Silicon Valley Biotech Company Leaps Across San Francisco Bay for New Space

Rani Therapeutics Finalizes Deal with BKM Capital Partners Despite Aim to Curb Rising Expenses

An industrial business park — Shoreline Business Center | Fremont, CA

A Silicon Valley biotech company is expanding across the San Francisco Bay with a deal that stands out amid widespread downsizing throughout the regional life science market.

The Silicon Valley-based biotherapeutics company finalized a deal with BKM Capital Partners to fill a majority of one of the buildings at the landlord's Bayside Commons technology park in Fremont, California. The roughly 33,350-square-foot lease at 47709 Fremont Blvd. will kick off in February, according to information filed with theSecurities and Exchange Commission, and is part of an initial five-year term.

The deal includes an option to extend the lease by another five years. The rental rate, excluding operational expenses and ancillary taxes, will begin at roughly $95,020 per month and increase by 4% each year.

Rani has been headquartered across the bay in a 24,000-square-foot building at 2051 Ringwood Ave. in San Jose, California, for the past several years, according to CoStar data. It isn't clear how much space it occupies in the Silicon Valley area or whether it will relocate entirely or retain its existing lab footprint. Regardless, the new space in Fremont marks a significant expansion for the clinical-stage company, which develops encapsulated oral biologics for patients with chronic conditions.

BKM purchased the Bayside Commons building as part of a five-property portfolio deal for nearly $50 million in late 2018. The light industrial campus spans roughly 220,000 square feet, and its location was a big selling point for the Newport Beach, California-based landlord because of its proximity to Silicon Valley and San Francisco as well as the area's status as an emerging manufacturing hub in the BayArea, BKM's Managing Director of Acquisitions Brett Turner said at the time of the purchase.

The East Bay suburb's reputation as a strengthening logistics and advanced manufacturing hub has only solidified in the years since. Rents for light industrial properties in Fremont have climbed by 11% over the past three years, according to CoStar data, and tenants have signed on for nearly 1.9 million square feet of industrial space in the city over the past year.

Still Committed to Space

The expansion is a standout against a backdrop of layoffs and real estate downsizings across the Bay Area life science market.

Over the past few weeks, several tenants have announced plans to shrink their real estate footprints in the region, the nation's second-largest life science hub behind the greater Boston area. Those moves come at a time when the availability rate for lab and research space has been rising and as a record number of new developments make their way through the region's construction pipeline, weighing down rent growth for what had otherwise been one of the bright spots in the Bay Area's broader commercial real estate market.

After pandemic-fueled growth pushed demand for research and development space to record highs, the national biotech market has wavered over the past year as it adjusts to reduced demand. Vacancy and space availability in Boston, the Bay Area and San Diego — three of the largest life sciences clusters in the United States — climbed through the first half of the year as tenants handed back more space than they leased.

What's more, new projects that started construction at the height of the life science boom are now nearing completion, adding additional pressure to markets contending with an abundance of available space. About 31 million square feet of purpose-built lab space is now under construction, according to data from Newmark and CoStar, the bulk of which is expected to land in Boston and the Bay Area. That pipeline doesn't include any of the lab conversion projects currently underway, which will result in several million square feet of additional research and development space once completed.

The influx of space is landing at a point when companies across corporate America are shifting their priorities away from aggressive growth and instead adopting a more prudent approach to expansion.

Rani hasn't been immune to the financial challenges pummeling biotech companies across the country and earlier this month kicked off several restructuring efforts aimed at curbing rising expenses. The San Jose company slashed about 25% of its workforce to help extend its cash runway through 2025, Rani CEO Talat Imran said in a recent statement, but it is committed to its real estate portfolio as a tool to help it prioritize other investments.

“We are laser-focused on driving forward our key programs to create near-term value and fuel long-term growth," the CEO said. "We are also expanding our manufacturing footprint to support scale for late-stage development and partnering."