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West Coast Life Science Real Estate Outlook

In its U.S. Life Sciences Outlook 2018, JLL looks at prevailing trends in the sector and their impact on real estate. Four Western markets – the Bay Area, San Diego, Seattle and Denver – are ranked among the top 16 life science clusters in the nation. Here, JLL life science real estate experts give Connect Media an exclusive perspective on each of these markets.  

San Francisco Bay Area

Allison Clark, Senior Associate, JLL, San Francisco

The Bay Area is widely viewed as the birthplace of the biotechnology industry, stretching back to Genentech’s founding in South San Francisco in 1976. Despite the recent expansion of a vibrant tech economy in the region, the Bay Area remains the second most prominent life science cluster in the country, behind greater Boston. More than $5 billion in venture and government funding flowed into Bay Area life science ventures last year, more than any other market.

Life science is spread throughout the Bay Area but two major research hubs dominate: the Mid-Peninsula, from South San Francisco south to Palo Alto, and the Eastshore corridor cities of Berkeley and Emeryville.

Both markets are experiencing tight conditions. Total vacancy is sub-3% in the Mid-Peninsula, and 7% in the Eastshore corridor. There is a dearth of large block space over 50,000 square feet in both markets. Due to the high cost of lab construction, few developers will risk taking on speculative development, but recent solid leasing patterns have spurred Mid-Peninsula developers to break ground on almost one million square feet of new product. HCP’s Gateway of the Pacific project will add more than half of that total.

EmeryStationWest, the latest transit-oriented, spec lab building in Wareham Development’s EmeryStation campus in Emeryville

First out of the gate though, is Wareham Development’s addition to its EmeryStation research campus in Emeryville. The 265,000-square-foot EmeryStationWest, which is due for completion in September, is the only spec development in the Eastshore market. The building sits next to the Emeryville Amtrak Station, serving transcontinental trains to San Francisco as well as the popular Capitol Corridor commuter route from Sacramento to San Jose, and incorporates a two-story intramodal transit hub with vehicle parking and bays for AC Transit buses as well as Emery-Go-Round, the local free shuttle, and taxis, car shares and private cars.

Strong demand means annual average rents have been rising in the East Bay’s major lab markets, but are still slightly lower than the Peninsula ($53.52 psf/year) at $51 psf/year. JLL is currently tracking more than 2.4 million square feet of Bay Area demand among life science users.

San Diego

Grant Schoneman, Managing Director, JLL, San Diego 

The San Diego life sciences sector recorded exceptionally strong VC activity during the second quarter. Coming off a very strong first quarter – that saw $335 million invested into the sector – the second quarter secured a record $431 million in investments. This surge in activity produced 28% growth from the first quarter and a staggering 184% growth from the same period a year ago. While the first quarter of 2018 was led by two highly-significant $100 million investment rounds, the second quarter saw a much greater spread of investment dollars. The top five investments during the quarter where comprised of companies who secured between $60 million to $85 million.

Tenant demand from small to mid-size biotech companies (with space needs under 35,000 square feet) is expected to continue in 2018, as VC funding remains healthy. These companies are generally attracted to Class A space that provides access to amenities within a campus environment. Large user activity, which has been insignificant during the first half of 2018, has already picked up during the second half of the year. The month of July recorded two transactions larger than 50,000 square feet and more are currently under negotiation – compared to only one deal completed over 50,000 square feet throughout the entire first half of 2018.

Starting rental rates for Class A space in Torrey Pines continued to increase during the quarter, pushing closer to the mid $4.00 NNN psf/month mark. Likewise, Class A space in the UTC/Campus Point submarket moved higher, increasing into the low $4.00 NNN psf/month range.

Genesis, a highly-amenitized Class A life science campus located in the UTC/Campus Point area.

Sorrento Mesa has a significant amount of pending deals within Class B quality space, where rates have fluctuated in the mid-to-high $2.00 NNN psf/month range, and could start to move into the low $3.00. Rental rates for Class A space within the submarket are in the mid $3.00 NNN psf/month range.

Sorrento Valley continues to have steady leasing volume, as small tenant activity remains abundant. Rental rates for Class A space are holding steady in the low $3.00 NNN psf/month range, while Class B space in the submarket is seeing rates in the mid-to-high $2.00 NNN psf/month range.


Terrence Pace, JLL Healthcare Solutions Specialist, JLL, Denver

As the Denver MSA Real Estate market heats up, so goes the medical office building and life science markets. For the last few years, Denver has been one of the hottest real estate markets and fastest-growing economies in the nation.  According to the Bureau of Labor Statics, Denver outpaces the nation in every economic growth category. The unemployment rate in Denver is 2.3%, compared to 3.6% nationally. Also, the average weekly wage in Denver is $1,300, compared to the U.S. at $1,109.

