Bay Area Life Sciences Leaders Trying To Keep Up As Challenges Grow

Bay Area life sciences companies, like the industry at large, are coping with a rapidly changing market and often have to pivot themselves to keep up. These changes add to the woes of a life sciences property sector struggling with weak leasing fundamentals and challenging macroeconomic conditions. 

Landlords, tenants, developers and brokers are trying to keep pace with these structural shifts, largely spurred by technology innovations like artificial intelligence and robotics. 

At the same time, landlords have been left to deal with phenomena out of their control, including hybrid work, soaring energy costs and the region’s unaffordability, putting the industry’s push to develop advanced amenities on the back burner. 

Right now, owners are keenly focused on the priorities of their existing tenants.  

“The general tenor of tenants has been capital conservation and cost management,” Trammell Crow Co. Senior Vice President Ryan Payne said at Bisnow’s Future of Peninsula Life Sciences and Innovative Development Summit Wednesday. “The hurdle of getting someone to actually move to a new facility and take on a project is a much bigger deal.” 

Owners are also being flexible with lease terms and tenant improvement allowances, Payne said at the Greater Stanford Innovation Cluster in Menlo Park.

With depressed occupancy rates pervasive across the Bay Area, owners have remained competitive. 

According to CBRE, the second-quarter San Francisco Peninsula vacancy rate was 29.3%, a 7.1% increase from Q1. Net absorption for Bay Area life sciences was negative in Q2, with tenants vacating 381K SF more than they leased, CBRE reported.

“It's obviously competitive on the ownership side because of the amount of options tenants have,” Payne said. 

In addition to getting the mix of amenities right to lure scientists back to the lab, owners have increasingly seen their energy bills soar. 

Panelists said rising energy costs and the growing tenant demand for sustainable energy are impacting owner revenue and site selection decisions for tenants. 

“Genentech has these graphs [showing] that we have driven down our electrical, water and gas usage over the years, yet our rates keep going up. So we're using less and less all the time and paying more for it,” Genentech Head of Real Estate and Workplace Effectiveness Sara Andersen said.

“That's $14M more we have to spend next year that we didn't have,” she added.

And despite the historically high salaries biotech employees earn, high-cost housing and poor public transportation options dissuade some scientists from moving to the Bay Area after graduation, an issue panelists said needs to be addressed. 

Wareham Development partner Geoffrey Sears called on the speakers, attendees and the rest of the commercial real estate community to do their part in policy decisions related to Bay Area housing, transportation and development.

“We need our government — and we all picked these governments — to help deliver the quality of life, which is education, transportation, housing,” Sears said. “And those are all big challenges here. Because there are more choices [in other markets], and the choices are clearer to people after Covid.”

But panelists also called on the tenants that lease space at their projects to remind scientists who create drugs for human consumption why they initially came to work in the Bay Area: to save lives and improve humanity.

It’s a simple concept that starts at the corporate leadership level.  

“Companies that have good missions are good employers,” Sears said. 

Andersen agreed, saying life sciences companies can reinforce their corporate mission to lure more employees. 

“They want to come to work because they're changing the world. It's what life science is doing, trying to find a cure for Alzheimer's, trying to find a cure for Parkinson’s,” Andersen said. “We all know people with these diseases. Employers of those life sciences companies should get really pumped up about that.”