San Diego’s Life Sciences Real Estate Market Normalized in Q4 After Robust Growth of Previous Two Years

New supply of life sciences real estate outpaced demand in many top U.S. life sciences markets, including San Diego, in the fourth quarter, boosting the sector's vacancy rate back toward pre-pandemic levels, according to national and local reports from CBRE.

Metrics gauging the life sciences sector across the country varied in the fourth quarter as the industry normalized after robust growth in 2021 and much of 2022. San Diego's market-wide vacancy rate increased one full percentage higher than the previous quarter (3.4%) ending at 4.4% in the fourth quarter. Total demand for laboratory space was 980,000 sq. ft. at the end of the past quarter, still within the quarterly average before the pandemic.

“Demand from life science companies to expand real estate has reverted to pre-pandemic norms. Most life sciences companies cannot go public in today's climate, which has translated to boards putting pressure on management teams to extend their runway. Without the ability to tap into the public markets, life science companies are poised for more mergers and acquisitions and partnership transactions with big pharma. Once companies have a clear path to raise money, we will see a sizeable uptick in demand,” said CBRE’s Vice Chairman Ted Jacobs.

The core submarkets of Torrey Pines, UTC, Sorrento Mesa and Sorrento Valley lead in leasing activity with 98,490 sq. ft. of lab space leased in the quarter. Overall leasing activity declined from 353,474 in the third quarter to 134,873 in the fourth quarter.

Nationally, the market for lab space registered similar fits and starts. Average vacancy across the 13 largest U.S. life sciences markets rose to 5.7% in the fourth quarter from 5.1% in the third, but it stayed even with the year-ago figure and below pre-2021 levels. Vacancy figures include space listed for sublease.

CBRE's sale and leaseback of the 246,000-sq.-ft. Ionis Pharmaceutical campus in Carlsbad to Oxford Properties was the top life science transaction in the region during the fourth quarter.

In the fourth quarter, San Diego had 34 projects under construction totaling 5,370,000 sq. ft. of lab space, with 30.1% already preleased. Nearly a dozen of the construction projects are conversions into lab space, totaling 1,160,000 sq. ft.

Nationally, lab space under construction grew to 40.3 million sq. ft. in the fourth quarter, up roughly 8% from the third quarter. Meanwhile, demand for space declined by 8.4% to 18.5 million sq. ft.

                            Top Life Sciences Markets: Select Q4 Stats