A Silicon Valley biotech company is shelling out $5 million to sever the lease agreement it has for its headquarters in San Carlos, California, a move aimed at shoring up expenses and preserving its long-term financial viability in a sign of reduced demand in the region.
Atreca, an antibody-drug developer facing an increasingly dire cash shortage, terminated the deal for its nearly 100,000-square-foot corporate hub with landlord Alexandria Real Estate Equities, according to information filed with the Securities and Exchange Commission. Despite the one-time fee, the early exit is estimated to save the company about $13 million in annual rent expenses.
“The agreement to terminate our lease agreement dramatically reduces our ongoing operating expenses and helps to extend our cash runway through the first quarter of 2024,” Atreca CEO John Orwin said in a statement to CoStar News. Orwin added that the lease was a "significant obligation" and without it, the company is better positioned to redirect the capital to more lucrative investments.
The scrapped deal spotlights how momentum across the Bay Area has slowed after a period of unprecedented leasing, development and acquisition activity in the early years of the pandemic. Rising interest rates, declining company valuations and widespread layoffs have weighed down the industry's expansion, and tenants have largely shelved negotiations for new lab space as they look to wait out any economic uncertainty.
That tempered demand has meant vacancy rates for research and development space are expected to continue to climb through the rest of the year as a record amount of new construction makes its way through the regional pipeline.
The vacancy rate for biotech space jumped to about 9.5% by the end of the second quarter this year, according to a recent Newmark report and CoStar data, up from the 7.5% reported for the previous three-month period. Demand for new lab space has fallen, dropping to 3.3 million square feet from 5.3 million square feet leased between the second and first quarters.
Atreca signed the deal for the 99,557-square-foot space at the Alexandria Center for Life Science campus in 2019, where it moved in the following year. Atreca is now preparing to move out by the end of November, 10 years before the original agreement's 2033 expiration. Besides offloading its San Carlos headquarters, Atreca laid off 40% of its workforce in August and stopped work on one of its most promising drug candidates as it faces a worsening funding shortage.
While Atreca's early departure will leave a sizable hole at the 835 Industrial Road property, which totals nearly 244,000 square feet, Alexandria already has a prospective taker willing to fill it.
“We are in negotiations to re-lease the entire space,” Alexandria CEO and founder Joel Marcus said in a statement to CoStar News, declining to disclose specifics about the pending agreement.