IQHQ's Massive 1.56M SF Biotech Hub in San Diego Opens Tenantless

San Diego-based IQHQ made a bold move in 2020 by announcing the Research and Development District (RaDD), an extensive 8-acre biotech hub on the California coast. At the time, it was the largest proposed project on the coast, aiming to capitalize on a surge in life sciences leasing and funding.

Current Market Challenges

Today, IQHQ faces a challenging market for its megaprojects. The company has three of the country's five largest lab developments by square footage, including RaDD in San Diego, Boston’s Fenway Center, and Alewife Park near Boston. With 1.56 million square feet, RaDD is set to open soon, while Fenway Center and Alewife Park are expected to be completed by 2026 and early next year, respectively. Despite these significant projects, IQHQ is experiencing difficulties due to decreased demand and a relative glut of supply in the market.

Market Conditions and Supply

San Diego and Boston are seeing substantial construction activity, with 5.4 million square feet and 13 million square feet under construction, respectively. According to Jeff Myers, Colliers Research Director, last year saw record deliveries, leading to increased vacancies across major markets. This is largely due to reduced demand, causing many projects to be delayed until market conditions improve. However, projects like RaDD, already deep into construction, cannot afford such delays.

The Vision and Reality of RaDD

RaDD, a $1.6 billion mixed-use development, began construction in fall 2020, aiming to establish a new submarket in downtown San Diego. It was envisioned as a transformative project, leveraging the booming biotech market. IQHQ President Tracy Murphy highlighted their strategy of diverging from industry norms, albeit with higher risks.

Leasing Environment and Competition

IQHQ now faces a tenant-friendly leasing environment with significant available space in established markets such as Torrey Pines and Sorrento Mesa. San Diego’s core markets are developing 3.1 million square feet, with notable vacancies: 11% in Torrey Pines, 20% in Sorrento Mesa, and 28% in Sorrento Valley. The substantial size of RaDD and its current lack of leasing underscore the challenges in the downtown market.

Future Prospects and Market Dynamics

Expert Taylor DeBerry suggests that downtown San Diego might remain a secondary market, with new projects like Sterling Bay’s Pacific Center in core areas potentially weathering the current slump better. In contrast, IQHQ’s Boston projects are positioned in thriving submarkets with time for market recovery before opening. The Fenway project, for instance, benefits from substantial National Institutes of Health funding, positioning it in a research hotspot.

Outlook for San Diego’s Life Sciences Market

While DeBerry remains optimistic about San Diego’s life sciences sector, the future of RaDD is uncertain. The possibility of a tech or AI company leasing a significant portion of RaDD exists, but downtown San Diego’s office leasing market lacks momentum. Additionally, the upcoming Horton Plaza redevelopment will add to the competition for tenants.