The San Diego life sciences sector showed resilience in the last quarter of 2023 with positive net absorption and rising leasing volumes with continued institutional interest in the prime life sciences assets.
The JLL San Diego Life Sciences Industry Insight for the fourth quarter of 2023 shows companies securing $700 million in venture capital and seed funding. While this figure represents a decline from the previous quarter’s $1 billion, it surpasses the second quarter’s $615 million. This marks the third consecutive quarter of significant financial backing for the region, where the pre-Covid average was approximately $380 million per quarter.
The report does add that despite the overall positive trend, local companies express the prevailing challenges of fundraising in the current landscape. Larger funding rounds are funneling into fewer companies, underscoring a cautious approach from venture capitalists. Adding to the financial landscape, the report adds that Big Pharma continues to play a pivotal role in the region. Bristol Myers Squibb’s acquisitions of Mirati Therapeutics and RayzeBio for $5.8 billion and $4.1 billion, respectively, signal ongoing confidence and interest in San Diego’s life sciences ventures.
JLL further notes that the fourth quarter of 2023 saw a gross leasing volume of 305,245 square feet, a 77 percent increase from the previous quarter. This uptick breaks a streak of four consecutive quarters of declining leasing volume. Eli Lilly’s absorption of 108,131 square feet in UTC for their Gateway Labs incubator platform played a significant role in driving this positive data. With over 500,000 square feet of lab deals under negotiation, the outlook for leasing in the first quarter of 2024 appears promising.
Asking rents for Class A and Class B properties experienced a slight decrease to $6.21 per square foot in the fourth quarter of 2023, adds the report. The decline of one percent quarter-over-quarter and 6.8 percent year-over-year suggests an evolving real estate landscape. Del Mar Heights leads in average asking rental rates at $6.74 per square foot, with Sorrento Valley being the most affordable at $5.85 per square foot.
The positive net absorption of 361,381 square feet in the fourth quarter of 2023 was overshadowed by an increase in vacancy rates. The county-wide vacancy rate rose to 12.4 percent, a 280 basis point increase year-over-year. Furthermore, the report shows that out of the 4.5 million square feet of lab space under construction only 31 percent of it is pre-leased. The availability rate stands at 22.3 percent for the core cluster, indicating the need for leasing to keep pace with project deliveries in 2024 and 2025.
Despite the challenges faced over the last year, including the failure of Silicon Valley Bank, interest rate volatility and high inflation, JLL believes that certain transactions in San Diego such as ARE Towne Centre and 11119 N Torrey Pines Road, demonstrated the resilience of institutional liquidity for prime life sciences real estate. The 164,000 square foot ARE Towne Centre was purchased by Clarion Partners for a total of $161 million, whereas the 73,000 square foot asset at 11119 N Torrey Pines Road was sold to DivcoWest for a total of $86 million.
JLL expects the Investors to maintain a bullish outlook on San Diego’s life sciences ecosystem and anticipates increased capital unlocking in 2024 compared to the previous year.
