While California’s life-science markets in the San Francisco Bay Area and San Diego grapple with an oversupply of lab space, Los Angeles stands out with its unique dynamics. According to CBRE’s second-quarter life-science report, L.A. is experiencing lower vacancy rates compared to other major metros.
Low Vacancy, Low Rents
Andrew Riley, an executive vice president with CBRE, highlights that L.A. isn’t overbuilt with lab space. However, the sector faces a lack of demand for the available supply, driven by economic conditions and companies focusing on cash conservation. This mismatch has kept life-science rents in L.A. relatively low, even in top submarkets. Compared to cities like San Francisco, San Diego, Seattle, Boston-Cambridge, New York City, and Denver-Boulder, Los Angeles boasts the lowest asking rent at $53.52 per square foot and the lowest vacancy rate at 9.6%.
Venture Capital Trends
Venture capital funding for L.A. life science fell from nearly $800 million in Q2 2023 to around $600 million last quarter. This decline has led to conservative real estate expansion plans among early-stage venture-backed companies, contributing to the low leasing rates.
Future Demand and Supply Dynamics
Riley notes that while life-science supply was a concern in the past, it has become less pressing over time. Currently, there is about half-a-million square feet of tenant demand, a figure Riley believes could easily double. Even a single tenant seeking significant lab space could shift supply dynamics considerably.
Submarket Opportunities
There are ample opportunities to lease lab space across various submarkets, including West Los Angeles, the Conejo Valley, Pasadena, and the South Bay. West L.A. and the Conejo Valley lead in asking rents, with West L.A. at $71.52 per square foot, the highest in Los Angeles, followed by the Conejo Valley at $59 per square foot, and San Gabriel Valley at $47.
Challenges and Investor Interest
West Los Angeles remains a prime area of interest for life-science tenants due to its proximity to UCLA and central location. However, real estate investors face challenges in providing life-science solutions due to competition from those looking to reposition assets for creative office space. The high price per square foot for land in West L.A. compared to Pasadena or the Conejo Valley adds to the difficulty.
Market Predictions
Riley predicts continued mergers and acquisitions as startups and growing companies ramp up their research and development efforts, leading to a deeper commitment to L.A. and expansion plans. He also hopes to see more incubator lab space across L.A., similar to BioLabs in Torrance, which offers both open space for startups and individual suites as dedicated lab space.
Los Angeles’ life-science market, with its unique blend of low vacancy rates and affordable rents, presents a compelling landscape for both tenants and investors navigating the evolving real estate dynamics.