The San Diego laboratory market consists of approximately 14 million square feet, with countywide vacancy at 10.3 percent, remaining flat since the end of second-quarter 2009.
According to Brent Jacobs, senior director with Cushman & Wakefield's Life Science Group, lab vacancy has been steadily rising since the collapse of the capital markets, primarily driven by an increase in sublease space that represents 39 percent of the 1.4 million square feet of available space.
"Consistent with our predictions earlier this year, 2009 has been very slow from the tenant demand perspective," Jacobs said. "While funding activity and tenant demand appears to be on the rise, we expect to see the increase in demand trail the increase in inventory over the coming quarters, resulting in a slowly increasing vacancy rate."
Jacobs added that while there are still local companies struggling due to unexpected setbacks and/or unavailable financing, overall the Cushman & Wakefield Life Sciences Practice is seeing a positive shift as clients embrace the opportunity in the market for quality lab space, flexible-term leases and other "turn-key" opportunities.
"As members of the Cushman & Wakefield Global Life Sciences Practice, we have a broader perspective of the entire sector, and I would argue a much better crystal ball for which trends we expect to affect San Diego," he said. "Looking ahead, we will continue to see consolidations throughout the industry, fueled by compressed biotech valuations and limited access to capital."
Cushman & Wakefield's review of the global life science clusters suggests that Big Pharma will continue to acquire companies, outsource strategically, and shed redundant R&D and manufacturing space. "Locally, the biotech industry is well-positioned," said Greg Bisconti, also a senior director with the group. "Pfizer and Biogen Idec have suggested their ongoing commitment to San Diego, and Cushman & Wakefield recently represented Lilly in a 125,000-square-foot lease for its new state-of-the-art biotechnology center at Veralliance Properties' Campus Pointe.
"The overall lab market will remain soft for the next several quarters, providing exceptional value opportunities," Bisconti said. "Based on our experience, the best values are already on the market or will be added in the next three to six months."
Tenants that can act now will be able to select from the best product at price points that will likely not be available once the market begins to improve.
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.
"Our 25 years of experience in San Diego laboratory brokerage allows us to provide our clients real value," Jacobs added. "We think the current market is ripe with 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 online at sdlifesciences.com.
Submitted by Cushman & Wakefield