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Life science market bright spot in local economy

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At a time when many commercial real estate sectors are slowing, the San Diego County life sciences market continues to grow with biotechnology and market research ranking among the region's top performing industry sectors. Cushman & Wakefield's Global Life Sciences Practice reports a steadily declining vacancy rate of 5.97 percent, a nearly 50 percent decrease from the 11.7 percent three years ago. According to Brent Jacobs, senior director with Cushman & Wakefield's Global Life Science Practice, San Diego is realizing the increasingly limited supply of space, particularly for users looking for options 20,000 square feet and smaller. "San Diego County is a hotbed for startup and entrepreneurial companies, which is driving demand for smaller space options," Jacobs said. "With a number of credible transactions in process, we expect vacancy to dip into the mid-5 percent range by year-end 2008 and potentially even further by 2009." Landlords and developers are responding to the opportunity created by this space shortage by improving larger underutilized facilities and dividing the floor plates to capture growing demand in the 5,000- to 10,000-square-foot range. For larger requirements, the county will see continued interest in custom-designed lab space, ideally within a first- or second-generation lab building. Greg Bisconti, also a senior director the Global Life Science Practice Group, notes that while the market is tightening, the typical ebb and flow of sublease space may also add some fluctuation to the life science market. "As rental rates trend north of $3-per-square-foot/per-month triple net, Cushman & Wakefield brings value to our tenant clients by finding sublease opportunities and landlord-assisted R&D conversions," Bisconti said.

Cushman & Wakefield research shows the county's lab to office ratio falling from a typical 70/30 mix to a lighter lab mix of 60/40. Additionally, the research shows that more companies are outsourcing manufacturing, chemistry, small and large molecule work and vivarium needs. On the supply side, San Diego's laboratory market is almost entirely driven by a few major landlords focused on laboratory product, including Alexandria Real Estate Equities, HCP Life Science Estates, Veralliance Properties, Biomed Realty Trust and Kilroy Realty. According to Jacobs, these landlords understand laboratory space and are equipped to invest the large amounts of capital required for improvements. Cushman & Wakefield's Global Life Science Practice recommends life science companies consider the following when reviewing their space needs in San Diego over the next couple of years: 1. Options for quality lab space are becoming slim. Plan at least six to 18 months ahead. Since much of the quality space has disappeared, almost every facility needs major changes to the functional layout, which takes time. 2. Specialty lab functions are scarce and specific uses such as manufacturing, clean room and vivarium space are almost impossible to find. Companies requiring this kind of space should plan to undertake either a full or partial conversion from an existing lab facility or shell. This will take approximately 12 to 18 months to bring on line from lease signing, and costs $200 to $500 per square foot to build. 3. A good hedge against the risks posed by relocation in this environment is to use a qualified life sciences broker. Brokers should be asked to provide a list of laboratory transactions in which they personally (not their company) have represented the tenant. Make sure the transactions they list are not virtual pharma (office).

Submitted by Cushman & Wakefield

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