San Diego Life Sciences Real Estate Market Logs Q2 Gains as Industry Expands Nationally

Lab space in San Diego made additional gains in the second quarter including an increase in lease rates and steady vacancy rates and construction activity. The metro’s gains are consistent with the 12 largest U.S. life sciences hubs, according to new national and local reports from CBRE.

San Diego’s market-wide vacancy rate for life science space remained steady at 3.6 percent in the second quarter, up from 3.5 percent in the first quarter. Nationally, the average vacancy rate across the largest U.S. hubs registered 5.2 percent in the second quarter, down from 5.3 percent a year earlier.

Average asking rent in San Diego’s Central and Core Life Sciences markets increased by 4.01 percent to $77.88 in the second quarter, compared to $74.88 in the first. Nationally, average asking rent in the 12 largest markets increased by 5.8 percent in the second quarter from the first to $54.77 per sq. ft.

Meanwhile, developers have maintained construction activity locally and ramped up nationally in anticipation of more demand. In San Diego, demand hovered at 1.5 million sq. ft. in the second quarter, with 4.7 million sq. ft. of new and converted lab space under construction. Developers are expected to deliver 750,000 sq. ft. in the metro in the second half of the year. Of the total amount under construction in San Diego, 23.5 percent is preleased. Nationally, demand boosted in-process construction to 31.3 million sq. ft. in the second quarter, a gain of 2 million sq. ft. from the first quarter total.

The gains came as other indicators in the life sciences sector lost momentum. Nationally, venture capital (VC) funding for U.S. life sciences companies has slowed this year, falling by 13.3 percent quarter-over-quarter and 27 percent year-over-year in the second quarter. And initial public offerings by life sciences companies have fallen off dramatically amid a broader economic downturn.

Despite a similar slowdown in VC funding at the beginning of the year, San Diego life sciences companies bounced back in the second quarter, bringing in $1.08 billion, an increase from funding raised in the first quarter of 2022 and fourth quarter of 2021.

“Life sciences as an asset class has slowed compared to recent all-time highs, but companies looking to lease more space and overall investment in the industry is keeping the market very healthy,” said Ted Jacobs, a Vice Chairman and regional life sciences leader at CBRE. “Venture capital has raised record funds to help their private-portfolio companies as the public markets window slowly reopens. Government agencies continue to invest in the industry to prepare for future pandemics, and institutional investors are now getting into the mix. M&A and partnership activity among the big pharmaceutical companies is growing. And more out-of-town companies continue to eye San Diego, looking to set up centers for excellence and tap into our rich talent pool and quality of life.”

                Top Life Sciences Markets: Select Q2 Stats

Market	Market Size*	Vacancy	Sq. Ft. Under Construction	Sq. Ft. of Current Tenant Demand
Boston/Cambridge	50.5M	1.2%	14.9M	4.2M
San Francisco Bay Area	32.6M	5.8%	5.1M	4.4M
San Diego	22.9M	3.6%	4.7M	1.5M
New Jersey	20.4M	7%	147,000	1M
Washington, DC	10.7M	1.4%	1M	848,500
Raleigh-Durham	10.6M	11.3%	236,250	800,000
Philadelphia	9.3M	7.8%	1.4M	2M
Seattle	9.3M	9.7%	1.2M	700,000
Los Angeles	8.7M	10.8%	793,904	934,000
Denver/Boulder	4.8M	4.3%	616,381	1.3M
New York City	2.5M	5%	860,403	2M
Chicago	2.0M	33.6%	281,000	980,000

*In square footage of existing lab space.