for the 60 days until the loan is closed and 5-10 years thereafter, depending on the loan term. Additionally, insurance companies can often offer interest-free periods, whether it’s a few years or just interest-linked terms, which can help the investor earn a return well beyond the life of the loan.

Debt funds are also competitive in this area for value-added acquisitions and business strategies.

Although borrowers have equity, rising interest rates are making themselves felt. Most forecasts assume an extended period of rate hikes. Interestingly, there is often a cap rate adjustment that accompanies an increase in interest rates. But it hasn’t quite worked out in the Bay Area yet. The Bay Area continues to trade with highly compressed industrial sector earnings ranging from the low to mid 3%.

Transactions Illustrate Financing Options and a Competitive Market

Financing options for industrial assets are available and can often be customized to suit investors’ business plans. Northmarq recently closed a portfolio of six 1,000,000-square-foot industrial lots with properties in Arizona, Virginia, Georgia, and Maryland. Fundrise, the largest real estate investment platform aimed directly at US investors, acquired the assets entirely in cash or with short-term debt, allowing the company to quickly close the properties and combine them into a portfolio.

Northmarq has partnered with Fundrise to raise $97.75 million in assets through a portfolio loan. One of Northmarq’s partner life insurance companies offered competitive interest rates with an upfront interest freeze and an attractive structure that allowed flexibility in raising funds over the life of the loan. Asset-as-a-portfolio financing allows both the borrower and the lender to spread the risk across the assets. This transaction structure demonstrates how investors across the country, including the Gulf region, can be competitive in acquisitions while leveraging the debt markets to maximize returns.

In a Bay Area deal in February, Northmarq negotiated a $35 million refinance for a private owner of a seven-building, 337,585 sq. ft. industrial property in San Jose. The multi-tenant property is well located, just off Interstates 101 and 880, with easy access to the San Jose International Airport. The transaction was structured with a 10-year, interest-only term. Northmarq secured the permanent-fixed loan for the borrower through its relationship with a correspondent life insurance company.

Northmarq was able to quickly rate lock while the 10-year Treasury rate was attractively low. This transaction is indicative of how strong market conditions in the Bay Area attract competitive financing options from lenders.

What will drive financing for the remainder of 2022?

For lenders, there is a flight to quality for both assets and sponsors. Lenders will be most competitive on well-located properties that are stabilized and have a solid tenancy. Meanwhile, the sponsor’s track record and experience in the market are very meaningful to lenders, particularly during volatile times. Lenders will be more diligent in considering those two aspects of a given transaction before committing to lending.

Life Science Industry Expands Into Tight Bay Area Property Market
Rock-Bottom Vacancy Rates Pervade the San Francisco Peninsula

Like the organisms, it studies, the life science enterprise in San Francisco Bay is adapting to its evolving surroundings.

Stiff opposition from well-heeled tech giants inclusive of Salesforce and Uber in regions inclusive of downtown San Francisco is stopping the life sciences enterprise, which has had a foothold withinside the location for decades, from elbowing its manner into industrial actual property across the metropolis. So the life science enterprise has all started searching south, in which builders are making plans unheard of approaches to deal with the enterprise, one of the fastest-developing withinside the United States, with the area’s first high-rise for technological know-how companies.

“There’s a confluence of industries which can be booming all on the equal time,” stated Marc Pope, govt director at industrial actual property organization Cushman & Wakefield. “Life science, technology, automotive technology. In a few approaches, they may be competing for vacant areas. Elsewhere, the conventional workplace is being offered and transformed to the lab area.”

The lifestyle science enterprise combines fitness care and technology right into a discipline that appears in a few approaches to recession evidence and calls for huge quantities of specialized actual property. Life science employment grew national with the aid of using 4.5 tweens 2010 and 2018, in comparison with an overall employment boom of 1.7%, consistent with the U.S. Bureau of Labor Statistics. Since 2000, the life science region has grown almost 5 instances as speedy because of the relaxation of the economic system, including 85,000 jobs, consistent with a Cushman report.

Organic boom stemming from an aging population that wants and desires new remedies for ailments, and growth enabled with the aid of using technological advances withinside the discipline, ended in a developing percentage of life science areas wished in numerous of the united states’ largest markets. The manner unique south Bay Area towns are coping with the location’s enterprise boom ought to offer a window into how different pinnacle enterprise towns inclusive of Boston and San Diego address the distance crunch in coming years.

While San Francisco and the metropolis of South San Francisco are each nearly completely occupied, the towns are managing the region’s boom differently. Life science organizations are not receiving a great deal help of from their opposition from the principal tech organizations in San Francisco, however, they’re being welcomed with open fingers with the aid of using the adjoining metropolis of South San Francisco and others keen to seize the spillover call for with new improvement, that could spur even greater growth withinside the destiny.

According to CoStar records, San Francisco’s Mission Bay community belongings marketplace, for example, is ready as tight as it may get: The ordinary workplace emptiness charge in that community is 0.3%.

