Early Stage Funding Drives Booming Bay Area Life Sciences Market

San Francisco, Bay Area, Transwestern, Kilroy Realty Corporation, Oyster Point, Lincoln Center, San Diego, Illumina, Peninsula, Silicon Valley,

By Meghan Hall

Since the technology boom of the 1990s, the San Francisco Bay Area has also emerged as the country’s leading region in biotech and life science development. Throughout the first half of 2018, the Bay Area life sciences market continues to surge forward, according to a recent report released by real estate firm Transwestern.

“In terms of where biotech is and what it’s doing, we’re arguably here in one of the hottest markets across the country for life science-based business,” said Transwestern’s Senior Vice President Peter Conte. “Nearly 50 cents for every dollar is invested in California.”

Experts such as Conte consistently point to several factors that make the Bay Area life sciences market so competitive and desirable: the region’s entrepreneurial spirit, strong educational research centers, strong Bay Area-based companies, and a hearty combination of venture capitalist and private equity investment.


While these aspects have been long-credited for the life science industry’s regional success, more recent changes in funding are continuing to bolster the sector’s rise. While NIH funding as of mid-2018 is at $950 million and on par with the previous five years, venture capital funding has risen steadily. VC funding for biotech and life sciences companies in the first half of 2018 reached 84 percent of 2017’s total of $3.4 billion, which had already surpassed 2016’s levels by 54 percent.

“I’d say it’s the combination of investment potential that’s here in the Bay Area, and the shift we’ve seen in venture capital from small retail tenants to more patient money,” commented Conte on the market’s evolution. “Some of these big-name brand venture groups are raising funds for a 10 to 12 year horizon to pay back in the biotech field.”

“Patient money” as Conte puts it, means that more companies will reach the IPO stage before being acquired, driving down merger and acquisition activity. According to Transwestern, eight IPOs were issued in 2018 and nine since December of 2017.

“What it’s doing is creating much more bureaucratic companies, and the true research and development is being farmed out to new novel groups,” explained Conte. “Larger companies let the venture capital and R&D market drive the development and then use their leverage to drive the last mile of success.”

Despite longer timelines for funding, however, competition for already constructed, lab-capable space remains fierce, due to long timelines for construction and rapidly rising costs. In order to keep their growth efficient, companies are required to think several years ahead of need, but the specific and technical requirements required by life science businesses of their spaces often extends construction timelines even further, often beyond what companies will need several years down the line. As a result, companies large and small are attracted to amenity-rich, already built laboratory space.

“That’s why there’s such a premium on spaces that are pre-built,” said Conte. “The ways in which current companies are funded and their timelines because of how they’re funding—the companies need something they could use tomorrow and demonstrate some results and success more immediately.”

The vacancy rate for lab-capable space is at 9.4 percent in the Bay Area, whereas already-built laboratory space hovers closer to just 2 percent. Across the Bay Area there is a total of 23,321,340 square feet of lab capable space, with an additional 2,012,508 square feet currently under construction. Vacancy rates for lab-capable buildings are lowest on the Peninsula at 2.6 percent, but development continues. Kilroy Realty Corporation has begun the development of Oyster Point, which will add 11 buildings and 2.5 million square feet of space over the next several years. Lincoln Center delivered 360,000 square feet at the beginning of 2018, of which San Diego-based Illumina took three buildings.

And, with the bulk of companies clustered on the Peninsula, tenants are looking South and East in order to expand, especially for larger spaces. Both of these markets have much higher vacancy rates, especially for lab-capable buildings; the East Bay has a vacancy rate of 13.4 percent while the South Bay has a vacancy rate of 24.2 percent.

Conte also believes that the North Bay will play an important role in the future of the life sciences real estate market.

“I think the North Bay will be the release valve that hasn’t been tapped in quite the same way yet,” said Conte. “We’re so dense with more traditional tech companies in San Francisco down to Silicon Valley that the competition is too high. In the North Bay, traditional businesses and offices have never had the same level of competition and there seems room to grow.”

Conte stressed that the North Bay has the same amount of high-quality talent and proximity to San Francisco as the rest of the Bay Area, and that many people do commute from the North. Making life science jobs local and accessible in the North Bay would only increase the number of employees available for growing companies.

“I honestly think that there needs to be more landlords and more developers willing to put money top-down into infrastructure,” said Conte of the future. “I think tech wave 3.0 will be the biotech revolution.”

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