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Demand Drives Improvements at Life Science Properties

San Diego’s life sciences real estate market experienced a busy 2012, with a flurry of renovations, big-ticket property purchases and announcements of upcoming construction. According to a recent report by the brokerage firm Cassidy Turley San Diego, the region’s biotech and pharmaceutical hubs are likely to remain beehives of activity in 2013.

Researchers note that the local biotech market — consisting of Torrey Pines, University Towne Center, Sorrento Mesa and Sorrento Valley — actually experienced negative net space absorption in 2012, largely because a three-building former Pfizer campus, with 340,000 square feet, was placed back on the market. It was purchased for $51.3 million by Legacy Partners and Walton Street Capital, which are renovating the Torrey Pines campus for future tenants.

Empty life-sciences space is not expected to stay vacant for long in San Diego. Cassidy Turley points to several firms with active lease requirements in the early weeks of 2013, led by the Genoptix Inc., a division of Novartis (seeking 250,000 to 350,000 square feet), Pacira Pharmaceuticals Inc. (115,000 square feet), and Intertek Group Plc (50,000 square feet).

Life sciences property owners are making improvements to their buildings, with an eye toward meeting continued rising demand. Pasadena-based Alexandria Real Estate Equities Inc. during 2012 completed renovations to eight buildings in the local market, totaling 848,000 square feet. Alexandria began rehab construction on a new 67,000-square-foot corporate headquarters for Genomatica at UTC, and also started spec redevelopment at its Spectrum project in Torrey Pines, expected to total 168,000 square feet.

Another big owner of life-science real estate, San Diego-based BioMed Realty Trust Inc., completed the first phase of construction on its nine-building, 160,000-square-foot Coast 9 renovation and expansion in Sorrento Valley, which Cassidy Turley said has seen “tremendous leasing activity.” The second phase at Coast 9 will include completion of a 10,000-square-foot amenities building, expected to be completed by the end of 2013’s second quarter.

BioMed also recently started renovation of the 67,000-square-foot building at 10835 Road to the Cure in Torrey Pines, where the company plans to build spec suites totaling 27,000 square feet on the ground floor and also add a fitness center, conference center and outdoor seating area. In 2013, BioMed plans to redevelop an additional four buildings in the same vicinity, totaling 178,000 square feet.

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Kearny Mesa Industrial Complex Sells for $59.5 Million: The three-building Cabrillo Technology Center industrial complex in Kearny Mesa has been sold for $59.5 million, according to CoStar Group.

According to a statement from brokerage firm CBRE, which represented the buyer and seller, the property was acquired by an affiliate of Los Angeles-based IDS Real Estate Group, in a joint venture with an institutional partner. The seller was Cabrillo Properties LLC.

The buildings at 8650, 8680 and 8690 Balboa Ave. total 285,585 square feet, and are 96 percent leased to Raytheon Technical Services Co. and HDR engineering. The 17-acre complex was built in 1963, and renovated and expanded in 2000.

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Downtown Retail Continues Recovery: Downtown San Diego’s retail real estate continued its post-recession recovery in 2012, registering single-digit vacancy for the first time since 2008, according to a recent report by the brokerage firm Cushman & Wakefield.

Nearly all downtown neighborhoods experienced increased retail leasing activity in the past year, spurring total positive net absorption of 109,460 square feet — nearly double the 57,959 square feet of absorption seen in 2011. Two years of positive net absorption — more space being occupied than vacated — have dropped the overall downtown retail vacancy rate to 8.6 percent, down from 11.6 percent in 2010 and 10.7 percent at the end of 2011.

“While there is still residual economic uncertainty and tenant fallout from the last five years, we are definitely seeing a renewed confidence in the downtown San Diego market,” said Bill Shrader, senior director and founder of the Cushman & Wakefield Urban Property Group, in a statement.

“The biggest challenge for the retail market continues to be the limited activity of multi-tenant retailers, as the urban market has been dominated by independent entrepreneurial operators, primarily restaurants,” Shrader said.

Half of the downtown San Diego neighborhoods reported retail vacancy rates under 6 percent in 2012, including Little Italy (5 percent) and the Gaslamp Quarter (5.3 percent). The vacancy rate at Horton Plaza was 5.8 percent at the end of 2012, and 12.5 percent in East Village.

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Former Hotel Converted to Affordable Apartments: The century-old downtown San Diego property formerly known as the Hotel Mason, which was gutted in a 2004 fire, now has a new life as affordable studio apartments for at-risk adults.

The San Diego Housing Commission recently marked the opening of The Mason, with 16 supportive housing units for adults who were previously homeless or at risk of becoming homeless. A statement from the housing commission said the Fifth Avenue building now has mental health support services, a manager’s unit, a community room and ground-floor commercial space.

The housing commission’s nonprofit affiliate, Housing Development Partners, undertook the $3.6 million conversion of the former hotel, with the commission contributing a $2.68 million loan for the project. Civic San Diego, the successor agency to Centre City Development Corp., and the California Housing Finance Agency also contributed funding.

The Mason has been fully leased and will remain affordable housing for 55 years, designated for residents whose income is 50 percent or less of the region’s median.

Send commercial real estate and development news of general local interest to Lou Hirsh via email at lhirsh@sdbj.com. He can be reached at 858-277-8904.

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