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San Diego Life Science Q&A with KBS' Tim Helgeson

San Diego Life Science Q&A With KBS’s Tim Helgeson

San Diego has become a hotbed for commercial real estate’s life science sector, ranked among 12 of the nation’s leading life science markets. With the rising popularity, office owners and operators are pivoting to meet the demand for well-amenitized R&D spaces in the San Diego metro. We spoke with Tim Helgeson, Senior Vice President of Asset Management and Acquisitions at KBS Realty Advisors, about the opportunities and challenges his firm sees for commercial real estate owners and investors.

Q: Why has San Diego become such a hot life science market and how are office owners adjust to meet this demand?

The San Diego market ranks third in the country for career opportunities in the biotech and life science industry, just slightly behind Boston and San Francisco. The industry employs nearly 30,000 people and is a major economic driver providing high salaries which continuously attract both local and out-of-state educated workers. San Diego is also home to major research universities, like UCSD and San Diego State, and offers current students with convenient access to mentorship and job opportunities. Further, the U.S. government recently increased funding for life sciences. Job creation and life science employment saw a year-over-year rise of 5.3% in January 2022.  Overall, the national life science vacancy sits below 10% (lower than 5% in some markets), with asking rents increasing by an average of 72% since 2015. San Diego has seen $3.4 billion in commercial real estate investments over the past year. Due to these factors, we are seeing that both owners and investors are putting significant investments behind the life science segment, as it plays a vital contribution in many urban economies. Within San Diego, we continue to evaluate opportunities to expand our portfolio with high performing assets that align with our strategy to own best-in-class buildings in well-located urban nodes.

2. Have new post-pandemic tenant demands regarding safe workplaces been beneficial or restrictive for owners and landlords?

COVID-19 has changed the way companies look to utilize space for their workers and the industry quickly adapted to meet those needs. In many ways, these changes have been beneficial. For example, newer Class A assets offer tenants up-to-date health and wellness features such as HVAC systems designed to improve air quality by disinfecting and filtering the air; the separation of ventilation by floors to reduce unnecessary risks; and other germ-reducing changes like touchless operation of doors. Additionally, tenants appear to be willing to pay premium prices in order to have safer and healthier office spaces, with key amenities like outdoor spaces and contactless building features to offer employers and workers a peace of mind in the post-COVID environment.

3. Considering the changes in office leasing activity, is KBS considering (or currently working on) repurposing any office buildings into life science properties?

We are constantly reviewing market trends and pivot as needed. In fact, the growth we have observed in the life science sector has inspired additional renovation projects in existing assets. We have noticed that in some cases, conversions make more sense for life science players as the turnaround time can be significantly faster than a ground-up development. KBS has some experience in conversions for the life science market, in 2019, MedtoMarket (M2M) leased 31,683 square-feet of recently renovated space at one of our Austin properties, SouthTech Business Center.

4. Are there certain amenities that are rising in popularity among life science users?

Life science tenants seek amenities that can meet their specific R&D needs such as higher floor load capacity, larger floor plates, enhanced ventilation and HVAC capabilities, ceiling heights spaces, vibration capacity, power continuity, and property access technology, among others. And like many other office users, the life science firms also look for top-notch amenities that workers can take advantage of including outdoor spaces, environmentally friendly/LEED certifications, and high-quality building security. Additionally, spacious collaboration areas, auditoriums, and on-site fitness centers are key to attracting the younger generation of workers.

5. Will rising interest rates and supply chain issues impact office owners and LS firms inking deals?

Rising interest rates and supply chain issues are an industry-wide challenge. However, current rates are still historically low. There is plenty of available capital and loans are being made, though the pace of deals has slowed. Building materials saw reduced inventories and higher prices through the early part of this year but demand for building supplies may ease as the impact of higher rates and fewer deals slows new development.

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Inside The Story

KBS Realty AdvisorsTim Helgeson

About Mark Nieto

Mark comes to ConnectCRE with an extensive background as a business and news reporter in San Francisco radio, as well as 35 years as a traffic reporter on several stations including KGO, KNBR, KCBS and KFRC. As a business reporter, Mark covered the tech world in Silicon Valley where he became familiar with real estate transactions in the hot Bay Area marketplace. He attended San Jose State University with a BA in Radio and TV Broadcasting and currently resides in the Lake Tahoe area where he gets to frequently enjoy all of his favorite activities: Golfing, Fishing, Hiking and Skiing.

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