A flurry of property offloading and downsizing decisions among some of the San Francisco Bay Area's prominent biotech companies is adding uncertainty to an already turbulent market as the region scrambles to adjust to climbing vacancies.
Over the past few weeks, several tenants have announced plans to shrink their real estate footprints in the region, the nation's second-largest life science hub behind the greater Boston area. Those moves come at a point when the availability rate for lab and research space has been rising, and as a record number of new developments make their way through the region's construction pipeline, weighing down rent growth for what had otherwise been one of the bright spots in the Bay Area's broader commercial real estate market.
One of the latest indicators of mounting pressure in the life science sector is Sangamo Therapeutics' decision to close its headquarters in Brisbane, California, in response to mounting financial losses and amid attempts to restructure the cell and gene therapy company. Since Sangamo signed its 87,800-square-foot lease at 7000 Marina Blvd. in late 2017, its accumulated deficit has more than doubled from about $500 million to roughly $1.3 billion.
To help conserve cash, Sangamo plans to cut 40% of its workforce, or more than 160 positions — the second round of layoffs at the company so far this year — and shift its corporate hub across the bay to Richmond, California, where it leases about 60,000 square feet at the Point Richmond Tech Center at 501 Canal Blvd.
"The process of streamlining Sangamo’s pipeline has been accelerated within today’s challenging economic environment, and we have had to make difficult decisions," CEO Sandy Macrae said in a statement, adding that the company's relocation to the existing Richmond facility is expected to occur in January.
The cost-saving moves are estimated to reduce Sangamo's annual operating expenses by about 50%.
The Brisbane lease for the 87,800-square-foot space in the five-story, Morgan Stanley-owned office building runs into May 2029.
Cutting Ties
Along with Sangamo's impending headquarters closure, other biotech companies including Graphite Bio and Coherus Biosciences are dumping lab space across the Bay Area either through attempts to sublease or downsized renewal agreements. Coherus, for example, recently agreed to extend the lease for space at the Hudson Pacific Properties-owned 333 Twin Dolphin Dr. for roughly half of its original footprint.
The Redwood City, California-based biopharmaceutical company plans to shrink its headquarters space from about 48,000 square feet to roughly 27,530 square feet, Coherus confirmed to CoStar News. Its original lease agreement was set to expire at the end of September 2024, but the company now intends to hand back the excess space at the end of this year in exchange for extending the term for its downsized footprint to 2027.
After a pandemic-fueled growth spurt pushed demand for research and development space to record highs, the national biotech market has wavered over the past year as the market adjusts to reduced demand. Vacancy and space availability in Boston, the Bay Area and San Diego — three of the largest life sciences clusters in the United States — climbed through the first half of the year as tenants handed back more space than they leased.
What's more, new projects that started construction at the height of the life science boom are now nearing completion, adding additional pressure to markets contending with an abundance of available space. About 31 million square feet of purpose-built lab space is now under construction, according to data from Newmark and CoStar, the bulk of which is expected to land in Boston and the Bay Area. That pipeline doesn't include any of the lab conversion projects currently underway, which will result in several million square feet of additional research and development space once completed.
The influx of space is landing at a point when companies across corporate America are shifting their priorities away from aggressive growth and instead adopting a more prudent approach to expansion. Some, including gene-editing company Graphite Bio, are paying hefty termination fees to dispose of unused real estate, recently paying nearly $60 million to cancel a 10-year lease it signed in early 2020 for its South San Francisco headquarters.
The company had signed the deal for 85,200 square feet at Healthpeak Properties' Nexus on Grand campus at 233 East Grand Ave. in early 2022. It has since subleased about 32,000 square feet of that space to fellow biotech company Soleil Labs.