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April 22, 2024
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The Bay Area Ranks as the Second Largest Market in the Hot Life Sciences Sector


This report was provided by CBRE

Life-science lab space has emerged as a coveted sector of commercial real estate as hefty increases in funding and employment have fueled both demand for lab space and construction of it in leading U.S. life-science markets, according to a new report from CBRE. Strong growth has established San Francisco Bay Area as the second-largest life sciences market in the U.S. with nearly 30 msf of dedicated life sciences space.

While leasing activity in the San Francisco Bay Area in 2020 reached 2 msf, the region surpassed 963k sf of new leasing in Q1 2021 alone. The San Francisco Bay Area has 2.8 msf currently under construction in the premier submarkets of the North and South Peninsulas. Of that, 2.6 msf is new construction and 175k sf is office-to-lab conversion. Additionally, local life sciences companies attracted the second-most venture capital funding ($6.3 bil) of all U.S. markets during the year ending Q1 2021.

Rents continue to rise as tenants are increasingly price insensitive given limited availability and the competitive environment. There are currently 59 life sciences companies searching for a cumulative 2.9 msf in the market, a 21.9% increase over the last nine months.

“Unprecedented funding is fueling demand like we’ve never seen,” said Dino Perazzo, Vice Chairman with CBRE’s San Francisco Life Science Practice. “Competition for space has increased and most of the new construction is already heavily pre-leased, which is making it challenging for tenants to find space. The race for what little supply comes available is intense – and favors those who know where to look. The only thing that will slow leasing velocity in the Bay Area is a lack of available space.”

Companies actively seeking life-science real estate in the first quarter targeted a cumulative 19.3 msf of lab space in the top 12 U.S. life-science markets, according to CBRE’s Midyear U.S. Life Sciences report. This represents more than 12% of the total existing life sciences space across these markets—a rate of demand that is fueling ongoing construction of lab space.

U.S. lab space under construction totaled 18.9 msf at the end of this year’s first quarter. Meanwhile, tight vacancy—averaging just 5.6% across those markets —is causing lab rents to rise to record levels in the leading life-science hubs of Boston, the San Francisco Bay Area and San Diego.

“Several factors have boosted the life-science industry in recent years—and even more so in the last 18 months—including keen interest from governments and capital sources in developing and manufacturing new medicines to address pandemics like COVID-19 and demographic shifts such as the aging population,” said Ian Anderson, CBRE’s Americas Head of Office Research. “That, in turn, has resulted in a race for more lab space. Construction of new labs, including conversions of regular offices to lab space, has ramped up significantly. But demand has grown even faster.”

The $10 bil in venture capital awarded to U.S. life sciences companies in the first quarter marked a record, exceeding the previous high in last year’s fourth quarter by roughly 60%, according to the PwC Moneytree Explorer survey. U.S. life-sciences employment has risen by 15.6% since April 2017, outpacing the growth of the larger tech industry.

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