Illumina shells out $54 million to wiggle out of San Diego office deal

Illumina cut ties with its i3 campus in UTC last year to help trim $100 million in annual expenses. But offloading the lease early came at a cost.

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In June, the biotech’s leadership announced plans to cut costs through layoffs and reducing its office footprint in San Diego and the Bay Area. Illumina reported in an SEC filing in November that it incurred charges of approximately $54 million related to the exit of its i3 campus.

The company’s cost-saving measures and refocused strategy followed the resignation of its longtime CEO, Francis deSouza. In the past year, Illumina has dealt with the fallout of its controversial $7 billion acquisition of Grail, which ultimately unraveled.

The i3 campus — a three-building, 316,000-square-foot office complex at 4775-4795 Executive Drive in University City — was billed as a “work anywhere” office for employees. The prominent angular structure of concrete and glass off the I-805 freeway was built in 2017. It offered an open design with large windows, a gym and an on-site restaurant.

The property is owned by LaSalle Investment Management and was valued at about $645 per square foot when it was purchased in 2019, according to data from real estate tracker CoStar.

Just south of the i3 campus off La Jolla Village Drive, Illumina occupies a cluster of six office buildings.

In addition to offloading space in San Diego, Illumina reported that it is considering exiting part of its Northern California office. The Foster City campus is worth about $182 million, but it is not clear how much it would cost Illumina to partially exit this space.

Offloading office space is not uncommon these days as more companies reimagine their workforce policies and reconsider office needs.

A 2023 survey by the San Diego Association of Governments, or SANDAG, showed that 44 percent of businesses “reduced (their) building square footage, or made plans to do so” — an increase from 19 percent of respondents in 2021. The proportion of businesses that “terminated building leases, or made plans to do so” also jumped to 34.1 percent in 2023, compared to 18.5 percent in 2021.

In another sign that companies are rethinking how much office space to occupy, subleasing activity is up. It hit a peak last year as clusters of San Diego professional industries such as biotech, high tech and financial services reevaluated their square footage needs.

A handful of San Diego’s prime office markets, such as UTC, Del Mar and Carmel Valley have the highest levels of sublet space available, according to Costar. Not only are businesses offering square footage for sublet, but they are offering lightly used spaces.

For example, Illumina put the last two buildings of its i3 campus up for sublet during the second quarter and the lease goes through 2027.

New office buildings — those built after 2015 — available for sublet have surpassed 600,000 square feet, says CoStar. That means businesses looking for office space may seek out nice, young buildings at cheaper sublet rates instead of the expensive, freshly built offices entering the market.

Office vacancy levels in San Diego have also trended above pre-pandemic levels. Overall, San Diego’s office vacancy rate is about 11 percent, which is roughly two percentage points higher than 2019 rates.

CoStar reports that unoccupied office space is likely higher than documented vacancy rates as many leases have yet to turn over, thus creating “shadow space” on the market.

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