What this means is Denver is attracting good companies, and attracting and retaining the best talent. Denver’s life science sector has some of the brightest minds and innovative companies in the nation. Because of this growth and the growth of the sector, it is becoming more difficult to find appropriate lab space.

The market is mainly centered around three main sub-markets: Boulder/Northwest, Aurora/Southeast Suburban, and West/Southwest Suburban. Together, they make up nearly 100% of all the life science activity in the Denver MSA.

To find useable space, brokers and users tend to look for second-generation space. Second-generation space is a space

2452 Clover Basin Drive, a 460,000 s.f. flex/light industrial space in Longmont, offers rare large block space for life science users.

that was used by a previous company who may have out grown the space, lost funding, or the company failed. The attraction to pre-used lab space is there is minimal tenant improvement and the space is usually ready to be rented. This is usually a great option if there is quality second- generation space available.

Due to Denver’s low space availability, we are seeing more construction of specialized medical and life science grade buildings. Healthcare and life science is a demand driven sector, therefore the “Field of Dreams” approach does not work. Finally, demand is here; now we are seeing more medical and life science developments.


Kris Richey Curtis, Managing Director, JLL, Seattle

JLL’s Life Sciences Outlook for 2018 ranks Seattle seventh among the top life science clusters nationwide, due to the capture of funding and investments as well as the percent of employment growth in life sciences and real estate metrics.

2018 is a banner year for Seattle life sciences mergers and acquisitions, with over $11 billion in transactions as of May. Investor interest isn’t just focused on the highly-amenitized South Lake Union market. JLL tracks venture capital funding across a wide variety of startup and established life science companies. The largest round of venture capital funding was Alder BioPharmaceuticals’ announcement of $250 million for its anti-migraine drug eptinezumab. Based in Bothell, Alder BioPharmaceutical established itself in the more economical outlying suburbs with available lab space.

Interest in lab space is at an all-time high, including from emerging life sciences companies. Incubator space (a co-working model for lab tenants) is often best for emerging companies as the initial investment for equipment and lab build outs is prohibitively expensive for early stage companies. Without enough incubator space to accommodate demand, affordable incubator space is at a premium in Seattle. It would be great for the sector to see more incubator labs with shared resources across multi-tenant lab buildings.

Seattle has recently experienced unprecedented demand from tech companies, which led to the conversion of some lab supply to tech office space. A potential indicator that landlords are shifting focus back to lab space is Alexandria Real Estate Equities’ new development, 1818 Fairview (pictured at top). Designed to accommodate lab, Alexandria shifted marketing efforts to the tech sector, but the building’s first lease was signed with a biotech tenant, leaving roughly 170,000 square feet available. This is an exciting sign of things to come in the life science market. Major life science REITs have focused on the office/tech sector, but this recent lease indicates the lab market may experience more supply than anticipated over the next 12-24 months.

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About Dennis Kaiser

Dennis Kaiser is Vice President of Content and Public Relations for Connect Commercial Real Estate. Dennis is a communications leader with more than 30 years of experience including as a journalist and in corporate and agency marketing communications roles. He is responsible for Connect’s client content operations and is involved in a range of initiatives ranging from content strategy, message development, copywriting, media relations, social media and content marketing services. In his most recent corporate communications roles, he led a regional public relations effort across Southern California for CBRE, played a key marketing role on JLL’s national retail team, and was responsible for directing the global public relations effort at ValleyCrest, the nation’s largest commercial landscape services company. In addition to his vast commercial real estate experience, Dennis has worked on communications and launch strategies for a number of residential projects such as Disney’s Celebration in Florida, Ritter Ranch in Palmdale California (7,200 homes, 22,000 acres), WaterColor in Florida and PremierGarage in Phoenix. Dennis’s agency background included firms such as Idea Hall and Macy + Associates. He has earned an outstanding reputation with organization leaders as a trusted advisor, strategic program implementer, consensus builder and exceptional collaborator. Dennis has developed and managed national communications programs for Fortune 500 companies to start-ups, both public and private. He’s successfully worked with journalists across the globe representing clients involved in major-breaking news stories, product launches, media tours, and company news announcements. Dennis has been involved in a host of charitable and community organizations including the American Cancer Society, Easter Seals, BoyScouts, Chrysalis Foundation, Freedom For Life, HOLA, L.A.’s BEST, Reach Out and Read, Super Bowl Host Committee, and Thunderbirds Charities.