Los Angeles and nearby Orange County are standing in contrast to other regions when it comes to the life science industry, leasing demand shows, as low supply and a growing need contribute to notable rent gains in the first half of the year.
Life science rents grew 6% in the market that includes Los Angeles and Orange counties, according brokerage JLL’s Life Sciences Real Estate Perspective and Cluster Analysis report. During the same six months, national rents have fallen 9%, led by losses for the three largest U.S. biotech clusters: San Francisco, Boston and San Diego.
“Other markets have had their challenges. We’re the exact opposite because we have a significant supply imbalance,” said Patrick Church, managing director of JLL and lead of the company’s Los Angeles life science practice group. “We're trying to educate, to bring the developers into the city to get some of this stuff built, which is what we need.”
Across the country, life science landlords are facing slowing demand caused by reduced levels of venture funding and a pullback from pharmaceutical firms in the wake of pandemic-fueled growth. Research funding has also been shifting away from coronavirus vaccines and treatments that fueled a surge in real estate demand in the first two years of the COVID-19 pandemic.
High supply and low demand have contributed to life science availability rates topping 30% in Boston and San Francisco and 26% in San Diego, according to JLL. In comparison, the greater LA region, including Orange County, has just a 3% availability rate, representing some 306,000 square feet of space.
To be clear, LA's life science property sector has not been immune from the national headwinds of high interest rates and reduced funding, with tenants giving back 158,000 square feet more than they leased during the period, according to JLL. Still, tenants have leased 300,000 square feet of life science space in the region over the past six months.
LA standout
The LA and Orange County market has 12 million square feet of life science inventory, with no new construction underway. Meanwhile, Boston has 49.5 million square feet of inventory, representing six times more supply than demand, according to JLL.
Tenant interest is high in Los Angeles, however, with more than 1 million square feet of active demand from life science firms. Smaller firms seeking space in the 5,000- to 15,000-square-foot range are particularly active, JLL's Church said.
In one of the larger examples of life science projects in the pipeline, UCLA is converting the former Westside Pavilion mall into a 700,000-square-foot research hub designed to house the California Institute for Immunology and Immunotherapy when it opens in May 2027.
Among biotech property landlords, tenant retention is top of mind as vacancies continue to increase well above historical standards, reaching 24% in San Francisco, 27% in Boston and 17% in San Diego, according to a life science report from brokerage Cushman & Wakefield.
Alexandria Real Estate Equities, one of the largest biotech property owners, is ramping up sales of older single-tenant properties to invest more into large, self-contained multitenant campuses with added on-site services — a property type that accounts for about 70% of the company's annual rental revenue — to lure in loyal tenants, CoStar News reported.
“Softer demand and an increase in vacant sublease space has translated to lower asking rents in some markets. However, the strong appetite for highly amenitized, newly constructed Class A space is expected to push asking rents higher as a significant amount of new space delivers in the sector through 2025,” Sandy Romero, Cushman & Wakefield's global research manager, said in the report.
Among the major life science clusters, Boston led rent declines in the first half of the year with an 8.2% drop, followed by a 4.7% decline in San Diego and a 1.9% dip in San Francisco, according to JLL.
The potential future interest rate declines, coupled with growing venture funding, is providing a bright spot for the industry heading into 2025, JLL says. Last year marked an all-time high for FDA approvals, and biotechnology patent innovation was up 22% compared to a decade prior.