Life Sciences Outlook San Diego 2015
San Diego San Diego saw $43.8 billion in M&A transactions from 2011 through 2014. Large pharmaceutical companies are purchasing biotech firms to fill their R&D pipelines, rather than conduct R&D internally. San Diego has a strong R&D market due in large part to its significant talent pool. Leasing activity within the San Diego life sciences cluster hit record levels in 2014. The market is poised for continued expansion both from companies of all sizes and landlords looking to grow their footprints through new development or repositioning of office to wet lab facilities. supply: Clusters of established lab stock with long-time industry presence is home to San Diego s largest concentration of lab space, with over 5 million square feet. The submarket is adjacent to the UC San Diego campus and acts as the epicenter of San Diego s life sciences market. It boasts occupancy by a number of acclaimed research institutes, some of the world s largest pharmaceutical companies, and a number of successful biotech companies that range from startups to mature corporations. University Town Center (UTC)/Eastgate The submarket, like, is comprised of mature, publicly traded companies with advanced product development. This submarket has 2.3 million square feet of lab space and is located in San Diego s Golden Triangle, which offers numerous amenities to tenants. Illumina, Eli Lilly, Celgene, Synthetic Genomics, Human Longevity, Genomatica and Senomyx are UTC s largest users, together occupying just over 1 million square feet, or 44.0 percent, of the submarket s total wet lab inventory. has approximately 4 million square feet of lab space and caters to all tiers of San Diego life sciences. Some of the largest companies include BP Biofuels, AstraZeneca (Ardea), Hologic (Gen-Probe), Vical, Arean Pharmaceuticals, Intertek and NuVasive. Over the years, was formed as developers saw opportunities for greater returns through the conversion of industrial and flex building into wet lab facilities. was developed as an ancillary market to and today continues to be home to many of San Diego s startup life sciences companies. With a base of older industrial and flex buildings that have been converted to lab space, this submarket has historically provided a more economical alternative for early and mid-stage companies. JLL San Diego Life Science Outlook 2015 2
Economic scorecard Workforce Total life sciences % life sciences to private employment Year-overyear growth Employment 63,730 5.9% 3.6% Establishments 1,373 1.4% 2.8% Funding Total life sciences % to total U.S. VC funding $665.3M 4.7% NIH funding $835.8M 3.7% Innovation Total life sciences % to all patent classes Patents 1,134 23.6% Cluster score: 63.1 San Diego s startup culture in the life sciences market attracts strong funding stream to the market. Sixtyfive percent of total VC invested in San Diego went to biotech companies. San Diego is home to a number of successful biotech entrepreneurs that start multiple companies. These entrepreneurs often find themselves in the position to sell to big pharma; they then start the cycle again. Life sciences employment grew at a faster rate than total private employment: 3.6 percent compared to 2.7 percent, respectively over the last year. The notable life sciences cluster is partly attributable to the presence of some of the world s largest biotech, pharmaceutical and nonprofit research institutes. Moreover the University of California, San Diego has strong science and engineering programs that produce a number of scientists. Life sciences employment composition 46.0% 7.0% 9.0% Life sciences employment 63,730 12.0% 16.0% 10.0% non-lab using lab using Pharma & medicine manufacturing Electromedical instrument manufacturing Medical equipment & supplies manufacturing Testing laboratories Research & development Medical & diagnostic laboratories Life sciences patents by classification 60.0% 0.6% Medical equipment & instruments Life sciences patents 1,134 39.0% Pharmaceuticals & biotechnology Crop science San Diego has seen 6.0 percent year-over-year growth in life sciences patents. With San Diego being home to many medical device companies and UCSD offering a master s program in medical device engineering, it is not surprising that medical equipment and instruments patents increased at a faster pace (17.0 percent year-overyear). JLL San Diego Life Science Outlook 2015 3
