Tight Property Inventory Signals LA’s Rise as Life Sciences Hub

As Xencor Inc., a biopharmaceutical company developing treatments for cancer and autoimmune diseases, began to grow from its Monrovia headquarters, President and CEO Bassil Dahiyat said it was “difficult” to find a larger room nearby.

“LA is a growing market, but it’s not one with a lot of inventory,” he said.

The life science industry in Los Angeles is booming thanks to a boost in funding for companies in the sector along with the opening of new incubators and the presence of pedigrees and colleges.

“Even before Covid, we already saw the life sciences industry grow, and the demand from that kind of business is rising, but it’s jumped exponentially since Covid,” Shaun Stiles, head of the Los Angeles life sciences practice group for Cushman & Wakefield Inc., said.

According to Cushman & Wakefield, this demand has led to a tight leasing market with an unemployment rate of only 1.5%.

“It’s virtually impossible to find existing lab rooms,” Stiles said. “It rarely comes out, and if it does, it rents very quickly.”

Historically, Los Angeles has not had a reputation as a center of life sciences, a designation that has gone to cities like San Diego and Boston. But if real estate is an indication, that may change.

“We’re seeing a big push and really expect the life sciences part of things to pick up dramatically,” said Patrick Church, CEO of Jones Lang LaSalle Inc. “We think LA is going to put itself on the map. . We have an abundance of talent that other markets are running out of. ”

Incubating talent

In 2020, a record $ 70 billion was recorded in life science companies in North America, a 93% increase from the previous record of $ 36 billion set in 2018, according to Cushman & Wakefield. The brokerage firm expects to see another $ 90 billion spent this year.

LA County life sciences companies raised $ 1.7 billion in funding last year, the largest of all counties in California, which Stiles said has only increased demand.

The region is now also home to a handful of life science incubators, including independent facilities and facilities associated with UCLA, Cal State Los Angeles and Cal Poly Pomona.

These universities create jobs and push out new talent.

“Los Angeles is a very active and robust life science community, mainly due to the existence of UCLA, USC and Caltech. And then you have a number of other institutions when you combine Cedars-Sinai and other hospitals and institutions, ”said Jeff Pion, Vice President of CBRE Group Inc.

From 2016 to 2020, leading schools have received billions of dollars in grants, contracts and other awards from the National Institutes of Health. During this period, $ 2.5 billion went to UCLA and $ 1.4 billion to USC.

All this money has led to more jobs in the area. Over the past 20 years, the number of life sciences jobs has ballooned by 77% in LA County, according to Cushman & Wakefield.

Building demand

In LA, there are a few specific areas where life sciences companies cluster together: Pasadena, Westside and El Segundo, and the San Fernando Valley.

Church said the Pasadena is flourishing as a hub largely because of Caltech. There is also a large incubator called Lab Launch in Monrovia with an upcoming location planned for Atwater Village, and companies like Xencor moving to Pasadena.

The Valley, meanwhile, is benefiting from the presence of Amgen Inc., which calls Thousand Oaks nearby. As a result, companies in the areas around it, like Westlake Village, have also seen demand from other life sciences companies.

And Westside and El Segundo are popular because of UCLA and Silicon Beach’s tech startups.

In addition to traditional office space, life sciences companies need space that can house laboratories, research, development and production.

Kevin Shannon, co-head of capital markets at Newmark Group Inc., said he sees property owners and tenants tackling conversions of existing properties because the land for land development is not always available.

Xencor ended up signing a 148,000-square-foot lease in a building that was converted into a life science property in Pasadena. Its landlord, LPC West, the west coast of Lincoln Property Co., purchased the site at 465 N. Halstead St. earlier in the year for $ 72.5 million.

“We are seeing the life sciences industry grow very fast,” said Rob Kane, Executive Vice President of LPC West, when the conversion was announced. “We believe this is a fast-growing industry and we are seeing a marked increase in demand in Los Angeles for life sciences.”

But conversions can be complicated due to cost and zone constraints.

Katie Bernhisel, director of Raise Commercial Real Estate, places the cost at $ 180 to $ 200 a square foot, if not more – and that doesn’t include the cost of building a lab.

Despite the high price tags, landlords are interested in taking on conversions because the rent is earned on these properties.

“We will see rental rates that will justify the prior expenses,” Bernhisel said.

Derreck Barker, senior director of real estate acquisition at Nuveen, agreed, adding that there is a “greater return on your investment” for life science spaces.

Nuveen, he said, is interested in building more life science spaces, even without a tenant in mind.

“You’re starting to see some speculative opportunities,” Barker said. “People are buying land for the purpose of starting development. What we have found in life sciences is that even if you intend to start on a speculative basis, the reality that a tenant is in place before heavy construction has started is very likely. ”

Newmark’s Shannon – who called life sciences one of the property’s most coveted “food groups” during the pandemic – is convinced of LA’s future as a destination for these businesses.

“The trend line is clear: It’s going to grow,” he said. “We have a long way to go to catch up with the major hubs, but you see more discussion of special life science developments to meet that demand.”

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