The economic slowdown brought on by inflation and rising interest rates has done little to dull San Diego’s appeal as a life science market.
Space for companies to expand or relocate remains tight, especially in core markets such as Torrey Pines and UTC while demand for lab space remains strong.
Venture capital investors have taken a pause, but real estate brokerages said the pause is temporary and project that the market will rebound with activity bouncing back to pre-pandemic levels, although not reaching the white hot level of the past two years.
“We’re still on track for really robust absorption. Our markets are still healthy, which is why you’re still seeing development downtown,” said Brian Starck, executive vice chairman of Cushman & Wakefield in San Diego.
“We’re actually seeing a bunch of companies from Boston, New York, and San Francisco start to relocate here. A lot of that has to do with the lifestyle and the talent available,” Starck said. “We have a lot of great things going for us that are continuing to drive demand.”
Cushman & Wakefield reported that developers continued to acquire property for life science development in the third quarter of 2022.
Countywide, Cushman & Wakefield reported that the vacancy rate for life science space dropped to 5.3% at the end of the quarter, with the vacancy rate in Torrey Pines dropping to 4.6% and to a mere 1% in UTC.
CBRE reported that rents for life science space are on the rise, reaching record levels in those core markets at the end of the third quarter of $6.57 per square foot.
CBRE also reported that leasing activity increased from 231,000 square feet in the second quarter to 353,474 square feet in the third quarter.
Ted Jacobs, vice chairman of CBRE in San Diego and the lead of the firm’s regional life sciences practice said the fourth quarter will likely to be slower as investors and companies take stock of the current economic uncertainty. Jacobs thinks activity will pick up again toward the end of 2023.
“It’s not like we have a major issue in the life science industry, meaning the science is still good and the fundamentals are still good,” he said. “We have a lot of companies that would like to expand right now but are being cautious because of the uncertainty of when the federal government is going to stop raising interest rates.”
The demand for space is there but companies are waiting for the economy to stabilize, Jacobs said.
“You have a lot of pent up demand where companies were likely planning to go public this year. Hopefully, that will open up in 2023,” Jacobs said, adding that he’s optimistic about the San Diego life science market in the long term.
“You have all these new technologies that are constantly coming out,” he said. “We have the eco-system with the universities spitting out [new] companies.”