San Diego Supply constraints leading to increased rent growth led all submarkets in terms of leasing activity in 2014, resulting in a 550 basis point drop in direct vacancy. Leasing activity was highlighted by some of San Diego s larger companies: The Medicines Company signed a new lease and BD Biosciences and Pacira Pharmaceuticals expanded their existing footprints. With a low vacancy rate, coupled with minimal available land for new development, is positioned to see continued rent growth. 315,000 square feet of spec lab under construction as companies look to expand is home to a number of San Diego s largest companies most notably Illumina and Eli Lilly that have recently signed leases to expand. In fact, large user activity accounted for a much bigger share of completed transactions in San Diego than in years past. has the only speculative lab development under construction in the region. BioMed Realty s i3 will consist of three buildings totaling 315,000 square feet of flexible lab space. UTC is expected to see strong leasing activity in 2015 due to its ability to deliver high-end Class A space, which is desired by companies of all sizes in order to attract and retain the best talent. Facilities scorecard Supply Rentable lab stock (% of total stock) Direct vacancy AFFYMETRIX 10240 Science Center Dr. 82,759 s.f. Term: 7.5 years i3 315,000 s.f. Class A spec development 3.1 m.s.f. 59.4% 6.2% (5.5) ppts 1.9 m.s.f. 92.3% 3.4% (2.2) ppts # of large blocks over 100,000 s.f. 0 3 Under construction (s.f.) 0 315,000 s.f. Demand # of requirements Total s.f. requirements Pricing Average asking rent (NNN) 10 301,000 s.f. $46.50 p.s.f. 11.5% 6 304,000 s.f. $44.70 p.s.f. 7.2% SENOMYX 4767 Nexus Center Dr. 65,280 s.f. Term: 7 years 11099 N TORREY PINES RD. 93,000 s.f. Class B $43.8M / $473 p.s.f. Activity key: Leasing Sales Under construction Large blocks of space JLL San Diego Life Science Outlook 2015 4
San Diego Lowest total vacancy rate among all submarkets Total vacancy rate is the lowest among all San Diego life science submarkets, at 7.5 percent. Leasing activity over the past year wasn t particularly strong, but there were a few deals in the 20,000 to 50,000 square foot range. Countywide, activity from mid-tier companies (space needs between 17,000 and 35,000 square feet) was very strong in 2014. BP Biofuels recently decided to downsize its San Diego facility and will now only need approximately 15,000 square feet. With their lease expiring in September, this will bring 76,000 square feet of space to the market. Headquartered in San Diego with significant lab space in Sorrento Mesa, CareFusion was acquired by Becton Dickinson for $12.2 billion. The sale is expected to close in the first half of 2015. Leasing activity will likely be marginal during the first half of 2015 though rental rates will likely increase slightly as the overall conditions within the San Diego biotech cluster remain strong. Majority of available lab space is under 10,000 s.f. drawing in more startups The majority of available space in is suited for companies under 10,000 square feet; those options are currently very limited. Availability of small suites under 3,000 square feet will remain tight as new startup companies continue to pursue for space to facilitate their research. Parallel Capital Partners continues to try to find a buyer for their portfolio, which consists of 500,000 square feet of lab, office and flex space. The portfolio fell out of escrow at the end of 2014. Facilities scorecard Supply Rentable lab stock (% of total stock) Direct vacancy DEXCOM 6290 Sequence Dr. 218,815 s.f. Term: 7 years BIOTOX SCIENCES 10665 Rd. 27,048 s.f. Term: 6.5 years Activity key: 3.3 m.s.f. 76.8% 4.2% (2.1) ppts SORRENTO CANYON TECH CENTER 98,987 s.f. Class B $18.1M / $183 p.s.f. 10505 ROSELLE ST. 17,890 s.f. Class B $2.0M / $113 p.s.f. 1.2 m.s.f. 90.0% 12.6% (8.4) ppts # of large blocks over 100,000 s.f. 0 0 Under construction (s.f.) 0 0 Demand # of requirements Total s.f. requirements Pricing Average asking rent (NNN) Leasing Sales 3 63,000 s.f. $28.20 p.s.f. 0.0% 3 50,000 s.f. $31.50 p.s.f. 14.1% Under construction Large blocks of space JLL San Diego Life Science Outlook 2015 5
For more information, please contact: Eileen Tumalad Senior Analyst, Research San Diego +1 (858) 410-1183 eileen.tumalad@am.jll.com About JLL JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual fee revenue of $4.0 billion and gross revenue of $4.5 billion, JLL has more than 200 corporate offices, operates in 75 countries and has a global workforce of approximately 53,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.0 billion square feet, or 280.0 million square meters, and completed $99.0 billion in sales, acquisitions and finance transactions in 2013. Its investment management business, LaSalle Investment Management, has $50.0 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com. About JLL Research JLL s research team delivers intelligence, analysis and insight through market-leading reports and services that illuminate today s commercial real estate dynamics and identify tomorrow s challenges and opportunities. Our more than 400 global research professionals track and analyze economic and property trends and forecast future conditions in over 60 countries, producing unrivalled local and global perspectives. Our research and expertise, fueled by real-time information and innovative thinking around the world, creates a competitive advantage for our clients and drives successful strategies and optimal real estate decisions. This publication is the sole property of Jones Lang LaSalle IP, Inc. and must not be copied, reproduced or transmitted in any form or by any means, either in whole or in part, without prior written consent of Jones Lang LaSalle IP, Inc. COPYRIGHT JONES LANG LASALLE IP, INC. 2015