San Francisco Life Sciences Real Estate Market Shows Resiliency Amid Economic Headwinds

New supply of life sciences real estate slowly caught up to demand in the San Francisco Bay Area in the fourth quarter, boosting the sector’s vacancy rate back toward pre-pandemic levels, according to a new report from CBRE.

At 9.9 million sq. ft. under construction, the San Francisco Bay Area had the second highest total construction of the top U.S. life sciences markets. This is an increase of 900,000 sq. ft. from the third quarter amid inflation and high construction costs. Only 66,500 sq. ft. was delivered in the fourth quarter of 2022, but more than 3.9 million sq. ft. is expected to deliver in 2023.

Tenant demand in the fourth quarter was 5.6 million sq. ft., up from 5.3 million sq. ft. from the previous quarter. Meanwhile, the San Francisco Bay Area received $2.2 billion in NIH funding in 2022, the second highest of the top life science markets.

“While the macroeconomic environment and capital markets activity have slowed in the near-term, we are bullish on the long-term outlook of the market. A large majority of the product under construction will be delivered by established life science developers, who are well-insulated and set up for long-term growth. After experiencing record-highs the last two years, we expect 2023 to be a year of realignment. However, life science industry fundamentals remain strong and the Bay Area is well-positioned to be one of the first to reap the benefits of recovery as a primary research market,” said Dino Perazzo, Vice Chairman with CBRE’s Life Science Practice in the Bay Area.

Vacancy was 6.3%, slightly up from Q4 2021. However, the San Francisco Bay Area ended the year with more than 400,000 sq. ft. in net absorption. The Oakland submarket had the highest net absorption in Q4 at 49,347 sq. ft.

“The growth of the Oakland submarket has helped the life science ecosystem in the Bay Area expand tremendously in the last several years. The San Francisco Peninsula remains a hotbed for life science companies, but the emergence of more life science hubs in the East Bay have allowed companies of all sizes to scale their operations across the region,” said Mike Raffetto, Senior Vice President with CBRE’s Life Science Practice in the Bay Area.

Average asking rents in the San Francisco Bay Area ($71.64 per sq. ft.) were well-above the national average ($62.16 per sq. ft.), making it the fourth highest of the top 13 life science markets.

                                    Top Life Sciences Markets: Select Q4 Stats