REAL ESTATE NEWS

The San Diego life science market is facing headwinds of high availability, with 30% of space in the core biotech cluster awaiting occupancy; yet Q1 saw its first positive absorption in nearly three years and venture capital is at its strongest pace in five years, according to a new report from JLL.

Total tenant activity is currently over 1 million square feet and tour activity is up sharply, particularly among those in the 5,000 to 11,000-square-foot range.

"San Diego has always been an early-stage company market, and the uptick in smaller tenant tours tells me that confidence is building – even if they're not signing leases yet," Michelle Westoby, senior vice president of life sciences at JLL, told GlobeSt.com.

The funding trajectory backs that up. After peaking at $5.8 billion in 2021, San Diego VC spent several years well below that level – bottoming out at $2.1 billion in 2025. At $1.6B already in 2026, the market is on pace for its strongest year since the peak.

"That capital doesn't sit idle – it finds its way into lab space, and in my experience, you typically see it show up in leasing activity nine to 12 months later," Westoby said. "I think what we're seeing in tours right now is exactly that."

Neither the Bay Area nor San Diego have Fully Healed

But it's overall a mixed picture. San Diego and Bay Area life science average 29% and 32.3% vacancy, respectively, up from near-zero in 2022, with rents sharply compressed off their peaks and landlords offering record concessions on every deal.

"Neither market has fully healed, but neither is deteriorating anymore," Brandon Maruca, executive director of integrated laboratory management with JLL's life sciences work dynamics division, told GlobeSt.com. "The worst is behind them; the work isn't."

He said that both markets are improving, but recovery needs to be measured in years, not quarters.

The Bay Area has shed nearly 1 million square feet of available lab space since mid-2025, pulled down by AI and tough tech companies moving into lab buildings and taking inventory off the market entirely.

San Diego posted the strongest net absorption of any top-tier lab market in Q1 2026, fueled by a biotech venture capital (VC) market where Boston and San Diego alone captured 66% of all US life sciences venture dollars in 2025.

"But 32.3% and 29% vacancy, 14 consecutive quarters of rent decline in San Diego, and a national supply-to-demand ratio near 6:1 are reminders that an inflection point is not a recovery. It's the beginning of one," Maruca said.

Bay Area Finds a New Kind of Tenant

The Bay Area's recovery is supply-driven. AI companies, robotics firms and tough tech startups are moving into lab buildings for their dry lab infrastructure, while older product exits the category through conversions, according to JLL.

San Diego's recovery is demand-driven and biotech pure. Boston and San Diego together captured 66% of all US life sciences VC in 2025, and that capital is translating into lease activity from growth-stage companies.

"The Bay Area found a new kind of tenant; San Diego held onto the ones it always had," Maruca said.

Bay Area Lab Space Contracting, Net Absorption Negative

The most revealing data points in both markets are the ones that appear contradictory, according to Maruca.

In the Bay Area, available lab space is contracting while net absorption remains negative; the market is getting better not due to tenants filling buildings, but because buildings are leaving the lab category entirely.

In San Diego, positive net absorption and rising available inventory are happening simultaneously. The market is absorbing space and adding it faster than can be cleared, which is why rents have fallen for 14 consecutive quarters despite one of the world's strongest biotech VC ecosystems.

"The forward-looking signal that stands out most – San Diego's rebound in seed and pre-seed funding is quietly preloading demand that doesn't yet appear in any vacancy or absorption metric but will in 12 to 24 months," Maruca said. "In both markets, the data that tells the real story isn't on the surface."

Source: GlobeSt/ALM