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A laboratory technician. San Diego is a leader in the conversion of office spaces to labs, which have unique design needs. Image from video

The life sciences sector continues to be hot in real estate and that includes gains not just in construction, but in office conversions, especially in San Diego.

According to a new report from CBRE, San Diego became the second busiest market for office-to-lab conversions in progress this year. Crews were busily at work on 1.6 million square feet of labs under construction in the first quarter.

“San Diego continues to dominate the life sciences industry due to our mature ecosystem consisting of scalable inventory, robust capital investment, and industry leading universities, institutes and health systems,” said executive vice president Matthew Carlson of CBRE.

Nationally, office-to-lab conversions in the 12 largest U.S. life sciences markets at the end of 2021 amounted to 9.9 million square feet., up 49% from the beginning of the year. In comparison, ground-up lab construction increased 42% to nearly 18.8 million square feet by the end of 2021.

Other leading markets include Boston and San Francisco.

The jump in conversions underscores the challenges in building enough lab space to meet recent demand. Lab vacancy in many top markets sits at 4% or less.

The cost to fit out lab space with necessary plumbing, ventilation, clean rooms, loading docks and other specialized considerations can be double to triple that of fitting out standard office space.

San Diego lab lease rates increased approximately 25% in 2021. Comparatively, lease rates among the 12 largest U.S. life sciences markets increased by an average of 11%.

Meanwhile, standard office lease rates increased 2%. That’s just one of the reasons investors see such properties as attractive options.

“Converting an office building for life sciences use often can be done more quickly than building labs from the ground up,” said Matt Gardner, a life sciences leader for CBRE. “In addition, investors see advantages in lab-rent growth and the scant vacancy rates for labs in comparison to offices.”