The way the life science sector has exploded over the past decade and the way the COVID-19 pandemic forever altered the corporate culture and office space are hot topics for a good reason — and no one knows that better than Hughes Marino.
Tenant representation firm Hughes Marino is a client-focused firm that looks to “obtain the most cost-effective and risk-reducing result” for its clients. The company is one of the largest of its kind, with offices across California as well as , including Seattle, Denver, and now two new offices in Boston and Raleigh-Durham.
The firm has won awards for its culture (ranked No. 1 nationwide by Fortune magazine) as well as been named Best Place to Work numerous times from local publications.
As a highly respected national firm, there’s little that goes on in the market that Hughes Marino doesn’t know about — and isn’t on top of.
And one should be interested in the effects life science has had on the commercial market, as it’s been fast and impactful — and is changing the economic landscape, especially in Southern California.
According to a May report, San Diego has exclusive lab inventory north of 22 million square feet, with another 1.5 million in demand. It also has 12.3 million square feet of office space dedicated to life science.
The vacancy rate across the whole lab market was 3.6% after the end of the second fiscal quarter of 2022, a record low for the region. The core market vacancy was even lower, at 3%.
In Q1 2022, leasing activity reached 1.54 million square feet, just below half the leasing total for all of 2021, which was, at the time, the busiest year on record.
The area is behind only Boston in ongoing construction for life science space and ahead of San Francisco and Raleigh-Durham, North Carolina, two other markets burgeoning with life science activity.
Boston, long a hotbed of life science activity due to its high educational attainment and proximity to several prestigious research institutions, has of office space dedicated to life science work, the highest in the nation.
San Francisco, inseparable from all things tech, is with 13.8 million square feet of office space dedicated to life science. The area has another 11 million square feet in the works as of May of this year.
In San Diego, in certain areas, there is literally no vacancy. But there is a lot of demand.
And demand is on the uptick in North Carolina, home to 735 life science companies. The Raleigh-Durham area alone comprises 569 of that number. Hughes Marino says it plans to soon in the bustling area.
Of course, with high demand comes increased pricing, with asking rents in some sectors jumping from $6.01 per square foot to $6.44 per square foot since the fourth quarter of 2021.
That pricing hasn’t stopped life science firms, though. Over 6 million square feet of lab space have been added to the SD metro area inventory since 2015, and another 3.25 million is under construction.
Finally, the total life science industry employment there hit 69,400 in Q2 2022. Jobs in scientific R&D were up to 7,300, a jump of 20.3% since the first quarter of 2020.
In other words, life science has been and continues to be, exploding.
This is not news to Hughes Marino. And with the company’s headquarters located in the life science hot pocket, they are experiencing it firsthand.
“You are bringing in a whole different user that will pay substantially higher rates,” a Hughes Marino spokesperson said. “And at the same time, you have some of the big tech companies from Silicon Valley moving into town.”
And it doesn’t look to abate soon. While venture capital funding is down compared to last year, life science venture capital was pretty much on par with the fourth quarter of 2021, raising $621 million in funding in Q2 2022.
“A lot of these landlords are kicking out their traditional office tenant or industrial tenant and saying, ‘Hey, we’re not going to renew your lease, go somewhere else, because we’re converting this to life science,’ to create more supply for this seemingly endless demand for space,” Hughes Marino reports.
That isn’t the case in most major metro areas, according to the corporate advisers at Hughes Marino, who point out that downtown areas in Los Angeles, San Francisco, San Diego, and Boston have massive availability, making it tough on office landlords in those markets.
Hughes Marino has made a play to be the go-to resource for those companies looking to strike while the iron is hot.
“We’ve invested heavily into our technology and systems, which all is to benefit our clients while optimizing our brokers,” the Hughes Marino spokesperson said. “We have incredible depth and experience with and the tremendous nuances associated with this focus. We deep-dive into all of these subsectors to accomplish results and to provide an experience to our clients that nobody else can provide.”
A Combination of Complications
The pandemic hit some urban downtown neighborhoods particularly hard, with studies showing, in San Diego, a nearly 40% availability in late 2021. According to data from Hughes Marino, that’s almost 5 million square feet left untouched.
“Downtowns are a very different environment than the economic success seen regularly in the suburbs,” the spokesperson said of the complications particular to some downtown areas. “Landlords are finding it very difficult to lease space for a variety of reasons. In many areas, there was a lot of overbuilding over the past decade. Some downtowns had a lot of conversions from nonoffice to office. And at the same time, there has been a concentration by many companies to use the hybrid work model to simply reduce their amount of committed space. The markets have gotten very complicated.”
The Hughes Marino expert explains that the life science sector has exploded, resulting in landlords renovating spaces specific to those requirements, at times pushing out tenants of traditional offices to convert to life science lab-type buildings, shrinking the supply of conventional office buildings.
The primary driver, if a zone is to become another hot spot for life science companies, will be the construction of suitable lab facilities.
