SOLANA BEACH, CA—Some life-science tenants may be surprised by increased occupancy costs associated with newer lab spaces and amenities, usually taking the form of increased operating expenses passed through to them, re:align tenant strategies principal T.D. Rolf tells GlobeSt.com. The firm represents services, tech and life-sciences tenants in San Diego and nationally. We spoke with Rolf about how tenants view the San Diego life-sciences market and what they seek here that they may not be getting.

GlobeSt.com: How do current and prospective tenants view San Diego's life-sciences space?

Rolf: Current tenants have been very happy with the quality of new lab construction and the amenities spaces being delivered by the life-science building owners in San Diego. However, prospective tenants that are new to the market or prospective tenants that haven't been in the market for a few years may be surprised by the increased occupancy costs associated with these newer lab spaces and amenities. These increased costs aren't necessarily reflected in the base rental rates, but instead often take the form of increased operating expenses passed through to the tenants and larger building load factors, which inflate the difference between rentable square feet (what the tenant pays for) and usable square feet (what the tenant actually occupies).

GlobeSt.com: What is most important to these tenants that they may not be getting here?

Rolf: A number of early stage life science tenants prefer the flexibility of a shorter-term lease in order to accommodate their accelerated development timelines, but unless a suitable “turn-key” option exists, factors such as increased construction costs and the current low vacancy rate across the four major life-science submarkets (averaging just under 9%), are requiring them to sign longer-term leases. Further, we're seeing more and more companies with larger chemistry-lab requirements, and there is currently a real shortage of existing chemistry-lab space available in the San Diego market.

GlobeSt.com: How are these tenants considering the future of their companies and the type of space they may need later?

Rolf: With the continued uncertainty surrounding biotech IPOs, many life-science tenants are focused on remaining flexible with respect to hiring and making facility commitments in order to adapt their business models later, depending upon whether the company will continue as a going concern or becomes an acquisition target. Life-science tenants are also remaining in “stealth mode” for longer periods of time, and/or making do with less personnel by outsourcing services, R&D and lab functions in an effort to keep costs low.

GlobeSt.com: What else should our readers know about San Diego's life-sciences tenants?

Rolf: The life-sciences business is, and always has been, extremely risky. Just like the investors, management teams and employees associated with these companies, the life-science building owners are assuming risk when they contribute large amounts of capital to construct very technical and expensive lab spaces. This results in much higher rents and operating costs being paid by life-science tenants when compared to rents and operating costs paid by typical office tenants. Therefore, life-science tenants are well served by taking the time to plan their facility strategy thoroughly in order to mitigate these risks, lower occupancy costs and create more flexibility.

Instant Insights /

Are Life-Science Tenants Getting Unhappy Surprises?

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