By David Gross
Biotech stocks are undergoing a correction and venture funding has fallen back from the exuberant levels of Q1, but lab space continues to lease at increasing rates in top markets. Following are three of the top leases so far this quarter:
Epizyme – Kendall Square - 43,000 feet @ $105 per square foot
Epizyme is a small molecule developer of oncology drugs that seek to modify gene expression via epigenetics rather than through DNA editing or gene therapy. The company moved into Alexandria’s 400 Technology Square in 2012 and renewed its 43,000 square foot facility there in 2017 for $66 per foot. But 2017 was a very different time for Kendall Square, and it renewed again in July, this time for $105 per foot.
Sorrento Therapeutics – Sorrento Valley/San Diego – 163,000 feet @$61.20 per square foot
While rates in La Jolla, Torrey Pines, and the Sorrento Valley haven't gotten the attention the soaring rents of Kendall Square have, existing tenants could be in for some sticker shock on renewals. Sorrento’s nearly 16 year lease at Healthpeak’s 4930 Directors Place property is significant because the company is co-terming all of its other leases in the neighborhood, where it has an additional 237,000 square feet. Moreover, having both R&D and manufacturing operations, it has placed a huge demand in the neighborhood.
A number of leases in the submarket were signed ten years ago at much lower rates, with upcoming renewals likely to greatly increase rents. Inovio, for example, leased 26,000 feet at BioMed’s Wateridge Circle development for just $30/ft in 2013. Even with escalators, they won’t hit $40 by lease end in 2023. Last year, Anaptysbio took 45,000 square feet in the same development at $50.20 per foot, a 60% increase over what Inovio’s 2013 deal, though they were able to negotiate a $190 per foot TIA (Tenant Improvement Allowance) to help fund their buildout. Renewing tenants shouldn’t need that kind of TIA, but Sorrento’s deal will be an important comp in any negotiations.
Nkarta – South SF - 88,000 sq ft @ $76.80 per square foot
South City is an interesting submarket compared to peers around Boston and San Diego due to the formerly super high costs of office space around the Bay Area. Rents in the West Coast’s biotech capital have been holding in the mid-60s for the last four years. It was a cheaper alternative to the City of San Francisco pre-COVID. Surrounded by software and Internet companies, Nektar Therapeutics, for example, leased 136,000 in 2018 in SoMa at $80/sq ft, a neighborhood where asking rents are now struggling to hold at $50. Meanwhile things in South City have held steady and it has become a more expensive alternative to the bigger city to its north due to concerns about new taxes (Prop C) and CAM charges in San Francisco, while retaining a strong presence of large pharma companies looking for partnerships.
South City and the Peninsula had started to push into the high 60s, with Alexandria signing a number of tenants, including Codexis and Iovance, to leases at $67-$69 in San Carlos, and Annexon taking space nearby in Brisbane at $69/ft. Nkarta’s deal to take 88,000 feet at $76.80 was a significant step up given how stable rates have been in South SF over the last few years, and also suggests we could soon see a Peninsula tenant top Nektar’s “San Francisco bubble” $80/ft deal from 2018.