San Diego has firmly installed itself as one of the top life science clusters in the nation while the sector has seen tremendous growth fueled by the pandemic and recent advances in health technology. Investors have accelerated funding to these San Diego biotech and life science related companies which has caused a surplus of demand for space that has outpaced available supply.

San Diego’s focus as a life science hub can be attributed to its available pool of talent from universities such as University of San Diego (USD) and University of California San Diego (UCSD). Companies want to be located near candidates to fill their pipeline with effective recruits. There also need to be located near new highly amenitized buildings and campuses to attract and retain this talent. Life science real estate companies such as Alexandria Real Estate, Longfellow Partners, and IQHQ have firmly planted flags in San Diego and continue to build more space to satisfy this demand.
Venture capital investment has also poured into the region for startups over the past few years, specifically for life science related companies. 2020 was a record year with $4.9 billion invested into local startups and this number was nearly eclipsed in the first half of 2021, with $2.4 billion in 21Q1 and $2 billion in 21Q2. For reference, this number was $1.2 billion in 2017.

With all this investment, these companies need space to expand, and this high demand has had a direct impact on the low vacancy rates, rising lease rates, and rising sale prices in the region. The Torrey Pines and Sorrento Valley submarkets located in Central San Diego have traditionally been home to these companies where rents now exceed $5.00/SF NNN for lab space. The demand has influenced the industrial and office sectors as well with space being transformed to life science. Once thought to be highly expensive and undesirable, lab space is now attractive to many institutional and private landlords due to the limited availability and high demand.

What’s next?
As available space dwindles and developers struggle to keep up, these tenants will have to look elsewhere from central San Diego. To the north, Carlsbad has quickly emerged as a top destination for life science tenants. Many buildings in the area have a high amount of office buildout and meet parking requirements required for these uses. To the south, downtown is attempting to pull these tenants including IQHQ’s planned “Research and Development District.” I believe we will continue to see these large life sciences focused real estate owners, developers and companies make significant investments into these other regions of San Diego.

 

Links
https://www.sandiegouniontribune.com/business/story/2021-04-23/san-diego-startups-pull-in-more-than-2-4-billion-in-venture-capital-in-quarter
https://www.jdsupra.com/legalnews/the-future-of-real-estate-in-the-life-8451097/
https://product.costar.com/home/news/1973581409

Jake Rubendall

Written by Jake Rubendall of the Williams Roth Group, a Lee & Associates team based out of San Diego, CA.

Jake Rubendall
760-448-1369
jrubendall@lee-associates.com
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