By David M. Greenwald
Davis, CA – Those who argue that DiSC 2022 will be decided by assessments on traffic are probably correct, but if previous debates and proposals are any guide, there will be an argument that demand does not justify the entitlement of now 100 acres for a high tech research park.
On the other hand, recent discussions with those in the wet lab space show that there is a shortage of such facilities in the Central Valley and that when space becomes immediately available, it fills up. The success of Inventopia also demonstrates the demand for start up level incubator space.
A week ago a Business Journal article found that “Tenant demand outpaces life-sciences construction as sector heads into another robust year.”
CBRE Group Inc. found recently that “life-sciences companies were collectively seeking nearly 23.8 million square feet of new lab space across 12 U.S. markets with a life-sciences hub in the third quarter of this year.”
“Tenant demand for life-sciences space is outpacing supply in 2021, a trend that’ll continue next year as the sector sees billions pumped into it,” the article noted. “Nationally, lab space vacancy is at 4.9%, although several markets are far below that. Boston-Cambridge, Massachusetts’ lab market, for example, has 1.1% vacancy.”
“Life-sciences labs quickly are becoming a highly sought-after property type for both tenants and investors,” said Ian Anderson, CBRE’s Americas head of office research, in a statement. “This intense demand for lab space is the natural result of a global push for new medicines begetting strong funding and hiring in the life-sciences sector.”
We learned this locally last year when Yocha Dehe Lab funded by the non-profit AgStart moved into Woodland.
Leanna Sweha, the program director of AgStart this year told the Vanguard that the wet lab space quickly filled in Woodland – it is both costly and difficult to come by.
She told the Vanguard last year, “We just talked to somebody who’s interested in the lab at AgStart and he said before he learned about the lab at AgStart, he was concluding that there’s no lab space left in the state.”
Last year when the Davis City Council approved the University Research Park’s mixed use project, Mark Friedman of Fulcrum, told the council, “there’s good demand in Davis for research tenancies… We’re 98 percent leased.”
He later added, “It’s actually interesting, at the moment I’m more concerned about the apartments than the lab and the research space.”
He noted that, the kind of tenants they have, “it’s very essential for people to come in and make sure their experiments are working. That’s not something that you can do from home.”
The Business Journal noted, “The life-sciences sector is notably different from the four primary commercial real estate sectors — office, industrial, retail and multifamily — because it’s particularly reliant on having an established ecosystem and labor pool in a market for it to be successful. Apartments, for example, are in demand in most areas of the U.S., but life-sciences investment is concentrated in only about a dozen key markets nationally.”
The top three clusters for life sciences remain Boston, San Francisco and San Diego.
The article citing Chad Phillips, global head of office and life sciences at Nuveen Real Estate, warning “there will continue to be strong tailwinds for life sciences in the coming year, with most of the 10 markets Nuveen invests in seeing sub-3% vacancy right now.”
“It has gotten more crowded,” Phillips said. “We’re certainly cognizant of the supply but the fundamentals are so strong that we see great opportunity.”
One of the biggest challenges will be “how quickly tenants need to occupy space.” He said, “That puts additional pressure on delivering space quickly. Unlike big office users, which frequently look for space years out from a planned move, life-sciences groups frequently need to find space within six to nine months of a search beginning.”
That means the space must be available immediately.
A few key points here from the perspective of Davis.
First given the proximity to the Bay Area, the access to researchers at UC Davis and high quality labor coming out of the university, Davis is positioned well to take advantage of this situation.
With costs of space, rent, and lack of space in the Bay Area, Davis is in a perfect position to take advantage of this. The article notes “markets with key ecosystem components in place — such as number of life-sciences Ph.D.s and life-sciences professionals, and access to venture capital dollars — will capture the most meaningful activity.” That could be the Davis-Sacramento region if there is available space to utilize.
But third, without the ready available space, it will not work. Davis is not poised to move in six to nine months. Even the Nugget headquarters move which was fast by Davis standards would not work for the life sciences market.
Fourth, this area is largely immune to the pandemic changes. As Mark Friedman pointed out, you aren’t going to be running experiments out of your home. The need for life sciences space, which has only grown with the push for new medicines and vaccines, is not one that will go to a remote economy.
Davis has an opportunity to take advantage of this moment, but only if the community is willing to grant the opportunity.