Life Science as a real estate asset class

December 28, 2022

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The life science industry has received an increase popularity over the past decade from various type of organizations such as venture capitalists, government authorities, media organizations and more recently real estate investors that have started closely monitoring the sector and seeing opportunities from a real estate perspective, but what exactly is life science?

The sector comprises companies operating and focusing on the entire cycle of the creation of new pharmaceutical products, biotechnology-based food and medicines, medical devices, biomedical technologies, nutraceuticals, cosmeceuticals, food processing from the research and development to its final manufacturing.

Life science growth over the past decade has been fed by an exponential increase in both venture capital and government funding. According to research done by McKinsey, VC Companies invested in 2,200 biotech start-ups worldwide in 2016, by 2021 that number had grown to 3,100. In 2021, biotech companies raised more than $34 billion globally more than double to the 2020 number of $16 Billion.

Real Estate Investors are always in quest of new opportunities, here is three main takeaways from our interview conducted with Jeremy Gelb, Associate at Capital Markets within Thor Equities on why life science has become such an attractive investment for real estate investment firms:

  • Resilience

The Life Science sector has shown resilience throughout the covid crisis and outperformed most other asset types in both transaction volume and occupancy rates. While Global real estate investment was down 44 percent in the third quarter compared to 3Q of 2019, investments in the US life sciences real estate was up by 6.6 percent over the previous 12 months period according to a study done by JLL.

In terms of occupancy, overall lab vacancy rate in the top 12 US life sciences markets fell by 10 basis points to 5.2% in the second quarter of 2022, while the average lab asking rent in those cities increased 5.8% year over year.

As highlighted by Jeremy Gelb, Life Science has a sector has not been impacted by the “work from home” phenomenon

  • Strong Fundamentals

The increased in venture capital and government funding has set the life science sector to continue its growth in the near future will lead to higher demand in life science spaces. According to a report done by Gran View Research, the global life science analytics market size is expected to expand at a compound annual growth rate (CAGR) of 7.7% from 2022 to 2030.

  • Opportunities from a real estate perspective

With offices having a hard time to get back to pre-pandemic occupancy level such as places like San Fransisco that averaged a vacancy rate of around 12% over the long term pre-pandemic level is now 23% vacancy level in the third quarter of 2022 according to data from Cushman & Wakefield while San Fransisco is becoming one of the hottest life science market in the US and averages a 6.8% vacancy level according to data from Newmark.

This has left office owners and real estate investment firms thinking of ways to adapt to the current economics and reconvert office spaces to life science spaces. This, of course is not an easy process, requires consequent feasibility studies, selected locations, great amount of CAPEX which we will discuss in another article however if all those elements are assembled well, the return on investment can be quite interesting.

Article Author: Tugdual LEVEL-CHITRIT


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