Biotech vacancies grow throughout Bay Area, but so does funding

But the industry has proven to be a stable economic mainstay — especially in comparison to the technology sector in recent years — and it continues to receive a significant share of venture capital money in the Bay Area, particularly in San Mateo County.

Biotechnology venture funding increased to $1.91 billion in the third quarter, up from $1.7 billion the previous quarter and up from $1.87 billion during the same time last year, according to the Newmark report, indicating positive signs for commercial real estate, as those companies may soon seek additional office space. One of the largest venture deals in the country last quarter was a $430 million Series C round with Kriya Therapeutics, a Redwood City-based biopharmaceutical firm, according to a Cushman & Wakefield report.

“We’ll see a more robust Q1 into Q2. Q2 is where we’re going to start to see more demand come about as companies raise more money,” said Eric Bluestein, executive managing director at Newmark, a commercial real estate services firm.

Smaller companies often start looking for space as they see positive signs of raising money, but there is also a subset of firms that wait until funding closes, hence a potential three- to nine-month lag in absorption, he added. While regional demand decreased from the second quarter to third, South City saw a slight demand increase over the same time period.

But despite biotech holding steadier than technology firms more recently, the latter is increasingly on the rebound, Bluestein said. As more companies reinstate hybrid or in-office work policies, Peninsula real estate facing Highway 101 is likely to become more attractive for larger technology firms that can afford class A and A+ buildings, or developments offering prime locations, quality and amenities.

“There’s been a bunch of buildings that have been built along the Peninsula that were more life science purpose built … and that’s because tech was dead for about three years, and life science was moving and grooving,” Bluestein said. “Now, what we anticipate is that some of those buildings will get absorbed by tech companies that want that [Highway] 101 frontage visibility, and so I think that is going to be an interesting paradigm over the next year, year and a half.”

With high vacancy rates in San Francisco, Bluestein also added that life science firms are also finding that previously unavailable space near the Mission Bay area could be an attractive option, particularly in light of the proximity to University of California, San Francisco.

alyse@smdailyjournal.com

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Note to readers: This story has been changed. Real estate developments along Highway 101 and throughout several Peninsula cities will likely become more attractive.