Biotech startup is working on lease deal in Mission Bay
A new lease deal that's in the works in Mission Bay comes at a time when the hotbed for biotech companies has vacancy rates climbing to levels unseen since the pandemic hit.
Multiple sources, who requested anonymity because the deal is not yet completed, have confirmed that Siren Biotechnology, a startup that merges immunotherapy and gene therapy, is nearing a deal to lease space at 1800 Owens St., the former headquarters of tech company Dropbox, which was once known as the Exchange. The 750,000square-foot complex switched hands in a $1 billion sale in 2021 and now goes by the name “Icona” after its new owners converted the property from office to lab space.
Longfellow Real Estate Partners, which partnered with global investment firm KKR on the building's acquisition and now operates it, declined to comment on a potential lease deal with Siren Biotechnology. A spokesperson for Siren said Monday that a new lease has not been signed and that it “can't disclose discussions at this time.”
The pending deal, which, according to sources, is for about 30,000 square feet at 1800 Owens, is the second notable lease signed at the property in the wake of the pandemic. At the end of 2020, Vir Biotechnology took 133,896 square feet listed for sublease by Dropbox.
But it comes as a tide of rising vacancy for lab spaces is sweeping over Mission Bay, a 303-acre neighborhood nestled between SoMa, Interstate 280 and the bay. Not long ago, in 2021, the nationally renowned biotech hub that houses companies like FibroGen and Nektar Therapeutics, boasted a less than 1% vacancy rate.
The amount of sublease space listed by Mission Bay's life sciences tenants has gradually been increasing since then, and so has the area's vacancy. According to real estate firm JLL, lab vacancy in Mission Bay reached 14.6% in the second quarter of this year.
And when counting lab space that is still under development, the area's total vacancy for lab space increases to 33%, said JLL's Alexander Quinn, who is the director of research for Northern California. Quinn said that the firm is tracking about 512,000 square feet of new lab space that is expected to come online by the end of the year and drive up vacancy unless it is leased.
This includes a commercial building under development by the San Francisco Giants and Tishman Speyer at Mission Rock that was originally envisioned as office space, but, in a pandemic-related pivot, is now being geared toward life sciences tenants.
The life sciences industry and demand for associated real estate ran hot up to and through the pandemic, boosted by an unprecedented need for test kits, medical devices and vaccines. Mission Bay landlords responded with new development or by converting traditional office spaces that were vacated during the pandemic into labs.
But in the first leg of 2023, demand has slowed as a result of rising interest rates and a sharp pullback in venture capital funding. Investors have become more cautious about the biotech companies that they back, and in the first quarter of 2023, venture capital investment in life sciences was on par with 2019 levels, according to a report published by CBRE in April.
Quinn said that Mission Bay's lab inventory — including new space that is still being developed or converted — totals about 2.8 million square feet.
The rising vacancy represents a “significant shift over a short period of time” and is “a function of new inventory coming online,” said Quinn.
According to an analysis by real estate information firm CoStar, Mission Bay's lab vacancy rate is even higher — currently recorded at 44.7%.
Nigel Hughes, a senior director of market analytics with CoStar, said that the vacancy tracked by the firm in Mission Bay includes the under-construction Mission Rock building and 550 Terry Francois Blvd., the 314,800-squarefoot former Old Navy headquarters that DivcoWest purchased from Gap last year and has since been marketing to life science companies.
Earlier this year, DivcoWest was negotiating a potential deal for 80,000 square feet at 550 Terry Francois with SmartLabs, which provides turnkey, flexible research and development space and operations support for companies of varying sizes. But a source with direct knowledge of SmartLabs' space needs confirmed last week that its search for space in Mission Bay has been placed on hold.
Another building, 1450 Owens St., is set to be completed by the end of the year, “pushing vacancy and availability up by around 2%, if not leased by then,” said Hughes.
He noted that there is “a little subjectivity involved” in deciding which properties should be included as life sciences buildings for the purposes of CoStar's data tracking. For example, Uber's Mission Bay corporate headquarters is owned by Alexandria Real Estate Equities, a life science-focused real estate investment trust, and therefore included in the data, even though it is office space.
Hughes described the recent growing trend in Mission Bay of companies pulling out of their spaces — FibroGen and Nektar Therapeutics both listed hundreds of square feet at two Mission Bay buildings for sublease — coupled with the addition of new inventory as a “double whammy.”
“Yes, we have an influx of vacancies — there's a turn taking place in Mission Bay,” said Mike Moran, a broker with real estate firm CBRE. “But there are also great companies looking to plant their flag and grow in Mission Bay, both on the technology and life sciences sides of the equation.”
Moran specifically cited OpenAI, a major driver of San Francisco's burgeoning artificial intelligence boom, that is on the hunt for more space in San Francisco and is, according to sources, involved in talks for a large chunk of space that is part of Uber's Mission Bay headquarters.
OpenAI is said to have an initial requirement for roughly 200,000 square feet, but is looking to grow its real estate footprint to around 500,000 square feet.
Moran said that while rapidly growing vacancy in Mission Bay is concerning, it is but a microcosm of the larger real estate market in the city.
“The whole market is going to be lumpy for the next two years — this is an inordinate amount of space coming up at the front end of the cycle. But there's not a whole lot of new product going to be built after that, and tenants are going to be looking for new construction. They don't want to go back to their grandpa's office building,” said Moran. “And so it's going to be about new construction moving forward. We are going to have a void for a couple of years for new construction that will create an interesting market in 2027.”