BioMed Realty's Caution May Position It For A Turnaround
When planners in San Diego approved a 1M SF life sciences project in the hilltops above the University City district in May 2023, it appeared to be full speed ahead for BioMed Realty, the Blackstone company focused on lab real estate.
But the Towne Centre View site sits undeveloped, with its opening date pushed back to 2025, according to the company’s website. It’s a stark example of the current freeze on life sciences developments due to surging supply and dwindling demand. There are 21M SF under development, and a 16.7% vacancy rate for lab real estate nationally, per CBRE.
But it’s also an example of how life sciences developers who stopped speculative development projects have placed themselves in a position to take advantage of a market upswing, according to Shane Poppen, vice chairman and market leader for Savills’ San Diego office.
In addition, BioMed has been chosen as the buyer for Pfizer’s six-building, 600K SF Torrey Pines site, with a formal announcement pending since the deal hasn’t formally closed. The Big Pharma firm moved and downsized to a 240K SF property known as Torrey View, operated by Breakthrough Properties.
“BioMed Realty, in my opinion, is more risk-averse than other landlords,” Poppen said. “I can’t speak to their exact capital structure, but obviously Blackstone is the parent, and they’re not generally ones to go spec.”
By not devoting capital to a large project without an anchor tenant, like IQHQ’s large and still unfilled Research and Development District project, BioMed has placed itself in an advantageous position.
Poppen said the Towne Centre View site has been under consideration by Novartis, which is in the market for a large headquarters. He believes the site works well as the kind of purpose-built, state-of-the-art building Big Pharma wants.
"Large pharma and biotech are still growing, and we've seen some large space requirements from that area," BioMed West Coast President Jon Bergschneider told CoStar.
The potential Pfizer pickup allows BioMed to refurbish and put this site back on the market after a sale-leaseback period. If BioMed had sunk money into a spec project at Towne Centre it may have been unable to move on this site.
Now it can develop an HQ-sized project, after substantial repositioning and investing in new building systems, and still have a significant plot of developable land to hold or sell depending on market dynamics.
It’s all about timing, Poppen said. A sudden turnaround in the lab market would give the advantage to the IQHQs of the world, which would have Class-A space ready. But a gradual acceleration of demand might help BioMed, which will have two megacampus options in play.
A precise timeline for Towne Centre View remains unclear.
“The City Council’s unanimous approval of Towne Centre View last year was an important milestone for the project, and we are already in discussions with prospective tenants who are interested in our best-in-class lab and office campus,” a BioMed spokesperson said.
BioMed does have a significant amount of space on the market in other major cities and projects in various stages of development. As of summer 2023, BioMed had 3.3M SF under some stage of construction.
In Boulder, Colorado, the firm’s 1M SF Flatiron business park, viewed as a big bet on the area's nascent life sciences market, has been leasing very slowly.
In the Bay Area, the 36-acre, 2.2M SF Gateway of the Pacific will finish its last phase soon and is expected to be ready for occupancy in the third quarter of 2025, per a spokesperson. BioMed is “in active discussions with multiple prospective tenants,” the spokesperson said.
“They have some bigger holes, but they're pretty well-leased,” Poppen said of BioMed's portfolio.
The REIT has also given itself more breathing room as it waits for leasing to ramp up. BioMed signed an extension on a $2.9B loan originated by Deutsche Bank, pushing it back until May 2027.
