New Life Sciences Space Was a Post-Pandemic Beacon. Now It Weighs on U.S. Hubs.
San Diego’s vacancy rate has already hit 18.5 percent in the past year, with more unleased space on the way
By Greg Cornfield June 27, 2024 2:30 pm
reprints
After the pandemic hit, life sciences and biotech office properties were among the few types that saw surging demand. Alexandria Real Estate, the nation’s top investment trust dedicated to large lab space, refers to that period as the “rocket ship years.”
But the rocketship flew too fast, and developers committed billions of dollars to adding large amounts of new space dedicated to life sciences and biotech in hub markets, but without concrete plans on how to fill them. Since then, tenant demand and investment have started to shrink, but the projects are still being delivered, further hindering overall office markets that are already hamstrung by oversupply.
In San Diego, IQHQ spent $1.6 billion on the recently completed Research and Development District (RaDD) along the waterfront, which was supposed to establish the downtown life science submarket as distinct from the submarket to the north next to the University of California at San Diego. But now, RaDD is opening without any biotech tenants. Bank OZK (OZK) provided $915 million in financing for the RaDD project, due to be paid back starting August 2026, and analysts question if the space will be leased in time, according to a recent national market report from CommercialEdge.
San Diego’s vacancy rates rose 310 basis points year-over-year to 18.5 percent in May, according to the report, and more new life sciences deliveries will continue to add further pressure on the market. For example, another project, the 10-acre mall conversion into the Campus at Horton Plaza, is also set to add lab and office space in Downtown San Diego.
In May, San Diego led the Western U.S. in office development in terms of a percentage of its existing stock, with a 4 million-square-foot pipeline representing 4.2 percent of its current inventory, per CommercialEdge. The majority of the pipeline consists of life science properties.
“With millions more square feet of lab space in the downtown submarket soon to deliver … Downtown San Diego looks to have a glut of lab space on its hands,” the report read.
Gregory Cornfield can be reached at gcornfield@commercialobserver.com.
