San Francisco Peninsula Life Science Market Faces Increased Vacancy Rates in Q2 2024
Vacancy Rates on the Rise
The San Francisco Peninsula, the largest submarket in the Bay Area, saw a significant decline in occupancy during the second quarter of 2024. According to data from CBRE, the vacancy rate in this area reached 29.3%, marking a notable increase of 710 basis points from the previous quarter. This submarket has an inventory nearing 21 million square feet dedicated to life sciences.
San Francisco Submarket Insights
In contrast, the San Francisco submarket, which includes approximately 1.4 million square feet of life science space, recorded an alarming vacancy rate of over 56% this quarter. Despite this being the highest vacancy level in the Bay Area, the submarket maintained the highest average direct lease rate at $7.77 per square foot on a triple net (NNN) basis.
Property Transfers and Foreclosures
Swift Real Estate Partners, based in San Francisco, encountered financial difficulties leading to the transfer of their property at 101 Utah Street. Initially acquired for $21 million in 2018, the 70,000 square foot industrial building was set to be converted into Class A lab space, with a $47.6 million floating-rate loan secured for the project in 2022.
However, the firm has returned the property to BMO Bank in what has been described as a “friendly foreclosure,” as reported by the San Francisco Business Times. Swift’s obligation on the loan amounted to $31 million, yet they were never served a default notice.
Project Deliveries in the Bay Area
During the same period, the Bay Area has seen a total of 10 life science project deliveries, incorporating both new constructions and conversions, which collectively added nearly 2 million square feet to the market’s inventory. The most significant ground-up delivery was the 600,000 square foot first phase of the Kilroy Oyster Point life science hub, located in South San Francisco, which was delivered without any pre-leases. Additionally, Alexandria’s 352,000 square foot 651 Gateway project, also in South San Francisco, was delivered with 19% of its space pre-leased.
