Lab and R&D Conversion Opportunity in San Francisco’s Hot Life Sciences Market Posted for Sale

101 Utah, San Francisco, UCSF, Newmark, Alexandria Real Estate, Brookfield, NIH, Design District
Courtesy of Newmark

By Meghan Hall

The life sciences sector has emerged a stalwart of the commercial real estate industry over the past year, with offices up and running, leases inked and deals closing despite the pandemic. In San Francisco, life science availability is incredibly low and largely concentrated within one or two neighborhoods. An existing two-story building in the Design District submarket has been posted for sale by Swift Real Estate Partners, and with permitting for base building renovations in hand, present a unique lab conversion opportunity in the coming years.

The listing agent on the sale is the San Francisco office of Newmark led by the team of Seth McKinnon, Mark Geisreiter and Charlie Withers. Newmark declined to comment on guidance. However, according to other sources familiar with the property, Swift is seeking a potential sales price in the low $30 million range, coming to about $450 pre square foot.

“You have a couple of different [market] drivers here,” explained Newmark’s Executive Managing Director Mark Geisreiter. One is location: You’re in Showplace Square and there is a burgeoning lab cluster there…The second is timing…[The buyer] could be the first project in town offering a significant amount of lab space in the market.”

The current building at 101 Utah totals 69,000 square feet and was originally constructed in 1957. The current building features 20-foot ceilings and wide floor plates, as well as drive-in loading and a chemical storage area. 4,000 amps of power and 151 parking stalls are also included in the property’s list of specs.

“The building really lends itself well to conversion,” added Geisreiter.

Swift originally acquired the asset in 2018 for $21 million as part of its commingled fund, Swift Real Estate Partners Fund II. At the time Swift purchased the property, it was 50 percent leased. Currently, the asset is vacant.

Upon the sale of the property, which is zoned as Production, Distribution and Repair (PDR) space, permits for base building renovation plans and upgraded power will be ready, allowing investors to reposition the property as the life science market continues to surge. Inventory in the market has increased by 103 percent since 2017, while vacancy has shrunk 82 percent. Newmark is currently tracking 2.1 million square feet of demand. Asking rents have increased by 1.75 percent on a quarterly basis and 21 percent since the first quarter of 2018. At the end of 2020, rents came in at about $72.40 per square foot for Class A R&D space.

Currently, the direct vacancy rate for existing lab space in San Francisco is zero percent. An offering memorandum obtained by The Registry lists more than 1.2 million square feet of life sciences space along Owens Street, Mission Bay Boulevard and Illinois Street—all of which is 100 percent leased.

Demand for laboratory and R&D space is out-pacing supply by more than 200 percent. Additionally, a recent Letter of Determination published by the City of San Francisco expands permitted biotech uses within PDR zoning districts, opening up the property to a wider array of tenants once completed—including those with Vivarium and Biosafety Level Three uses.

Within the Design District, there are roughly 350,000 square feet of life science developments planned in the coming years. 101 Utah is also just a mile from UCSF, the number one recipient of funding from The National Institutes of Health (NIH) and which has generated 43,000 jobs and $8.9 billion in economic impact. 

Moving ahead, the property’s positioning means that it is both physically well located within one of San Francisco’s emerging life sciences clusters and bolstered by current supply and demand imbalances that make life sciences and R&D opportunities a stable investment for interested buyers.

West Coast Commercial Real Estate News