SPECIALTY: Cooling life science market projected to improve, according to observers at Cushman & Wakefield an

The once white-hot market for life science real estate in San Diego is not quite so hot anymore, but the cooling off represents more of a return to normal that a worrisome downturn, according to real estate brokers.

“There are still projects looking to break ground here in 2023, that's still occurring, but it's not as robust as it was last year,” said Grant Schoneman, executive managing director of JLL.

“Even though demand is pulling back, the foundation that we have is stronger than we had in 2019,” Schoneman said.

JLL, in its first quarter 2023 report, noted a 55% drop in venture funding from the same period in 2022, and the countywide vacancy rate rising to 5.7% compared to 1.4% in the first quarter of 2022.

JLL cautioned that “the forecast for 2023 will be a continued re-setting of expectations” with “a difficult fundraising environment” for life science companies to linger.

Still, San Diego's life science market is faring better than some of the other life science centers, such as Boston and San Francisco, said Michael Cassolato, executive director of Cushman & Wakefield.

“Before, it was almost euphoric, where tenants were grabbing much more space than they needed. Now, tenants are being a lot more conservative,” Cassolato said. “The market has steadied out for both landlords and tenants. There's still demand in the market, there's some green shoots of biotech companies that want to expand.”

Organic Growth

As demand for space softened toward the end of 2022 and for the first quarter of 2023, so, too, did rental rates for life science space – still rising, but at a slower pace, held down, in part, by sublease space coming onto the market as companies adjust their requirements, according to Cushman & Wakefield.

Countywide, asking rents increased by 2.5% quarter over quarter, and 7.6% year over year, Cushman & Wakefield reported.

“From a rent growth standpoint, we were at a pretty incredible clip for a couple of years coming out of COVID,” Cassolato said. “I think we can expect to see the rents to stay steady for the rest of the year.”

Cassolato said that he expects rents to start rising again in mid-2024, adding that the rapid growth that characterized San Diego's life science market in 2021 and much of 2022 “was our big maturing period as we caught up to the Bay Area and Boston.”

‘A Lot of Optimism'

“Generally, in the local market, there's still a lot of optimism in the biotech community,” Cassolato said. “A lot of people believe there's a lot of organic growth to be had in San Diego.”

Equally optimistic, Schoneman said, “The long-term longevity of the life science market is here to stay.”

Although demand for life science space has been anemic for 2023 so far, “I see things changing in 2024,” Schoneman added. ■