San Diego continues to hold its own as one of the nation’s top life science markets, and with the influx of leading biotech firms into San Diego, employment in the sector continues to grow as well. According to a recent report from CBRE, the growing talent pool continues to have a positive impact on the commercial real estate industry as demand in the sector reaches new highs.
“San Diego is the third largest market in the country,” Ted Jacobs, vice chairman for CBRE, said. “…There’s definitely been significant growth even pre-pandemic to where we are today. The pandemic just opened it up where it became easier for San Diego to recruit people from all over the country.”
Overall, life science markets across the country continue to perform well with employment increasing 5.3 percent year-over-year, according to CBRE. Employment in the leading biotechnology research and development has seen an even higher increase of 11.5 percent over the past year. This is just below its all-time record of 12.4 percent in March of 2019.
San Diego has been a major contributor to the growth in national life science employment. According to CBRE, the region has seen a record high of 69,200 jobs recorded in the fourth quarter of 2021. Since 2019, the employment in the life sciences sector has grown about 15 percent. For research and development jobs, this increase was even higher at 17.9 percent since 2019.
Job growth in San Diego’s life science market has had a significant impact on the commercial real estate industry, with the report showing a 91 percent positive correlation between job growth and average asking rents for lab space. Since 2016, rent for lab space has nearly doubled from $41.52 per square foot to $74.88 per square foot as of most recent data in 2021.
“We have the major institutes here and we have the non-profit institutions. We have UCSD that’s spinning out companies. We have the fundamentals that you need to create a booming life science cluster, and that started with a company called Hybrid Tech that was a spin out from the university and has grown to what it is today, 22 million square feet in San Diego.” Jacobs said. “It’s not just the weather; San Diego’s your entrepreneurship town and people are very collaborative; it’s very obviously a mecca for entrepreneurs.”
With 22 million square feet of total lab inventory, vacancy across the San Diego life science market is just 4.4 percent. As of the fourth quarter of the year, CBRE also reported leasing activity reached 3.49 million square feet.
Over the past year, a number of large leases have been signed throughout San Diego, including 220,270 square feet of space in Torrey Pines leased to BD. Sorrento Therapeutics also leased 163,235 square feet of lab space in Sorrento Mesa during 2021, and Turning Point Therapeutics leased 185,000 square feet of space in the Torrey Pines submarket.
However, with continued growth, rising rental rates and lack of space do cause challenges for life science tenants. Overall job growth is also likely to play a part in the competitive nature of the market moving forward.
“There is very limited to no options for built-out, ready-to-go lab space, so that’s one of the biggest challenges. The other one is hiring employees. It’s a very challenging environment where it’s the employees, not the employers’, market, where they have many opportunities to choose from,” Jacobs said.
Despite any challenges, CBRE does not anticipate growth in the sector to slow down anytime soon. Across the United States, growth in life science is expected to continue with approximately 5,000 Biological and Biomedical Sciences graduates per year since 2015.
“I definitely believe this is not something that’s just going to go away. I think demand is going to slow down a little bit this year versus the last two years, and that is just because of the public markets being what they’re at today and valuations. We’re at all time highs and they’ve come down about 50 percent, but there is always going to be a need for life science companies,” Jacobs said.
