A $1.5 billion biotech campus nearing completion in downtown San Diego has lured a couple of high-profile companies to its tenant roster — but they don't have anything to do with offices or labs.
Instead, in a sign of the times for national real estate demand, developer IQHQ landed a Rivian electric vehicle showroom and an Equinox gym as retail tenants at the Research and Development District, known more commonly as RaDD, ahead of any signed deals with life science tenants.
The project, spanning about 1.7 million square feet about a block from the downtown San Diego waterfront, is facing office leasing challenges at a time when nearly all types of users are pulling back, and in a downtown location that was a tough sell for the biotech industry long before the pandemic.
To date, IQHQ said 50% of RaDD’s approximately 200,000 square feet of retail space has been leased. But it has yet to announce office tenants of any kind — life science or non-biotech companies — after more than three years of planning and construction.
“We continue to execute our strategy and are in discussions with life science, office and retail tenants who are attracted to RaDD’s exceptional quality, prime location and unmatched offering as a center of innovation,” Tracy Murphy, co-CEO at IQHQ, said in an email to CoStar News. “We believe the long-term fundamentals of the life science sector will continue to necessitate discovery and growth.”
Life science tenants remain hard to come by in a national climate of slowing demand, as venture capital and development resources have shifted away from coronavirus-related treatments and vaccines after the pandemic waned.
A September report from brokerage Cushman & Wakefield, tracking 17 global biotech regions, showed life science rent growth and construction slowing in the second quarter amid reduced space requirements and rising vacancies. San Diego’s biotech vacancy ranks in the middle among biotech hubs, but is high by local standards at 13.4%, with another 3% of local space available for subleasing.
Downtown offices struggle
Retailers, meanwhile, are in growth mode across the country. Tenants signed leases across the U.S. for slightly more than 52 million square feet during the second quarter, the most retail space leased in a three-month span since the first quarter of 2022, according to a CoStar report.
Retail has been an easy sell in downtown San Diego, one of the city’s highest-traffic neighborhoods, home to several tourist-friendly waterfront attractions including the Embarcadero, the U.S.S. Midway Museum and Seaport Village retail center, according to Joshua Ohl, senior director of market analytics for CoStar Group in San Diego.
“But the uptake for office and lab tenants has still not surfaced,” Ohl said. “It has been difficult to attract life science tenants to a new biotech node downtown during a period of leaner demand.”
Ohl noted biotech companies for the most part remain tethered to a northwestern area of the city, near the University of California San Diego, where the industry has flourished for several decades. Tenants are focused primarily in areas that include the Torrey Pines area of coastal La Jolla west of the campus, and University Town Center to the east of UCSD.
Sorrento Mesa, to the north of UCSD, has also gained biotech tenants during the past decade as other hubs have filled up, with several developers looking to convert traditional older offices to accommodate life science with mixed results. The downtown San Diego climate has recently been much tougher for office landlords, including those with older general-office properties and others trying to establish a new biotech hub.
“That has been challenging due to the amount of new lab space that has opened and will soon open in the UC San Diego area, where life science tenants have shown a clear preference,” Ohl said. “Downtown’s office environment is still navigating a difficult environment as vacancy has climbed above 30% in 2024, with more supply pressure on the way.”
Other downtown developers have encountered issues similar to IQHQ’s as they seek to enlist general and biotech office and lab tenants. Stockdale Capital Partners, which is redeveloping downtown’s former Horton Plaza retail mall into a mixed-use campus with office and residential elements, has yet to announce office tenants after nearly five years of planning and construction.
For now, IQHQ is benefiting on the retail side from the continued growth of experiential tenants such as fitness chains, as several electric vehicle makers continue to expand their showroom presence at retail centers, though some EV makers have recently been cutting back amid financial struggles.
Serving the neighborhood
Based in San Diego, IQHQ has been among the nation’s most active biotech developers during the past five years. It has projects in planning or construction in several U.S. biotech hubs including the three largest — Boston, San Francisco and San Diego.
An IQHQ statement said the new retail tenants will serve the broader community beyond future office tenants at RaDD. Brooke Riedman, the company’s director of leasing, said IQHQ finalized agreements with retail tenants including Equinox, a luxury-brand fitness chain; and Rivian, which makes electric trucks and SUVs. Those came after prior lease-ups to Javier’s, an upscale, full-service Mexican restaurant; and The Shade Store, which makes and sells premium custom window treatment items.
The gym chain, part of New York-based developer Related Cos., operates more than 100 fitness centers nationwide and is planning a fully equipped fitness studio, full-service spa and retail shop at the RaDD location, Equinox Chief Development Officer Jeff Weinhaus said in the IQHQ statement.
Rivian, based in Irvine, California, is looking to grow its physical spaces by finding “buildings that allow us to join the fabric of a neighborhood,” said Sara Webster Wylie, Rivian’s director of spaces marketing, in the same statement.
Retail openings are expected by year’s end and lease terms were not disclosed. The ground-floor retail tenants will join Eve, a special-event venue opened earlier this year in a top-floor space by IQHQ in partnership with Major League Baseball’s San Diego Padres, offering views of San Diego Bay.
RaDD spans six blocks that formerly housed a U.S. Navy campus for several decades before the Navy and its developers built a new high-rise office tower on a nearby parcel.