Mission Bay is a part of a place in San Francisco that became centered for life science organizations with the aid of using a 2008 plan exceeded with the aid of using the City and County of San Francisco that created a life sciences and scientific unique use district.

But that overlay failed to exclude different uses, and 10 years after it became installed region, the improvement ability there is essentially maxed out with the aid of using the tech giants which have given the metropolis its reputation, Pope stated.

Among the most important new tenants in Mission Bay is ride-hailing app maker Uber, that’s making plans to take in 1 million rectangular feet of latest improvement adjoining Chase Center Arena, the $1.4 billion multi-reason stadium and destiny domestic of the NBA’s Golden State Warriors this is scheduled to open earlier than the 2019-2020 season.

It displays the manner new improvement in San Francisco is getting scooped up with the aid of using those principal tech organizations, who provide a cache — and from time to time a condominium charge — that many life science organizations do not have, forcing the companies to look someplace else in the event that they need to expand.

Going Vertical

In contrast with the metropolis of South San Francisco, which is 1976 became dubbed the “Birthplace of Biotechnology” with the aid of using Genentech, the bioscience employer that became obtained with the aid of using Roche Pharmaceuticals in 2009. There, builders are doing something unheard of to discover a domestic for life science organizations: They’re going vertical.

A 20-story development known as Genesis Towers has been taken over with the aid of using life science organizations searching out areas. The two-constructing property became at first designed as a workplace area and became speculated to be finished all through the recession, however, the economic system was given withinside the manner, Pope stated.

Now, it’s developed into two life science towers with a third planned. Shortly after the conversion became finished, the space became completely leased, consistent with Cole Speers, a studies analyst for Cushman & Wakefield withinside the Bay Area.

Going vertical in the life science area is rare because the homes have traditionally been low-slung, sprawling traits similar to the commercial area.

Life science real estate, though, can encompass greater than simply workplace areas, from time to time branching out into flex commercial and transformed workplace spaces. Cushman’s numbers for Mission Bay life science belongings in particular display there may be no emptiness in that community for life science actual property.

And due to its connection to the fitness care enterprise, which is essentially considered as a broadly speaking recession-evidence discipline due to the fact human beings will usually want fitness care no matter the financial outlook, life science is visible as a secure region to make investments capital, whether or not it is in new groups or in actual property to residence them.

Boston stays the U.S. life science capital, with organizations there attracting $15.5 billion really well worth of challenge capital investment from 2010 to 2018, however, San Francisco and the peninsula are proper behind, with $15 billion, according to venture capital tracking website PitchBook.

And at the same time as Boston has the lowest vacancy rate for life science of any marketplace withinside the united states at 0.7%, the most important drop off in vacancy rate occurred in San Francisco, falling to 6.2% fourth region final 12 months from 18.3% in the same quarter of 2008, consistent with records from Cushman.

The improvement interest and want for the area aren’t predicted to recede any time soon, either. And with the proportion of human beings elderly 65 and older projected to upward thrust to greater than 20% with the aid of using 2030, the enterprise is predicted to develop even greater, similarly growing the need for actual property.

Source: CoStar News

A new second-quarter report from CBRE suggests that the San Francisco Bay Area has the very best call for withinside the country the existence of technological life science lab space. The 4.4 million square feet of demand is barely greater than Boston’s 4.2 million, with Bay Area common rents now standing at $67.72 according to the square foot, nicely above the 12-market, life sciences hubs average of $54.77.

“With growing expenses of production and inflation, we are seeing improved opposition for present lab space, in addition to builders turning in heat shells as tenants pursue cost-powerful strategies,” stated CBRE Vice Chairman Dino Perazzo.

Developers are seeking to increase delivery withinside the location as new improvements and conversions in the system totaled 7.1 million square feet in Q2, most of that being pre-leased. Most of the improvement and conversion activity is in San Francisco, Oakland, and the Peninsula, while Silicon Valley is seeing a few workplaces and R&D centers earmarked for destiny life science improvement.

Interest withinside the Bay Area with the aid of using life sciences businesses seems to be whatever however fading as 2022 heads into its very last stretch.

The proof is the quantity of project capital invested this year — over $16.29 billion as of the give up of the 1/3 sector — withinside the region, that’s main all metros throughout the USA in general life sciences VC funding, consistent with information supplied with the aid of using actual property offerings company JLL. The yr has but to close, however already, it has passed 2020’s fine of $14.7 billion in VC funding.

A general of sixteen Bay Area life sciences businesses obtained over $one hundred million in VC funding withinside the 1/3 sector alone, and 12 went public with a complete beginning marketplace capitalization of $eight.eight billion, making up almost one-1/3 of the 35 life sciences and fitness care businesses went public in the course of yr’s first 3 quarters, in step with JLL. Companies like San Francisco’s Commute and Carbon Health and Berkeley-primarily based totally Pivot Bio and Perfect Day have been the recipients of investment rounds between $350 and $500 million withinside the 1/3 sector.

