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Life science market reflects opportunity

The San Diego laboratory market consists of approximately 14 million square feet, with countywide vacancy at 9.2 percent, up from 8.6 percent at the end of the first-quarter 2009.

According to Brent Jacobs, senior director with Cushman & Wakefield's Life Science Group, the lab vacancy has been steadily rising since the collapse of the capital markets, primarily driven by an increase in sublease space -- representing 43 percent of the 1.3 million square feet of available space.

"A recent theme among local life science companies is to conserve cash, often times cutting R&D for non-lead products," Jacobs said. "Based on current demand and transactions in progress, 2009 will likely be the slowest laboratory leasing year in over five years. At the end of 2008, we were tracking about 700,000 square feet of demand, which has reduced to approximately 300,000 square feet by an overall retrenchment in the industry. From 2003 to 2008, leasing activity averaged 705,000 square feet annually and year-to-date we are at just 91,000 square feet."

"A number of local companies have closed or downsized, vacating over 600,000 square feet of lab space since early 2008," said Greg Bisconti, also a senior director with the group. "On the other hand, we have a number of local groups that continue to grow and prosper."

Retrenchments

Amylin Anadys Favrille Kemia La Jolla Pharmaceuticals Metabasis Pharmexa Sidney Kimmel Cancer Center Targegen

Enhancements

Althea Technologies AME/SGX (Lilly) Brain Cells, Inc. CovX Genoptix Nativis San Diego Consortium for Regenerative Medicine Sapphire Energy The Burnham Institute UCSD

"While the economic downturn will continue to paint a challenging environment, San Diego's strong entrepreneurial spirit will allow us to successfully navigate through this," Bisconti said. "Companies are finding creative ways to find funding and reduce operating costs. More of our clients are securing public funding and corporate financing to off-set the reduction of available venture funding."

According to Jacobs, lease terms of two to three years for early-stage and flexible strategies, and long-term, low-rent options for those seeking more permanent occupancy, are still being secured. "Opportunities are also available (on a case-by-case basis) to restructure existing leases mid- to late-term," he said.

The Cushman & Wakefield team notes that the coming year will provide the following opportunities for life science clients:

¥ Increased inventory of quality lab space

¥ Significant reduction in rents

¥ Substantial free rent will be available

¥ Short- and flexible-term leases

¥ "Turn-key" opportunities (little/no cost for tenant to customize)

¥ Little to no security deposit

¥ Falling construction costs

Emphasis will be on maximizing efficiency as well as taking advantage of bargains to upgrade in quality. The team urges early-stage companies not to settle for low quality product, as often the marginal savings on face rent can be outweighed by inefficiencies (both layout and function) and recruitment/retention issues.

"Our 25 years of experience in San Diego laboratory brokerage allows us to provide our clients real value," Jacobs added. "We see 2009 as a year of opportunity for the local life science industry and the companies we represent. Maintaining an active pulse on the market will allow our clients to pounce on off-market opportunities, turn-key space, shadow space and sublease bargains."

Visit Cushman & Wakefield's Life Science Group at www.sdlifesciences.com.

Submitted by Cushman & Wakefield

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