Hughes Marino: The Industrywide Impact of COVID
It’s hard to talk about the pandemic and not have commercial enterprises become a primary subtopic. Of the various elements of society that were upended during the past two-and-a-half years, the commercial sector (with a participation ribbon for the travel and leisure sector) is most often discussed.
That’s because millions of people began to work from home. And not only were they working from home, but they were productive working from home.
The legal industry, for example, long thought to be an apprenticeship-type of business where one can’t succeed without in-person mentoring, had its best financial year on record in 2021.
The previous year wasn’t far behind.
Now that the pandemic (at least in the hearts and minds of many) has receded, the argument to get people back in the office is a bit more complicated than initially anticipated when everyone went remote. In the beginning, remote work was a way to bridge health and productivity. But how do you tell someone who has been working from home for over two years, and doing their job well, that they need to start commuting again? That they need to find child care again? That they need to pay for parking again?
Hughes Marino believes that the innate human desire to socialize with others (in most, at least) will win the day, making a more regular return to an office scenario — especially office space that differentiates an organization from others — a hot commodity again. While a five-day-per-week in-office requirement might be gone for good, it appears the trend of three to four days of being in the office will likely prevail.
Says the spokesperson: “Most people miss the socialization norm of work. Most people want to get out of their houses for a change. Most people are tired of working from their bedroom or kitchen counter. And most employers want their team to feel more connection to the company than only their paycheck. The Great Resignation is a byproduct of the loss of connections and meaning. If it’s only about money and nothing else, there will continue to be a lot of empty and unhappy people out there. There is a reason why the Great Resignation era is now being followed by the Great Regret. Money doesn’t buy you happiness. It takes connection, meaning, and fulfillment — and that’s hard to attain while living and working at home 24/7.”
Hot Commodity: San Diego Warehouse Space
Regarding industrial space, San Diego is currently the most expensive market in the nation.
Says the spokesperson: “It’s shocking [it’s] the most expensive. So industrial space, warehouse space, is just four giant cement walls and a roof, and for San Diego to be the most expensive market in the nation is really interesting. [It has left many people asking] Why is that? Partly because we’ve reduced the supply to start trying to accommodate the life science, medical device, and lab sector.”
During the COVID-19 pandemic, acknowledges there was a swell everywhere. “San Diego had a more limited supply of this, but you had a huge surge of industrial warehousing for distribution,” adds the spokesperson. “Think about Amazon — they’ve gobbled up everything they could, but so has everyone else. When they need distribution, big buildings to bring stuff in from all over the world and then redistribute it out so that your Amazon van can get their stuff to you in your house, that’s what’s happening.”
The spokesperson adds that Amazon has snatched up tens of millions of feet all over the nation. “It’s crazy what’s happening in the supply chain logistics. It’s just so counterintuitive to what anybody would’ve thought two years ago.”
, according to Mike Paleo, a senior vice president at Hughes Marino, have been wreaking havoc since March 2020. He adds that products shipped overseas resulted in monthslong delivery delays that caused freight costs to skyrocket significantly. “Every industrial product type from last-mile distribution centers, raw land for containers and trucks, and cold storage space continued to be in high demand, causing rental rates to soar,” details Paleo.
Rents are also on the rise, according to the SD . The news outlet reports that there is “a finite amount of industrial land available for development in San Diego County.”
Paleo adds that development costs continue to rise, with prices for concrete and steel soaring. According to the National Association of Home Builders, the cost of building materials has jumped 20.4% year over year and has risen 33% since the beginning of the pandemic.
Forbes reported on July 13 that the COVID-19 pandemic has resulted in a multitrillion-dollar supply chain crisis and that U.S. manufacturing’s lengthy reliance on Asia-based factories has caused the nation to be too dependent on foreign-produced goods.
Hughes Marino on Clients’ Property Needs
Hughes Marino’s tenant representation firm specializes in helping its corporate clients find and negotiate (either to purchase or lease) industrial space (as well as office, R&D, and life science space) to suit their individual needs. Representing tenants/users of distribution centers, manufacturing plants, warehouses, and assembly line facilities, the Hughes Marino team goes over all details with their corporate clients to ensure all conditions are met, including power requirements, skylights, insulation, dock and grade-level loading, and more.
One solution, according to the firm, is repurposing old industrial buildings or warehouses. Adaptive reuse projects are on the rise. Advisors on the Hughes Marino team suggest considering multiple factors before occupying such a space, including if the building is structurally sound, if it’s a solid workspace, and if it’s a step toward achieving a business’s overall business goals.
The stress the importance of industrial property clients seeking the help of qualified professionals when securing or building industrial structures. “We’re not only staying on top of market trends but also thinking outside of the box to help our clients meet their current needs,” says Paleo.
Keeping clients educated throughout the process is another priority for the team.
“We’re saving our clients tremendous amounts of money, minimizing their risk, and we work very hard to get our clients the optimal real estate asset rather than poorly thought-out and negotiated liability,” he says.