Biotech Growth Fuels Demand For Office & Lab Space

2Q ’07 East Bay Office Report – Click here for full version

The Bay Area currently is home to about 20 million square feet of lab space. The vacancy rate for life science lab space is below 10% leaving very little room for future growth. New construction is scarcely keeping up with the current demand. It is predicted that in the next 12 months, 30 start-up biotechnology companies will spawn from Northern California alone.

Wareham Development’s recent completion of its new state-of-the-art lab facility immediately addresses part of the demand. Wareham, a local developer of office and lab space and the largest life sciences landlord in the East Bay, has timed the delivery of EmeryStation East very well. Wareham has signed term sheets for 74% of the 245,000 square foot building which was completed in June on spec.

UC Berkeley along with Keasling Labs, a research lab associated with the university and focused on clean energy, was recently awarded 2 research grants totaling $625 million. The grants, from the US Department of Energy and BP, have spawned several leasing requirements from UC Berkeley and other related clean energy companies. With these well-funded organizations vying for the premium new space, there has been a steady flow of smaller tenants beingforced to surrounding areas.

Given the asking rents for Emeryville lab space ($3.50NNN) and supply constraints, tenant demand in surrounding submarkets has been on the rise. In submarkets such as Alameda, Hayward, Fremont and Richmond typical asking rents are closer to $2.00NNN. The trade-off for tenants in these suburban markets are less public transit alternatives and amenities. Second and third generation space has become the only economic alternative for smaller companies and those companies in the early stage of development.