The market for life science real estate set all-time records in 2020 and experts who follow the market said there is no sign that it will ease in 2021.
Space is so tight and demand so high that 2021 could be another record year.
Some said that the COVID pandemic is largely responsible, but Chris High, a managing director of the commercial real estate brokerage Newmark said that life science companies that have direct connection to COVID account for about 10% of the demand for life science space.
What COVID has done is focus attention on the overall health care market, and that’s led to a boom in life sciences for San Diego, High said.
“We don’t see anything slowing through 2021,” said Steve Bruce, also a managing director of Newmark in San Diego. “That’s not only shown through the 3 million square feet of tenant demand we’re tracking right now but all the activity with all the conversions that are happening.”
With the overall office market slowed dramatically as people continue to work from home, building owners are converting former office space to life science.
“Everyone is trying to build out space as quickly as possible,” Bruce said. He said that in Sorrento Mesa alone, about 1 million square feet of office space has been converted.
The commercial brokerage JLL reported that the life science market generated record leasing activity in 2020, both in the number of transactions and the amount of space that was leased.
Lease transactions of life science space totaled 2.2 million square feet in 2020, according to JLL, far outpacing the previous record of 1.7 million square feet set in 2015.
“I don’t think I’ve ever seen it this active before,” said Grant Schoneman, managing director of JLL in San Diego. “I think we’re in a run for a while. I have calls with real estate developers, one or two a week it seems like, it’s ‘Hey, I want to get in the life science market.’”
The growth has come from small start-up companies to large pharmaceutical companies, Schoneman said.
Venture capital funding of life science companies also soared in 2020, reaching $1.9 billion to top the combined total of investments in 2018 and 2019.
“The funding environment is very strong, both from a venture capital standpoint and the public markets,” Schoneman said.
“What’s very interesting is the dynamics going into COVID,” said High of Newmark. “In March 2020, things were already very healthy for life science venture. Venture capital funding was already on a path to a record high only to be eclipsed by a true record high quarter after quarter.”
Ted Jacobs, vice chairman of Cushman & Wakefield’s Global Life Sciences Practices Group, said the roll-out of COVID vaccines had brought new investors into San Diego’s life science market.
“There’s not an avenue to invest in some other industries because they’re currently on hold due to COVID,” Jacobs said.
Unlike other industries, life science companies require most of their workers on site in the labs as opposed to working from home, which fuels demand for space, Jacobs said.
Bret Morriss, managing director of Stream Realty, said the life science activity has gone beyond the historical UTC/Torrey Pines cluster.
Carlsbad and Vista continue to attract mature life science users, diagnostics companies, medical device and pharma manufacturing research and development, Morriss said.
Morriss said GenMark is almost complete with their 73,000 square foot buildout for diagnostics at 6221 El Camino, COPAN diagnostics leased 38,800 square feet at 2728 Loker Ave in Carlsbad, Azzur Labs is finishing up tenant improvements of a 30,000 square-foot space at 1347 Keystone in Vista, DCN diagnostics is close to signing a large lease in North County, CUE is renovating a 197,000 square-foot building in Vista for COVID related testing and Millapore Sigma (Merck) took 145,000 square feet of space in Carlsbad last year.
Downtown San Diego also is being heralded as a future hot spot for life science activity, with IQHQ among others heavily investing in life science projects in the core city.
“If they get a few commitments from larger groups downtown, that will start kind of the snowball effect,” Bruce said. “We’re fairly bullish on that happening. It will take a few years to happen.”