The Other, Quieter Tech

DES Architects + Engineers, Kidder Mathews, JLL, Healthcare Property Investors, Tarlton Properties, Menlo Business Park, Principal Real Estate Investors

DES Architects + Engineers, Kidder Mathews, JLL, Healthcare Property Investors, Tarlton Properties, Menlo Business Park, Principal Real Estate Investors

Bay Area life sciences sector seeing strong demand for space.

THIS ARTICLE WAS PUBLISHED IN THE ‘Q’ – THE REGISTRY’S PRINT PUBLICATION – IN OCTOBER 2015

By Robert Carlsen

[dropcap]W[/dropcap]ith vacancy rates ranging from 0 percent in San Francisco County to 3.28 percent in Santa Clara County, life science and clean technology firms are finding more reasonable options elsewhere in the Bay Area while land developers throughout the region are looking at a future of consistent demand by constructing facilities on a speculative basis, according to commercial real estate firm Kidder Mathews’ second quarter 2015 market review.

According to the report, the second quarter remained “very active” for the life sciences market in the San Francisco Bay Area despite the supply limitations in key submarkets. “The total gross absorption in the Bay Area over the second quarter was 523,856 square feet with 303,000 square feet of net absorption,” the report said.

Looking at the submarkets, Kidder Mathews saw no activity in San Francisco County for the second straight quarter because of tight competition with technology companies for space along with the highest rents in the Bay Area at between $3.75 and $4.25 per square foot. San Mateo County’s vacancy rate came in at 2.68 percent with rents ranging from $2.25 to $4.25 per square foot. In comparison, Contra Costa County has a 27.97 percent vacancy rate in the segment along with rents in the range of $1 to $1.65 per square foot. Alameda County posted a 7.19 percent vacancy rate with rents from $1.25 to $3.65 per square foot.

JLL’s recent Bay Area research on the life sciences sector shows a steady expansion that accounts for a significant share of venture capital funding and patent activity. The commercial real estate brokerage said that life sciences’ employment in the region is currently at 63,158, with medical and diagnostic laboratories and research and development leading the way.

Mary Hines, Kidder Mathews’ Redwood City-based executive vice president and a specialist in the life sciences sector, noted that Healthcare Property Investors, Inc. recently announced it plans to build out 884,000 square feet of speculative life science lab and office space at the Cove at Oyster Point in South San Francisco. Construction of the first phase of 253,000 square feet began earlier this year with completion set for the third quarter of 2016. Irvine, Calif.-based HCP is a real estate investment trust that focuses on the healthcare industry. It currently owns 4.8 million square feet of life science space in the region, including 2.8 million square feet in South San Francisco.

Qualified regional employees in the life sciences sector are also spurring companies’ interest in the Bay Area. With technologies getting more complex, Stanford University in Palo Alto has become a key component for company viability, according to John Tarlton, president and CEO of Menlo Park-based Tarlton Properties, Inc., whose portfolio includes a collection of high-end business parks and offices on the mid-Peninsula. Tarlton credits the university for preparing students for the burgeoning field, especially with last year’s opening of the Shriram Center for Bioengineering and Chemical Engineering, the fourth and final building in the university’s Science and Engineering Quad.

Tarlton Properties’ 50-acre, 16-building, 900,000-square-foot Menlo Business Park in Menlo Park, is also seeing the results of the space quandary. Last year, with an equity investment by Des Moines, Iowa-based Principal Real Estate Investors, the company moved forward with plans to build an 80,000-square-foot incubator as well as upgrading available space in the park, which hosts many life science firms. With a current vacancy rate “in the single digits,” Tarlton said the park is now at the point that it can handle a few 5,000-square-foot tenants and that is about it.

Tarlton Properties, a commercial property development and asset manager, added new tenants to Menlo Business Park this year, including Personalis, a clinical diagnostic lab, leased a 31,000-square-foot space in February, and biotech firm Pacific Biosciences of California leased 180,000 square feet in August.

Renderings courtesy of DES Architects + Engineers

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