CBRE Report: San Francisco Bay Area Second Largest Percentage Gain in Life Sciences Conversions

In a new report from CBRE, the San Francisco Bay Area ranked second among the nation’s top life sciences markets for the annual percentage gain in office-to-lab conversions, up 266 percent from the first quarter of 2021.

New construction and repositioning or conversion of office space and R&D buildings has increased in response to growing demand in the Bay Area life sciences sector, with much of the new construction pipeline preleased at the close of Q1 2022.

The Bay Area saw 334,562 sq. ft. of new life sciences space delivered at the end of Q1 2022. There’s an additional 3.4 million sq. ft of both new construction and office-to-lab conversions underway in the San Francisco Peninsula and Oakland markets.

“The exponential growth of life science companies in the Bay Area have forced tenants to look for space in new regions of the market,” said Mike Moran, Vice Chairman at CBRE. “As supply has tightened in the Bay Area, we’re seeing more companies pre-lease, particularly in areas like San Francisco, the East Bay and Silicon Valley that have more space to build or convert.”

Total office-to-lab conversions in progress in the 12 largest U.S. life sciences markets amounted to 9.9 million sq. ft. at the end of 2021, up 49 percent from the beginning of the year. In comparison, ground-up lab construction increased 42 percent to nearly 18.8 million sq. ft. by the end of 2021.

While both measures increased greatly, the jump in conversions underscores the challenges in building enough lab space to meet demand in recent years. Lab vacancy in many top markets sits at 4 percent or less, with the San Francisco Peninsula ending the quarter with the lowest vacancy in the Bay Area at 3.6 percent. The East Bay saw 4.3 percent vacancy and Silicon Valley saw 5.8 percent vacancy in the first quarter.

The cost to deliver lab space with necessary plumbing, ventilation, clean rooms and other specialized considerations can be double to triple that of fitting out standard office space. Even so, the increase in conversion activity last year indicates developers and investors are willing to cover those costs to capture the potential rent growth of lab space in comparison to office amid some supply constraints.

On average, lab lease rates across the U.S. increased by an average of 11 percent last year in the 12 largest life sciences hubs. Meanwhile, office lease rates in those markets increased by 2 percent. Lab lease rates in the San Francisco Bay Area increased by 12 percent in the last year, while office lease rates in the Bay Area were in line with the national average.

“Converting an office building for life sciences use often can be done more quickly than building labs from the ground up,” said Matt Gardner, CBRE Americas Life Sciences Leader. “In addition, investors see advantages in lab rent growth and the scant vacancy rates for labs in comparison to offices. Still, many lab uses have extensive and significant requirements of facilities, so not every office building is a candidate for conversion.”

Busiest Markets for Office-to-Lab Conversions

Market	In-Progress Conversions at Q1 2022*	Percentage gain from Q1 2021
Boston	3.3 million	264%
San Diego	1.6 million	-9%
Raleigh-Durham	1.1 million	8%
Los Angeles	667,104	339%
Washington, D.C. - Baltimore	665,394	78%
New York City	660,403	-53%
San Francisco Bay Area	640,347	266%

*In square feet

To read the full report, click here.