Life Sciences – An Inevitable Boom?Owen Mitchell
Where much of the value in commercial real estate has historically been focused on hospitality and retail, real estate investors are increasingly targeting the Life Sciences industry, which encompasses a wide range of medical fields, including biotechnology, pharmaceuticals and biomedical technologies. The need for services associated with the Life Sciences industry is growing and investors are realising that the crucial role the sector has been playing during the pandemic is set to continue.
As pharmaceutical companies come under increasing scrutiny to produce vital medicines, as well as increased testing and therapies to combat the pandemic, occupancy levels continue to grow. Ageing populations and pioneering advancements in biology have fuelled demand for laboratories and their offices at an incredible rate. Growing demand has been reflected by venture capital investment in the industry, which has exploded over the last decade, with total global investment rising from just $3.7bn in 2008 to $17.4bn in 2019.
Until recently, most of the significant Life Science investment deals in the UK have involved private equity firms, international and domestic, including Brookfield, Brockton, and Blackstone’s BioMed Realty. However, last week Oxford Properties acquired 310 Cambridge Science Park in a potentially landmark deal highlighting the appetite of institutional investors to throw their hat into the burgeoning sector.
Real estate investors have tended to target large innovation campuses, similar to the headquarters of tech giants as the demands of the industry have favoured campus-style developments. However, over the last few years, there has been a growing acknowledgement tin Life Sciences real estate that, as the shift to ecommerce continues to grow, vacant retail space in urban locations, especially where supply is tight, will be key. Retail space offers good floor to ceiling heights and floor loadings, as well as good accessibility and local amenities, which are all key to sustaining occupier demand in the Life Sciences sector.
City centres are also particularly appealing for Life Science companies as they look to attract emerging talent from top universities. This week, Bruntwood SciTech announced it is embarking on a joint venture with the University of Manchester to develop a business district in the centre of the city. The £1.5bn innovation district highlights the importance of higher education’s relationship with real estate investors to commercialise research and development to shape the local area.
Although 70% of UK Life Science investment has so far been pumped into Oxford, Cambridge, and London, locations like Manchester and Leeds, and indeed ‘second cities’ around the world, are proving increasingly popular with Life Sciences investors and are likely to continue growing in the coming years – though perhaps not all developments will thrive. As an investor, it’s important to consider that Life Sciences talent – perhaps even more so than the Office sector – are asking for more and more amenities. Not just open space, roof decks and access to the outdoors – but collaboration spaces where computer and traditional hard science collide, wet and dry labs, on site cafés and restaurant space. These are all increasingly important aspects of Life Sciences schemes – and investors/developers must be able to configure space as such to match the changing tenant demand.
With the current uncertainty surrounding office, retail and other ‘traditional’ real estate assets, investment in Life Sciences Real Estate is poised for its own boom, aided by the ongoing effects of the Coronavirus pandemic. The Innesco team will be monitoring the sector closely as investors continue to pivot their portfolios, and the appeal of the sector surely becomes impossible to ignore.