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Genentech Plans to More Than Double Calif. Base to Accommodate Surge in New Hires

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Genentech is expanding its South San Francisco, Calif., headquarters over the next decade as part of a plan to nearly double its current number of employees and more than double its total space.
 
The South San Francisco City Council in March approved the expansion, which is expected to add 6,000 new employees to Genentech’s current work force of more than 8,000 there. By 2014, the company expects to employ 14,000 workers in the city.
 
Earlier this month, the city’s Planning Commission approved the first two components of the expansion plan: 165,000 square feet of office space and a 51,000-square-foot daycare center.
 
The company expects to begin constructing both buildings before the end of 2007, said Colleen Wilson, Genentech’s director of community and patient programs.
 
Over the next decade, Genentech plans to build a total 1.6 million square feet of offices, 1 million square feet of laboratories, 260,000 square feet of manufacturing space, and 250,000 square feet for amenities, including the daycare center, spread across 16 new buildings.
 
Genentech would build the extra space on 39 acres, mostly on land it acquired before the master plan was approved. The company anticipates building facilities in its existing central campus as well as a new “west” campus to be bordered by Allerton Avenue, East Grand Avenue, and Grandview Drive.
 
Some of the buildings would be the Britannia East Grand Business Park, an eight-building complex which an entity of UK-based Slough Estates will develop and Genentech will lease with an option to buy 780,000 square feet. Two of the buildings, totaling 223,686 square feet, have been built as part of the first phase, set to be completed in 2008
 
Genentech currently does not have a “firm date” for when phase two will start, Wilson said. Also, Slough Estates may not stay involved in the project for long. Earlier this month, it began marketing Britannia East Grand and the rest of its US holdings, totaling 3 million square feet, via UBS.
 
Genentech currently occupies 2.8 million square feet on 129 acres it owns in South San Francisco spread among 30 buildings it owns and eight it leases. The largest share of this real estate comprises 1.008 million square feet of office space, followed by 970,000 square feet of laboratories, 780,000 square feet of manufacturing space, and 69,000 square feet of amenities. The company’s newest amenity, a 35,000-square-foot private fitness center, opened last December.
 
As of the third quarter of last year, the most recent time it furnished such figures, Genentech said it had spent $180 million in Britannia East Grand construction costs, including tenant improvements and interest, which it projects will reach $365 million. These figures do not include $544 million in lease payments for Britannia through 2020.
 
Also last month, the company announced it plans to start building a $140-million manufacturing plant in Singapore in the current quarter to make its wet age-related macular degeneration drug Lucentis and other products. The company also has an option to buy a plant owned by biomanufacturer Lonza, and may do so in 2009 or 2010.
 
Housing Matters
 
Genentech, which started life in 1976 in a 2,000-square-foot warehouse, is expanding its physical space in South San Francisco at a time when it has announced ambitious plans to grow its business worldwide.
 
To carry out the expansion, Genentech will need to overcome a hurdle identified by CEO Arthur Levinson: Will the company be able to find the people it needs for its additional positions?
 
“We’re hiring as many good people as we can [in South San Francisco], but there’s not an infinite number of terrific people,” Bloomberg News quoted Levinson as saying during a March 23 investor conference in New York.
 
Another challenge will be the ability of its new employees to find housing. Communities near South San Francisco are known for high real-estate demand and high prices, said Geoffrey Craighead, president of the San Mateo County Association of Realtors.
 
Single-family homes in San Mateo County, which includes the city of South San Francisco, run on average $1.1 million, and condos sell on average for $620,000, he said. “The caliber of the people and the income they bring in can afford to buy and live here.”
 
Residential areas in neighboring counties like Santa Clara, San Jose, and Saratoga are mostly built up, said Craighead, and have frowned on higher-density multifamily housing plans. In 2004, voters rejected Marina Shores Village, a 1,920-unit luxury condo project proposed for Redwood City, just to the south of South San Francisco.
 
“We have a very limited amount of land, and our coast is a no-growth region,” said Sue Walsh of Cashin Company Realtors in Burlingame, Calif. She said most Genentech employees she has served have opted to live within a 20- to 30-minute commute of the company’s headquarters, though the prospect of thousands of more employees may force many to look farther away.
 
Building Growth
 
By acquiring land and developing its own buildings, Genentech has followed a different path from most other biotechs, which have scrambled to find available leases. That’s getting harder to do as the supply of available lab space for rent shrinks in the region.
 
Vacancy rates for lab space in the Bay Area normally fluctuates between 3 percent and 5 percent, said Dino Perazzo, a senior vice president with CB Richard Ellis, which specializes in the San Francisco life-sciences real estate market. The market is likely to get even tighter, he said.
 

“If you’re smart, you don’t tell someone like [Genentech], ‘We don’t want your business. Go someplace else.’”

“The availability of existing lab [space] is largely second-generation space as a result of a company either downsizing or growing or possibly being acquired by a larger company and then vacating,” according to Perazzo. “When you consider there is next to no existing space and that it takes the better part of three to five years to develop new space, there’s a functional challenge in a market like the Bay Area. There is a very real challenge to provide that new space.”
 
One answer, he said, could emerge at Mission Bay, where Alexandria Real Estate Equities is building a life sciences campus. To date, a single 155,000-square-foot building has been completed, with 2.2 million total square feet planned by 2011. Alexandria has not said when it might build the rest of the 2.7 million square feet it has rights to develop, in a submarket with more than 4 million square feet of commercial space, not counting University of California San Francisco and its hospital.
 
But Mission Bay poses a challenge to the market, Perazzo said. At six- to 10-stories tall, its buildings differ from the lower-rise campus properties dominating the market, where average tenants seek 40,000 to 50,000 square feet.
 
The Bay Area market has 20 million square feet of total lab space, of which 13 million is within the peninsula area between South San Francisco and Mountainview.
 
Road Worrier
 
South San Francisco officials approved Genentech’s master plan after nearly a year of reviewing traffic mitigation and other quality-of-life concerns. Mike Lappen, senior planner for the city of South San Francisco, said the additional traffic generated by Genentech’s expansion can be handled by constructing new lanes at intersections and the freeway ramps east of Highway 101, the spine of California’s motorway system.
 
According to a report submitted to the city by traffic consultant CSG Consultants, 48 percent of all current Genentech employees arrive on the campus from southbound 101, and another 42 percent from northbound 101.
 
South San Francisco Mayor Richard A. Garbarino, Sr., said Genentech won over officials in part by citing its traffic-management efforts, which include subsidies to employers who use mass transit, rideshare services, several shuttle buses between its campus and transit hubs in East Bay and San Francisco, and even facilities for bicycles.
 
In 2004 the company was named among the San Francisco region’s “Best Workplaces for Commuters” by a coalition that includes businesses, environmental and transportation groups, and the US Environmental Protection Agency.
 
“Let’s face it: Bioscience is here … [and] it can’t help but grow,” Garbarino said. “Genentech is here. They’ve been a good corporate citizen in South San Francisco.”
 
Genentech has also been good for the city’s coffers. The company accounts for 10 percent, or $1.4 billion, of the city’s $10.4 billion in total assessed value, and brings in $2 million in property taxes each year.
 
The mayor said Genentech also carried out $15 million in business with local vendors and service providers each year.
 
“If you’re smart, you don’t tell someone like that, ‘We don’t want your business. Go someplace else,’” Garbarino said.