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With Bristol-Myers Squibb (BMY), Genentech (RHHBY) and Merck & Co. (MRK) Expanding in the Bay Area, Some Wonder if the Real Estate Boom is Too Much

11/14/2016 6:02:49 AM

With Bristol-Myers Squibb, Genentech and Merck & Co. Expanding in the Bay Area, Some Wonder if the Real Estate Boom is Too Much November 14, 2016
By Mark Terry, Breaking News Staff

Biotech construction in the San Francisco Bay Area is booming, as it is in Boston. Most recently, Merck (MRK) may have a deal for 300,000 square feet in South San Francisco. Just last week Genentech (RHHBY), part of the Roche Group, acquired four buildings it had been leasing, and is potentially acquiring four more.

Ron Leuty, with the San Francisco Business Times, hosted BioFlash, and spoke with Dino Perazzo of real estate brokerage CBRE and Mike Futrell, the city manager of South San Francisco, about the Peninsula biotech real estate market. They spoke recently at the Peninsula Structures breakfast. Leuty notes that not only are small biotech startups gobbling up the real estate, but larger companies that want to be close to the nimbler biotech companies are moving in as well.

“I’ve never seen a carve-out, or the only carve-out, being biotech,” said Perazzo. “So I think that if you look back at the Bay Area as a whole, broadly speaking, we’ve been known and identified with high technology. And here we are, talking about biotech, and I think rightly so. The Peninsula is the home of biotech. What we call the primary market in the Bay Area is biotech and to your point is, the largest and most dense life science research market in the world. Bigger than Cambridge.”

Factors that drive it are pharma companies really looking for science and a newer type of science that is prevalent in the Bay Area. It’s not unheard of for large companies to come in looking for it, but what’s different now, Perazzo says, is that “they’re actually investing post-acquisition in that science.”
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He goes on to say, “Now we have the lion’s share of demand coming from outside the region…. They are doubling down because they need the talent that’s here for that science and that’s needed to manage that science.”

South San Francisco is 10 million square feet of life science research space now and upwards of six million square feet that’s fully entitled, according to Perazzo. There was a time when there was a lot of construction, but not much entitlement. Overall, the fact the space has tenants in place is a positive thing.

“Large pharma is outsourcing, if you will, to smaller to mid-sized biotech,” Futrell said in agreement. “Over 50 percent of Genentech’s research is done out-of-house. But they want those companies close. So they’re in South San Francisco for easy collaboration. Which is why Merck is moving to South San Francisco. They’re already there and they want their partners nearby.”

He also doesn’t see it slowing down, because it’s being driven by patient demand, which is pushing the companies’ demand pipeline. In addition, the FDA has fasttrack procedures which create a shorter return on investment. And the government’s “war on cancer,” will likely generate another $1 billion in dollars going into research.

“You go where the science is, and guess where that is?” said Futrell. “It’s in the Bay Area and specifically in South San Francisco. So I don’t see the demand ending. And in fact, it’s going to accelerate.”

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