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Turning the Corner

Hughes Marino New YorkHas the San Diego commercial real estate market turned the corner? Not so fast. Only certain areas in San Diego, namely biotech space and Class A office buildings, are hot to trot. Rental rates are slowly climbing and vacancies are dropping for these building types as we just rounded up the first quarter of 2011.

The boost felt by the 2nd half of 2011 continued during the first three months of 2012. The general feel among the local life sciences community is optimistic with VC investments increasing, big-pharma continuing to look at partnering or buying-out local companies. Many industry experts are feeling more confident that 2012 will see continued growth.

San Diego is becoming a research hub for many large companies who see the area rich with talent. Examples of this include: Celgene, Novartis (Genoptix), Synthetic Genomics, Illumina, Takeda all having a local presence.

Local institutions and landlords are building for the future as a number of life science and research buildings are under construction or have plans to be developed in the near future. A couple noteworthy projects include: UCSD’s plans to build a 110,000 SF research center, of which half of the building would be open to private life sciences startups. Illumina is building a new 124,000 SF lab and office building. J. Craig Venter Institute is completing a 45,000 SF facility near UCSD and plans to open the doors this fall/winter.

The major landlords (Alexandria, Biomed and HCP) are also building for the future with over 700,000 SF of space under construction and another 800,000 SF of planned remodel and new construction. Occupancy is most important for these three companies and they are willing to provide some significant concessions to land a tenant.

Rental rates have begun to rise, being pulled up by the swell of leasing activity among Class A buildings. More than75% of the recent deals completed saw companies elect to move into Class A space.

Landlords are continuing to fund a majority, if not all, of the tenant improvements.

There are still opportunities to find attractive low-rent deals as owners of buildings that have sat on the market for the past few years are more aggressively trying to lease the space. This trend is occurring most within Class B space and in the Sorrento Mesa and Sorrento Valley submarkets in particular.

Scot Ginsburg is a senior vice president of Hughes Marino, an award-winning commercial real estate company specializing in tenant representation and building purchases with offices across the nation. Contact Scot at 1-844-662-6635 or scot.ginsburg@hughesmarino.com to learn more.

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