By Jack Stubbs
The life sciences sector has been growing in notoriety across the country over the last several years, with developers, investors and tenants alike aiming to gain a foothold in the burgeoning commercial real estate sector.
Northern California, in particular, has seen significant gains made. According to Colliers’ report released in mid-June, “Life Science Report Northwest Q2 2022,” the region boasts the highest life science development growth rates, with COVID-19 variants and therapies fueling demand in the sector, as well as a high saturation of venture capital funding and multi-tenant spec development.
The report includes data and analysis from various regions across the Northwest including the Puget Sound, Portland, Sacramento, combined with Bay Area markets of the Peninsula, East Bay, San Francisco and Silicon Valley. The report analyzes several crucial market fundamentals including available inventory, leasing and development activity, underway projects and funding and investment trends.
At the time of the report’s release, there were just over 56.3 million square feet of inventory across the seven markets, with the San Francisco Peninsula representing the largest allocation of this figure, with 17.3 million square feet. Following this were the East Bay, with just over 13.3 million square feet, and the Puget Sound region, with approximately 8.7 million square feet.
In terms of leasing and development activity, the life sector across the Northwest showed no signs of slowing as of second quarter this year.There are currently 80 active requirements in the region totaling 5.3 million square feet, a marking a 60 percent increase in total tenants and a 65 percent increase in total square footage from fourth quarter 2021. Sacramento, Silicon Valley and the San Francisco Peninsula all saw demand increases from fourth quarter 2021.
The San Francisco Peninsula accounted for (18) and Silicon Valley (25) alone accounted for 43 of the total requirements across the Northwest region studied, accounting for just over half of the 80 total requirements.
Robust leasing activity suggests similar market confidence as demonstrated in the fourth quarter of 2021, notes the report, with 42 top leases reported totaling 1.8 million square feet (new leases accounted for 90 percent of the leasing activity in both count and square footage). The five largest leases in the second quarter suggest that demand for life sciences in the San Francisco Bay Area, in particular, continues apace.
Some of these included BD Biosciences lease of 250,000 square feet from Embarcadero Capital Partners at the Park Point Property in Milpitas in Silicon Valley; Procept BioRobotics lease of just over 158,000 square feet at 150-160 Baytech Drive in San Jose; and Intervenn Biosciences’ lease of 142,000 square feet at 499 Forbes Boulevard in South San Francisco.
Looking ahead, there are 32 projects currently under construction totaling 7.9 million square feet, with 9 projects having broken ground since the fourth quarter of 2021. The pre-leased rate for the under-construction projects stands at nearly 38 percent.
Metrics in terms of transaction activity for life science projects represent a mixed bag in terms of the second quarter figures: there were 12 top sales totaling $1.5 billion in total consideration, down slightly from fourth quarter 2021. However, the price per square foot was $718 compared to $523 as of the same period, notes the report.
Across Northern California, there were several notable occurrences in the life science industry over the last few months suggesting ongoing demand in the sector over other product-types.
In mid-June, marking the latest chapter for the development plans of Emeryville Public Market, a 14.5-acre retail space, the city submitted a proposal of more than 400,000 square feet of life science space, The Registry reported. In the most recent update, Canadian development company Oxford Properties proposed several R&D buildings on several parcels at the Marketplace after previously receiving support for a residential development,
Earlier this year, the development company met with the City of Emeryville and offered to pay $17 million in a development agreement for the newly proposed project, which has since been countered by the City with a $20 million agreement.
Located along Shellmound Street between Shellmound Way and 63rd Street, the new proposal from Oxford Properties – in conjunction with development partner City Center Realty – includes two life science buildings totaling 406,175 square feet as well as a 711-space parking garage. The largest building proposed is an eight-level, 322,744 square-foot research and development building, which would be constructed next to a smaller 83,434 square-foot R&D building with 7,460 square feet of retail space.
In early July, venture capital and growth equity firm Telegraph Hill Partners (THP), a company dedicated to building life science and healthcare technology businesses, announced that it had closed on THP V, a new $525 million investment fund. The fund will make investments in innovative companies that are commercializing advanced technologies in areas including life science tools, reagents, specialty chemistries, medical technology, medical devices, diagnostics, healthcare IT, healthcare services, agriculture and animal health.
Most recently, in mid-July, Barings announced its acquisition of a portfolio of three life science assets totaling 228,025 square feet in Fremont, California from Angelo Gordon & Company. Lincoln Property Company has joined Barings in the venture, and Newmark facilitated the transaction.
Multi-property transactions – such as the Fremont acquisition for Barings – represent companies’ increasing interest in the life science sector.
“These life science assets are a tremendous addition to Barings’ portfolio of state-of-the-art buildings in leading life science hubs where lab demand is high and well-funded innovation thrives,” said Joe Gorin, Managing Director, Head of US Acquisitions and Portfolio Management for Barings, at the time of the transaction. “This investment further demonstrates Barings’ commitment to this critical, specialized asset class, particularly in markets where STEM-oriented, skilled workforces continue to grow.”