University Innovation Districts Outshine Other Markets

Innovation districts anchored by universities are emerging as some of the strongest real estate hubs in California.  

Office and retail assets inside these campus-linked clusters are outshining properties in the submarkets in which they’re located, Globe Street reported, citing a new report from JLL. A total of 18 districts across the state tied to major research universities are commanding higher rents, lower vacancies and outsized investor interest as tenant demand consolidates around talent, walkability and lab-ready space.

The Stanford Research Park, UCLA Innovation Park, UC San Diego’s Science Research Park and San Diego State’s Mission Valley Innovation District are among the 18 college markets that have proven most resilient and promising, delivering higher rents and occupancy rates than nearby office and retail markets.

Office properties in these districts average a 10 percent rent premium and vacancy rates 220 basis points below the national norm, the JLL report says. Older innovation districts post an even sharper edge, with office asking rents running 36 percent above U.S. averages. And when looking at the surrounding metro areas of each of these communities, offices in the innovation districts fetch a 26 percent premium and maintain vacancy nearly 300 basis points lower than nearby submarkets.

Retail is riding the same wave. Mixed-use developments in particular, such as properties with student-friendly food and services on floors below labs and research and development spaces, help activate these neighborhoods and boost performance. Retail rents in innovation districts are 28 percent higher than in surrounding areas, powered by high foot traffic from students, researchers and adjacent residential growth.

University-anchored innovation districts first emerged in the mid-20th century and grew in the 1950s and 1960s. Stanford Research Park, for example, now the epicenter of the research and development market in Silicon Valley, was founded in 1951. While districts such as these have become real estate hotspots across various sectors, they often spend many years working to reach that status. 

“Fostering the growth of such economic development engines takes time,” Emily Crutcher, senior vice president for JLL’s government and education division, told Globe Street. “University-anchored innovation districts may take decades to cultivate and grow, which requires committed university leadership across multiple administrations; the support of local, state and federal agencies; partnerships with corporations; exposure to [venture capital] networks; programs with local community colleges and more.”

— Chris Malone Méndez

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