As Life Sciences Market Continues to Thrive, Palo Alto Portfolio Hits the Market

Newmark Knight Frank, Palo Alto, 1900 Embarcadero, 2478 Embarcadero Way, 2275 East Bayshore Road
Image Courtesy Vantage Point Photography.

By Meghan Hall

If there is a business sector that has fared well as a result of coronavirus, it is the life sciences industry. Working at full-throttle, many companies are tackling the biggest health and safety questions we face today, and their offices are open for business. Stable tenants can be a big draw for investors in today’s market, and a portfolio of six office buildings in Palo Alto are being offered up for sale. Guidance pricing for the assets, which together total just under 95,000 square feet, comes to about $80 million, according to a source familiar with the portfolio. The seller, a high net worth family, has owned the property since it was originally developed in the 1980s.

Grant Lammersen, Steven Golubchik, Edmund Najera, Darren Hollak and Jack Phipps of Newmark Knight Frank have been selected as the exclusive advisor for the offering. As of this writing NKF had not yet returned The Registry’s request for comment.

According to an offering memorandum obtained by The Registry, the buildings are located at 1900 Embarcadero Road, 2438-2478 Embarcadero Way, and 2275 East Bayshore Road. The mixed-use portfolio is currently 96 percent leased, and 55,000 square feet of the portfolio is leased to life sciences users such as DiscernDX, ETHealthcare, COMBiNATi, Nirmidas and SBI Biotech.

In all, the buildings sit on 6.1 acres and are clustered together, with the exception of 2275 East Bayshore, which is located further up Embarcadero Rd. The properties sit on either side of Stanford University and are located within close proximity of the Highway 101 corridor. According to NKF, the buildings were constructed between 1974 and 1980, with subsequent renovations in 2002 and 2001. 

The buildings feature both existing wet lab buildouts and open office and research and development layouts. The portfolio is a rare value-add opportunity, with in-place rents that are currently 28 percent below market rate. The leases are expected to roll in four years, by August of 2025.

The life sciences industry continues to be one of the top-performing sectors in the San Francisco Bay Area, states the memorandum. Demand continues to outpace existing supply and the vacancy rate for life sciences space sits at about 5.7 percent. There are currently 2.1 million square feet of active life sciences requirements in the Bay Area, compared with about 1.7 million square feet of existing available space. The majority of requirements are between 20,000 square feet and 49,000 square feet.

Demand for life sciences space in Palo Alto is higher than other submarkets; Palo Alto currently has 2.457 million square feet of office tenant demand. Mountain View is tracking just over 2 million square feet of demand, while Redwood shores and Redwood City have more than 1.5 million square feet of demand.

Investment appetite for life sciences assets in key markets like Palo Alto also remains high. Owner-users’ appetite for real estate and their decision to purchase—as opposed to simply rent—has driven up both property values and rents.

“The significant increase in owner-user acquisitions in the Peninsula over the past six years has dramatically changed the landscape of this market. Acquisitions by companies such as Google, Facebook, Roche, and Gilead have decreased leasable inventory for tenants, putting upward pressure on rents,” states the offering memorandum. 

Peninsula owner-users have purchased 13.5 million square feet of space since 2014 alone. Additionally, venture capital deal volume in the life sciences sector recorded 1,547 deals in the Bay Area in 2019, a 55 percent increase over the four previous years.

West Coast Commercial Real Estate News