Two Chicago-based developers are planning to build 1.1 million square feet of new biotech space at San Diego office campuses they acquired in a recent $576 million deal, joining other firms seeking to capitalize on soaring demand for life science real estate.

Buyers Sterling Bay and Harrison Street were undisclosed in regulatory filings as of late August, showing Vancouver-based City Office REIT reached agreements to sell all eight of its life science office buildings totaling nearly 682,000 square feet in San Diego’s Sorrento Mesa neighborhood, in one of the region’s biggest commercial property deals of 2021. The sales, set to close in December 2021 and February 2023, were announced this week.

“Sorrento Mesa is positioned for a very exciting future as investors continue to redevelop previously obsolete but well-located buildings into state-of-the-art R&D and life sciences facilities,” said Rodney Richerson, principal in Sterling Bay’s western division, in a statement this week.

The two firms are looking to develop up to 1.1 million square feet of new ground-up life sciences facilities on excess land at the sites, as they also renovate existing older buildings in the acquired portfolio. Development is expected to begin in 2023 for completion in several phases.

Richerson said the portfolio purchase, which follows two earlier Sorrento Mesa acquisitions by Sterling Bay and Harrison Street, gives the developers “a substantial foothold” in a neighborhood that has become among the most active for biotech-focused tenants and investors in a city that ranks third in the nation for its life science real estate inventory, behind Boston and San Francisco.

“The Sorrento Mesa submarket is among the nation’s fastest growing, attractive hubs for life sciences and innovation,” said Harrison Street Senior Managing Director Mark Burkemper, adding the two firms plan to continue scouting investments nationwide after forming a partnership earlier this year focused on the biotech sector.

The privately held Sterling Bay and Harrison Street are competing against a slew of rivals looking to expand their biotech property profiles in San Diego, including large real estate investment trusts such as Alexandria Real Estate Equities, BioMed Realty and Healthpeak Properties. Other smaller but well capitalized companies with a nationwide biotech focus have also been buying, renovating and developing properties in the region over the past year, including IQHQ, Longfellow Real Estate Partners and Phase 3 Real Estate Partners.

Escalated venture funding in the San Diego region is helping to fuel growth by biotech firms now seeking out new space for expanded operations. CoStar data shows biotech lease-ups and rent growth have steadily trended ahead of San Diego’s general office property metrics for well over the past year, especially in key life sciences hubs such as Torrey Pines, University Town Center and Sorrento Mesa.

“Only a handful of buildings across the San Diego office market have more than 50,000 square feet of available lab or research and development space, several of which are under renovation, and very little of it is in ground-up development,” said Joshua Ohl, director of market analytics for CoStar Group in San Diego, in a recent report.