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San Diego moves to second in biotech strength

Despite exceptionally weak leasing, San Diego has risen to become the second strongest biotechnology cluster in the country, according to a Jones Lang LaSalle report.

San Diego jumped from seventh place to second -- leapfrogging over such markets as Los Angeles and San Francisco in overall ranking. Only the Boston/Cambridge area outpaced San Diego on the strength of mergers and acquisitions.

“M&A activity continues to create a buzz in the San Diego life sciences sector. During the past 12 months, the local market has recorded a staggering $13.8 billion in M&A activity among eight deals,” JLL (NYSE: JLL) writes. “Blockbuster deals completed in the most recent quarter included AstraZeneca's acquisition of Ardea Biosciences for $1.3 billion, Hologic's (Nasdaq: HOLX) purchase of Gen-Probe for $3.7 billion, and Bristol-Myers Squibb's (NYSE: BMY) offer to purchase Amylin Pharmaceuticals for $7.0 billion."

With a number of questions still pending on such properties as the Amylin and Ardea facilities, the life sciences real estate market had exceptionally slow leasing activity last year.

Biotech leasing may have been slow, but that doesn’t mean tenants aren’t looking for new space in the Torrey Pines market. Sequenom (Nasdaq: SQNM) is looking for about 25,000 square feet, Wellspring Biosciences needs about 12,000 square feet, Anaphore and Dermtech each require about 7,000 square feet and BioEdge desires 3,500 square feet in Torrey Pines if possible as well.

The report didn’t include year-end figures, but said Torrey Pines experienced just 75,684 square feet of life science space leasing through the first half of the year -- down from the 2011 first half total of 169,000 square feet.

Torrey Pines is home to San Diego's largest concentration of lab space with more than 5 million square feet. The submarket is adjacent to the UC San Diego campus and acts as the epicenter of San Diego's life sciences market.

A notable sale from last year was Legacy Partner’s $51.25 million purchase of the old 307,000-square-foot Pfizer campus in Torrey Pines in August.

Proposed development at Torrey Pines includes a 65,756-square-foot building at 10265 Science Center Dr. and a 39,335-square-foot planned building at 10285 Science Center Dr.

JLL also cites two other proposed developments known as Sunrise and Spectrum (not to confused with the Spectrum in Kearny Mesa) in the Torrey Pines submarket that would have 155,000 square feet and 160,000 square feet, respectively.

The UTC /Eastgate submarket, like Torrey Pines, is comprised of mature, publicly traded companies with advanced product development. This submarket, which offers the most direct competition to Torrey Pines, has 2.3 million square feet of lab space and is located in San Diego's “Golden Triangle,” which offers numerous amenities to tenants JLL reports.

Amenities or not, leasing transaction activity in the UTC-Eastgate life science market has been slow. The report said it would have been nearly dead in 2012 had it not been for Celgene having signed a 172,000-square-foot, 10-year transaction late last year.

Future life science development in the UTC submarket includes a 275,000-square-foot project identified as Innovation Center. No further details were available.

Some positive news came in recent weeks with Shire Pharmaceuticals (which acquired Advanced Biohealing in 2011) finalized negotiations with BioMed Realty Trust (NYSE: BMR) for a build-to-suit campus in Sorrento Mesa.

The square footage of the Sorrento Mesa campus that will be located on a 28-acre parcel on Summers Ridge Road is still being determined.

Sorrento Mesa is comprised of 4 million square feet of lab space and caters to all tiers of San Diego life sciences companies. Over the years, Sorrento Mesa was formed as developers saw opportunities for greater returns through the conversion of industrial and flex buildings into R&D wet lab facilities.

Sorrento Mesa recorded 253,000 square feet of leasing activity during the first half of 2012, more than any other submarket, the report said.

JLL noted that Sorrento Valley was developed as an ancillary market to Torrey Pines and today continues to be home to many of San Diego's startup life sciences companies.

“With a base of older industrial and flex buildings which have been converted to lab space, this submarket provides an economical alternative for early-stage companies,” the report continues.

First half leasing activity within the Sorrento Valley submarket produced four lease transactions totaling 77,000 square feet with no deals completed during the second quarter. Despite the limited activity, however, the submarket has recorded a steady increase in rental rates, trending toward the mid-$2.00 per square foot per month.

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