While reports by Jones Lang LaSalle (NYSE: JLL) and Cushman & Wakefield have somewhat different conclusions, both agree venture capital fueled biotechnology space demand in 2011.
This region secured $142 million among 10 deals in the fourth quarter alone, according to JLL. While it trailed Silicon Valley and New England by nearly $250 million, San Diego has averaged $127 million of quarterly venture capital investments — a number surpassed in the fourth quarter 2011 by 12 percent.
By Cushman & Wakefield's accounts at $705 million in 2011, San Diego's VC funding was down from 2010’s $914 million. The Bay Area led in 2011 with $1.9 billion, followed closely by Boston’s $1.7 billion.
While venture capital activity remained strong, JLL noted that sales activity remained anemic during the year.
In October, Biomed Realty Trust (NYSE: BMR) closed on the 106,000 square foot Wateridge Summit campus for $46.5 million. The three-building campus is located in Sorrento Mesa and is fully leased.
As of this writing Pfizer (NYSE: PFE) was searching for a buyer to purchase a 300,000-square-foot portion of its nearly 800,000-square-foot Torrey Pines campus, Collins Development was looking to finalize the sale of its Sorrento Valley assets, and Washington Capital is selling its building on Torreyana Road.
JLL reported more than 560,000 square feet of leasing activity occurred in the fourth quarter in 18 transactions.
"Growth among tenants of all sizes occurred in 2011, recording a total of 1.43 million square feet of new and renewal lease transactions throughout the year — a 60 percent surge in the number of completed transactions and 36 percent increase in square feet leased when compared to 2010," JLL states.
JLL said after a slow first half, leasing activity picked up significantly in the second half of 2011
In July, Biolegend finalized its transaction to move into a new 65,000 square foot facility on Pacific Heights Blvd. in Sorrento Mesa, and then a month later, Novartis completed a transaction to expand into a new 44,600-square-foot facility in Torrey Pines.
More recently in the fourth quarter, Optimer Pharmaceuticals: (Nasdaq: OPTR) finalized terms to move into new 46,000-square-foot facility at the Pavilion at La Jolla Commons, and Celgene completed its transaction to lease 172,000 square feet at Campus Pointe, growing by nearly 94,000 square feet.
Cushman & Wakefield noted that Illumina (Nasdaq: ILMN) is subleasing its former 190,000-square-foot campus at the end of Towne Centre Drive, following its phased occupancy into the 470,000-square-foot lease it signed with Alexandria for the former Biogen Idec campus.
With the need for highly technical lab space, JLL notes that many biotech companies have decided to move into top-of-the-line digs as a recruiting tool.
"This 'flight to quality' trend caused the availability rate among class 'A' properties to decrease by 300 basis points over the year, ending the fourth quarter with 9.8 percent availability," JLL continues. "Further highlighting this, of the 643,000 square feet of recently completed and pending transactions, 91 percent have elected for Class 'A' space, and in turn will pay a rent premium of 12 to 18 percent and higher operating expenses."
The total availability of San Diego's core life sciences cluster was 12.2 percent at year-end, according to JLL. Down from the first quarter 2011 rate of 15.2 percent, the core area takes in Torrey Pines, UTC, Sorrento Mesa and Sorrento Valley. While the North County has some significant biotech companies — Isis Pharmaceuticals (Nasdaq: ISIS) is a case in point — it isn't part of the cluster of biotechs centered on or neighboring the Torrey Pines Mesa.
As noted by JLL and Cushman & Wakefield, the two largest owners of San Diego biotech space — Pasadena-based Alexandria Real Estate Equities (NYSE: ARE) and Rancho Bernardo-headquartered BioMed Realty Trust (NYSE: BMR) — are each planning some significant developments of their own in the University Towne Centre/Eastgate Mall area. Alexandria will be redeveloping an existing 67,000-square-foot building and will combine it with an adjacent land parcel to create a new 145,000-square-foot facility in the submarket. Likewise, Biomed Realty plans to redevelop an existing 62,000 square foot building, combining it with an adjacent parcel to deliver a new 250,000-square-foot campus as well.
Cushman & Wakefield concludes the greater San Diego region is home to more than 550 biomedical companies that employ approximately 25,000 workers. These firms have a $9.2 billion impact on the local economy and occupy in excess of 16 million square feet of space.