Life Science Glut Hits Biotech’s “Birthplace” in South SF

South San Francisco, which touts itself as “the Birthplace of Biotechnology,” now has millions of square feet of approved offices and labs on hold.

A cooling life science market has put 9 million square feet of entitled life sciences offices and labs on hold as developers wait out the bust, the San Francisco Business Times reported.

In the quarter ending in June, the Bay Area’s once-booming 41.5 million-square-foot life sciences market was 24.6 percent vacant, according to CBRE.

Some 1.5 million square feet of offices and research labs are expected to open over the next six to 12 months, including Kilroy Realty’s 865,000-square-foot second phase at its 50-acre Kilroy Oyster Point and IQHQ’s 330,000-square-foot Spur project.

Each developer, however, has yet to announce pending leases.

“It’s a slowdown because everyone is waiting to see if the recently completed products get leased up,” Nell Selander, director of South San Francisco’s Economic and Community Development Department, told the Business Times.

Builders and brokers say there may be signs of new life after a three-year life sciences slump that led companies to cut thousands of jobs, shed real estate and crimp their drug development pipelines.

Biopharma venture capital investment hit nearly $15 billion in the first half of this year, compared to $22 billion for all of last year.

Demand for offices and labs on the Peninsula has increased over the past two to three quarters.

And rents, which hit around $80 per square foot a few years ago but then sharply declined, saw a slight recovery last quarter to $72 per square foot, according to CBRE.

“What’s interesting is, in 2013, everything was down — insider rounds, not a lot of new financing — but now the amount of dollars invested is up 35 percent, versus the second half of last year,” Jon Norris, managing director of innovation banking at HSBC, told the Business Times. “Early-stage companies (being formed) are already doubling at mid-year from all of last year.”

Norris added that there are more dollars being invested because the deal sizes are bigger.

“While that sounds intriguing, there are fewer companies looking for space and maybe looking for bigger space,” Norris said. “I’m not sure that spells a turnaround on the real estate side.”

— Dana Bartholomew