How screwed are life science office developers/owners?
How screwed are all the recent spec life science developments/conversions that are under construction? I’m talking about some of the big downtown San Diego projects. Tenant demand has obviously fallen off a cliff and biotech firms have been laying off people. Just curious to hear people’s thoughts.
Based on the most helpful WSO content, it's important to remember that real estate, including life science office developments, operates in cycles. While it's true that the pandemic has caused a significant disruption, it doesn't necessarily spell doom for developers and owners.
In terms of the recent spec life science developments and conversions under construction in downtown San Diego, it's a bit of a mixed bag. Yes, tenant demand has taken a hit and there have been layoffs in biotech firms. However, San Diego has a distinct vibe and is a growing life sciences market. It's also a place where people might migrate to away from SF, which could potentially boost demand in the future.
Furthermore, the flexibility of real estate is one of its strengths. Buildings don't have to be static. They can be renovated, repurposed, or even demolished. This could present a tremendous opportunity for redevelopment, especially given the current housing crisis.
So, while there might be some short-term pain, it's not necessarily a long-term disaster. It's all about riding out the storm and being ready to adapt and seize opportunities when they arise. That's the name of the game in real estate!
Sources: Downfall of RE, What US city will see the most residential appreciation over the next 15 years?, What Are Your Thoughts on Rent Control?, Help Convince me to go to San Francisco, 2020: Real Estate Bonuses
HUGE bifurcation between “massive downtown San Diego spec life science” and “massive UTC/torrey pines/ sorrento mesa spec life science”. IQHQ has struggling mightily to attract talent downtown for years, just like Kilroy has never truly leased their little Italy project, and just like Stockdale will never have any success with Horton Plaza (must’ve truly been smoking some good shit when they bought that from my team at Westfield many years ago; the parking lot was the most valuable piece of dirt there….) tech campus pivoting to life science after the life science gold rush happened? Yikes.
But, the Longfellow and ARE and other developments throughout Sorrento mesa, UTC Torrey Pines and S San Fran area? Different stories. Will be a much different ball game for those players, and by the time they deliver the product, tenant demand will have picked back up post all the M&A that will continue to happen. Smaller guys will continue to be eaten up throughout the life science field (big guys on the science side still have tons of cash to deploy), it just depends who wants to cut back space with an already established and build out research team, or who is growing teams and new ideas and needs the newest real estate to attract the talented researchers (which should far surpass who dies off since CRSP and gene edited technology will only blossom from here, and old tech will die off).
not only that….? San Diego is only similar to a Miami where HUGE leases have been signed over the last handful of years by FAANG-ish players, which has created this bubble for life science and newly built office product in central and northern San Diego, in general as all quality non life science space was taken down for developments or taken by the big tech guys.
San Diego specifically is in a wonderful position compared to most markets across the country. Downtown San Diego today? Brutal. In 10 years? Could be epic with everything going up around IQHQ and the surrounding bay. North County San Diego over the next few generations? Will be unbelievable I bet. Simply not enough real estate for the demand
Why does laboratory research need to be done in an expensive type I high rise on expensive urban infill land? 🤔
Proximity to research institutions
This - smart people go to big research universities and life science companies want to hire smart people. So they locate right next to said universities, which in almost all cases is expensive, urban land. The amount of building in Cambridge, for example, is astounding.
Why does any white color work need to happen in expensive type I high rises in urban infill locations? The short answer is because people want to be there. Proximity to other businesses, to food, transit, other people, bars, etc. You're asking a very fundamental question to why people want to live/work in dense, urban cities, which has been a valid question for the last several thousand years, and of which there are a lot of reasons which you can find on the Wikipedia article for "urbanization".
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