Meanwhile, 2019 set a file for lab leasing, and 2021 has exceeded that, consistent with JLL, with 1.2 million square feet leased withinside the 1/3 sector alone. Beyond the conventional biotech businesses, opportunity meals businesses and others below the life sciences umbrella were gobbling up area — as I suggested Thursday, Impossible Foods has signed a brand new rent for a 164,000-rectangular-foot construction at Redwood City’s Pacific Shores Center, and New Age Meats in September signed a rent for 22,905 square feet at 1125 Atlantic Ave. in Alameda.

Nkarta Therapeutics signed a sublease for a whole 88,106-rectangular-foot construction at 1150 Veterans Blvd. at South San Francisco’s Oyster Point — the area that vacated with the aid of using biotech large Amgen Inc. Altos Labs took a complete of 226,404 square feet — 3 whole constructing and area in close by homes — at Redwood LIFE in Redwood City with the backing of Amazon.com founder Jeff Bezos and Russian investor Yuri Milner.

The Bay Area presently has over five million square feet in lab requirements, so one can in all likelihood end result in a “robust leasing hobby over the following quarters,” consistent with JLL. But the dearth of the region to be had deliver stays a primary constraint withinside the marketplace — general availability has been on the decline and is at much less than 8.5%, and a maximum of the Class A lab area in center markets is occupied.

At the equal time, developing calls are inflicting rents to rise. Asking rents are 27% better than they have been right now a yr ago, inflicting a few builders to pivot from deliberate workplace tasks to life sciences. Among those tasks are Tishman Speyer’s Mission Rock and Brookfield’s Pier 70 in San Francisco.

Rents in the lab area have exceeded workplace rents at $84 in step with rectangular foot annualized.

“If you bear in mind that it is triple net, the full-carrier gross equal might be over $one hundred in step with the rectangular foot,” stated Alexander Quinn, JLL’s director of studies for Northern California.

More delivery is on the way. Having already finished over 1.8 million square feet of recent lab area as of the 1/3 sector, builders are anticipated to supply 3.1 million square feet of recent product over the following yr, in particular in north San Mateo County and the mid-Peninsula.

There are over 9.2 million square feet of lab area proposed withinside the Mid-Peninsula, together with 2.2 million square feet entitled and a few three million square feet below construction, in step with JLL. The modern-day delivery withinside the mid-Peninsula spans 16.7 million square feet and springs with an eight% emptiness rate.

In San Francisco, simply over 1 million square feet of lab area is proposed, 1.2 million square feet entitled and kind of 300,000 square feet presently being built. The metropolis has a modern-day stock of approximately 2.1 million square feet in Mission Bay — and a 0.1% emptiness rate.

Proposed tasks withinside the metropolis consist of the development of new homes totaling 603,286-rectangular-toes close to San Francisco’s Pier eighty and a 180,000-rectangular-foot lab constructed pitched in Potrero Hill.

While the East Bay has approximately 1.7 million square feet entitled, the handiest approximately 557,000 square feet were proposed, and simply over 220,000 square feet are below construction. The East Bay boasts a kind of 6.2 million square feet in modern-day delivery, with 4.1% general emptiness.

Recently, new rules have come into effect in San Diego, with the goal of deterring corporate tax-saving “inversions.” An inversion is a way for companies to shift earnings and profits to foreign markets, thus lowering U.S. tax obligations. The question is, will those new rules hurt the biotech research sector in San Diego?

Most experts say no, though there are a few that believe it will hurt the biotech sector.

Some believe that the new treasury rules are simply aiming to penalizing companies that are attempting to shift earnings to low-tax countries. This ensures that companies will continue to use tax avoidance strategies as influences to business decisions, which will make U.S. companies operating globally to not be as competitive as they could be, as well as not attracting as much investment as they could be.

Another viewpoint that believes the new rules will negatively impact biotech companies say that even if the biotech companies don’t currently use inversion tactics, the Treasury Department’s rules will reduce the potential value of inversions, leaving companies less profitable in the long run. This could make the biotech and pharmaceutical companies less competitive than similar companies in foreign settings.

However, many people do not believe the new rules will make a major impact. The biggest reason cited is that many of the San Diego biotech companies are more focused on research, product development and drug trials, as opposed to product sales and income growth. As a result, much of the work done by

San Diego biotech companies is pre-revenue, making the need for inversion much smaller, meaning that there is no significant impact to the biotech companies in the area. These types of accounting tactics are typically made my very large drug companies, which does not necessarily fit the profile of most of San Diego’s biotech firms.

Other experts say that even if these new rules hurt local biotech companies, it is still good for San Diego as a whole. Corporate tax inversions typically come from a large company buying a small foreign company and then moving the headquarters overseas to reduce U.S. tax burdens. This can be seen as an exploitation of the tax codes, which hurts the local economy and local governments. Thus, even if it did hurt the San Diego biotech companies’ bottom’s lines a bit, it would still be a net positive for the economy as a whole.

Photo Credit: Umberto Salvagnin