Since the early 1970s, San Diego has been gaining ground as one of the nation’s leading regions for life science companies, competing directly with strong biotech and pharmaceutical markets in the San Francisco Bay Area, Maryland, New Jersey and North Carolina.
At last count there were more than 400 biotech companies with over 30,000 employees in the San Diego region.
This burgeoning local life science industry includes companies at a variety of developmental stages, each with its own unique real estate requirements. But contrary to popular opinion, we are not running out of suitable real estate, we are just being forced to find creative solutions in new areas.
– Firms Located In Torrey Pines Mesa
The nucleus of the life science industry in San Diego is the Torrey Pines Mesa. A critical mass of highly regarded, established research organizations is concentrated in this area: The Salk Institute, the Scripps Research Institute and UC San Diego have fostered important scientific breakthroughs and spawned many of the area’s early-stage biotech companies.
However, with the recent influx of the larger pharmaceutical companies and their tremendous appetite for the premium real estate, many biotechnology startups have given up the relative comfort of the Torrey Pines Mesa and relocated to more traditional commercial markets such as Sorrento Valley and Carlsbad.
Pharmaceutical concerns such as Novartis, Pfizer, Merck, Johnson & Johnson, Becton Dickison and Schering-Plough have all recently established or expanded operations on the Torrey Pines Mesa.
– In Search Of Greener Pastures
Crowded off and priced out of the Torrey Pines Mesa, biotech startups have become very creative at adapting traditional industrial buildings in these other markets for their specialized use. Many of the early pioneers unwittingly helped to pave the way for the rest as they learned expensive lessons about industrial building design and mechanical engineering.
In general, laboratory facilities are designed with the end-user in mind. The laboratory shell is therefore designed to accommodate a high level of interior improvements and extensive mechanical infrastructure.
On the other hand, many industrial buildings are built speculatively by developers, with no particular end-user in mind. The spec developer is concerned primarily with managing construction costs and designing a simple, multipurpose facility.
As a result, some industrial buildings can be very expensive to convert to laboratory use, when, for example, the floor-to-joist clearance is insufficient to allow for the necessary mechanical distribution.
Another challenge is negotiating the cost of the real estate.
In a typical laboratory buildout, the cost of the interior buildout can dwarf the value of the underlying real estate. Whereas a basic industrial shell building might cost $70 per square foot to build, the interior laboratory improvements can run anywhere from $100 to $300 per square foot.
As a result, the cost of the real estate, as a percentage of the total project cost, is minimized, but the method and rates for amortizing and securitizing the tenant improvements becomes paramount. These hurdles can be overcome and we should see a growing number of biotechs moving to facilities off the Torrey Pines Mesa.
– What’s On The Horizon
The life science industry is growing throughout the world with the promise of revolutionary drug developments that can and will improve all our lives. In San Diego alone, we have over 50 new drugs in late-stage clinical trials.
What’s more, the U.S. industry should experience tremendous growth as baby boomers age and innovative medical breakthroughs become a more immediate concern. The San Diego region, with its vibrant academic and business environment, will continue to play a leading role as one of the country’s most attractive regions for the life science industry in all its phases.
Jarvis is vice president of corporate services in the San Diego office of The Staubach Co., an international real estate services and strategy firm that specializes in handling the real estate needs of companies seeking office, retail and industrial space.
