May 9, 2016 Comments Off on Three CRE Questions with CBRE’s Life Sciences Expert Views: 540 California News, San Diego, West

Three CRE Questions with CBRE’s Life Sciences Expert

By Dennis Kaiser

The life sciences sector is experiencing unprecedented demand and growth in the San Diego region. Connect Media wanted to find out what’s driving the trend. We spoke with CBRE’s John Hundley, who is recognized as San Diego’s life science industry market leader and the primary point of contact for tenant advocate and advisory service within the sector.

Q. Can you give us the landscape of the life science industry in San Diego?

A. The Q1 life science market activity remained robust, and the space markets are tightening. The central markets performed well, with an overall life science product direct vacancy of 5.2%. The two premier markets of UTC and Torrey Pines were divergent, with Torrey Pines posting a 2% overall vacancy rate and UTC posting a 16.7%. The latter driven high by some large chunks of office conversions getting added to the supply totals. Average asking rates in those markets were $3.76 per square foot per month, and $4.01 per square foot per month (triple net), respectively.

Q. Why is there such high demand for lab space in San Diego?

A. The demand for lab space in San Diego is being driven by a combination of factors: At the macro level, big pharma’s challenge to innovate quickly and bring new products to market, as old blockbusters approach the patent cliff. Along with that, an aging population and an overburdened healthcare system are the big drivers of demand. While Q1 2016 has been a little sleepy, either by way of IPO, VC funding or corporate partnerships, the investment into the life sciences sector the past few years has been unprecedented.

Q. What are the demands of the typical life science tenant?

A. It depends on the size and stability of the company, but a dominant trend that we are seeing is the demand for a built environment that helps facilitate collaboration. At the core of that is communication of ideas, and advances don’t take place without the occurrence of basic communication and the exchange of ideas between a diversity of people. In addition, tenants are looking for spaces that are flexible, engaging, interactive with the outdoors and efficient.

Office conversions are taking place because of a general lack of land supply in our central San Diego labs markets, speed to delivery and the cost to build new ground-up product is very expensive. As conversion opportunities surface, I think we can expect to see this trend continue.

Connect with CBRE’s Hundley

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