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Distinct flavors featured in San Diego life sciences real estate market

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Over 500 life-science companies occupy more than 12 million square feet in the San Diego market, about half of which is owner-occupied. The market has experienced some growing pains over the last few years as company mergers and acquisitions have caused considerable space consolidation. Fortunately, the appetite of big pharmaceuticals for biotech company acquisitions is also fueling funding of new venture-capital-based startups, much in the same way that the opening of the IPO market spurs new company investment.

Currently there is more than 1.3 million square feet of lab space availabilities, about half of which is sublease space; however, tenant demand has been on the rise and several landlords are actively negotiating new leases. Base lease rates range from $25-$36/year (net of all operating expenses) and are expected to increase as the industry grows and absorbs the limited space in this prime market. Lease terms range from two to 15 years and renewal options are commonly given and tenants typically exercise them. The primary biotechnology marketplace in San Diego is clustered around UCSD.

The submarkets, which represent extreme variations in flavor attracting different types of companies with varied needs, are Torrey Pines, University Towne Center (UTC), Sorrento Valley, Sorrento Mesa and Carlsbad. The first four areas are geographically contiguous, with Carlsbad standing apart. Despite such close proximity, each submarket displays its own unique character and appeal to biotech tenants of all types.

Torrey Pines submarket

The Torrey Pines biotechnology cluster was originally master-planned by the city of San Diego and zoned for Scientific Research (SR). This zoning permits scientific research use, associated manufacturing uses, as well as corporate headquarters measuring 40,000 square feet-plus. The presence of world-renowned scientific research institutes such as the University of California, San Diego; The Salk Institute; The Scripps Clinic & Research Foundation; the Sidney Kimmel Cancer Center and the Burnham Institute have contributed to this area's advancement as a biotechnology hotbed.

In addition to these research institutes, Torrey Pines is home to pharmaceutical giants Pfizer (NYSE: PFE), Johnson & Johnson (NYSE: JNJ) and Novartis (NYSE: NVS).

Buildings in the market are characterized by ocean or mountain views and are situated in a natural setting of bluffs filled with torrey pine trees.

The synergy created by this cluster of intellectual capital is unparalleled here in San Diego and comparable only to the most sophisticated life science clusters in country, such as downtown Boston or South San Francisco. This market is fully developed and only a couple of sites are suitable for additional development.

University Towne Center (UTC) submarket

UTC is the location of choice for many of the region's largest biotechnology companies because of the market's proximity to Torrey Pines, unrivaled amenities and the general business community. This area of the San Diego bioscience market consists primarily of multitenant Class "A" high-rise and mid-rise office buildings. The city of San Diego designated approximately 150 acres in the Eastgate/Towne Centre Drive area as an SR zone to continue to promote the growth of the biotechnology industry.

There is currently more than 1.5 million square feet of bioscience space in the submarket and one biotech project under construction, the Nexus University Research Science Center, which will total 161,871 square feet and will be available for life science companies in mid- to late 2009.

Sorrento Valley submarket

Emerging as San Diego's first high-tech corridor in the early 1970s, Sorrento Valley has been thriving ever since. In fact, numerous life science companies started in Sorrento Valley. The market was originally conceived to provide multitenant office and industrial space primarily to startup and smaller tenants. Over the last 15 years, the market has gradually shifted toward biotechnology as tenants and landlords converted suitable buildings to accommodate laboratory users.

Sorrento Mesa submarket

The Sorrento Mesa submarket consists of mostly Research and Development (R&D) and industrial buildings, but also has many multitenant mid- and high-rise office buildings. The area offers a less expensive alternative to Torrey Pines and UTC and available land for build-to-suits. While lab users are sprinkled throughout the market, the build-to-suit opportunities primarily exist in the northwest section of Sorrento Mesa, overlooking Sorrento Valley with views of Torrey Pines and the Pacific Ocean.

Another unique subcluster exists on an elevated street called Nancy Ridge, which arguably is in western Miramar, but the buildings are more similar to the R&D buildings in Sorrento Mesa. The dense cluster of lab buildings on Nancy Ridge currently exceeds 750,000 square feet of lab space.

Carlsbad

Located in North County, Carlsbad is the smallest biotech cluster area in San Diego County. Some life science companies have chosen Carlsbad as a less congested and less expensive alternative. Carlsbad will likely continue to attract new life science companies due to the availability of developable land. Companies such as Invitrogen (Nasdaq: IVGN), Isis Pharmaceuticals (Nasdaq: ISIS), Genoptix (Nasdaq: GXDX) and Epeius Biotechnology are headquartered there.

With an inventory of approximately 593,333 square feet, lab vacancy is currently around 15 percent.


Bonanno and Landowski are laboratory real estate experts with Grubb & Ellis|BRE Commercial's Life Sciences Group; they maintain comprehensive market information and track all lab availabilities in San Diego County. They can be reached at (858) 546-5400 or via e-mail at jbonanno@breb.com or tlandowski@breb.com.>

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