Life Science Real Estate

We are pleased to be writing this month’s article for the Commercial Property Guide and the opportunity to keep the readership apprised of the trends in the San Francisco Bay Area Life Science real estate market for mid year 2008.

The six Bay Area counties show an overall vacancy of 2,629,806 square feet of existing wet lab space. Rates currently range from $1.50 NNN to $2.75 NNN/square foot per month for 2nd and 3rd generation space, with brand new Class A laboratory space ranging from $3.00 to $4.25 NNN/square foot

Several large blocks of space became available throughout the past couple of months, including Protein Design Lab’s (PDL) Pacific Shores Campus totaling 447,747 square feet, of which 165,000 square feet consists of office and laboratories and the balance is office space. Additionally, their Ardenwood campus, they vacated in Fremont, totals 140,608 square feet of office and laboratories in three buildings is also available. EV3, which acquired Fox Hollow, has put their 60,985 sq.ft. of lab, clean room and office space in Redwood City on the market for sublease.

Despite these newly available facilities, the Bay Area had significant lease activity of over 830,000 square feet to report. BioMed Realty Trust’s Pacific Research Center in Newark has recently completed three lease transactions totaling over 330,000 sq. ft.

While downsizing within certain large companies has been portrayed by the media to be a trend occurring over the entire industry, the Bay Area life science & cleantech market remains strong, in part reflected by the venture capital community’s ongoing commitment to its growth. According to the Ernst & Young Global Biotechnology Report 2008, new investment in emerging life science technologies and therapies was reportedly $5.5 billion in the U.S. alone in 2007, which was about $2 billion more than the previous record set in 2006. Deal making in the U.S. reached new heights in 2007 with the total potential value of deals announced during the year including mergers, acquisitions and strategic alliances approaching $60 billion, outdistancing all other years by a wide margin.

Revenues of public biotechnology companies in the U.S. rose over 11% from $58.6 billion in 2006 to %65.2 billion in 2007. However, approvals by the U.S. Food and Drug Administration (FDA) for both pharmaceuticals and biologics slid precipitously in 2007, with the lowest number of new molecular entity (NME) approvals in over two decades.

According to the Bay Bio Impact Report 2008, 492 products are currently in Phase II and Phase III clinical trials for Northern California companies, an increase of 100 from 392 reported last year which will hopefully add to the 408 products already on the market. In order to develop this healthy pipeline, $50 to $100 billion is expected to be invested by the industry in facilities, new equipment, manufacturing, and employment. As such, we anticipate substantial real estate activity over the next few quarters; from the expansion of mature and mezzanine companies, as well as young start ups requiring new small, short term laboratory space.

The Bay Area life science real estate market will offer diverse opportunities for smaller companies doing proof of concept work, high growth companies in human trials, to large successful commercial companies to lease existing wet laboratory facilities.

For further information on laboratory space in the San Francisco Bay Area, please contact GVA Kidder Mathews at 650-769-3600.

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