Investors Drawn To European Real Estate Dedicated To Life Sciences
Investors have been drawn into European real estate dedicated to life sciences, which spans sectors such as biomedical devices and pharmaceuticals, by an ageing population and strong academic research in the region. But the COVID-19 pandemic has fast-forwarded the script.
Investors say there is demand in both urban centres and out-of-town science parks in Britain and other parts of Europe to accommodate an industry which tends to be recession-proof. Real estate money is looking for new avenues as retail property and offices face the challenge of people increasingly shopping and working from home, analysts and investors say.
Commercial real estate investment volumes in Europe totalled 277 billion euros ($333 billion) in 2020, down 17% from a year earlier as a result of the coronavirus pandemic, real estate broker CBRE says. Although less than 1% of European real estate investment is in life sciences, a recent report from the Urban Land Institute shows, strong government and venture capital investment in the sector is encouraging piggy-backing by real estate investors.
Glenn Crocker, head of UK life sciences at JLL, said it had been approached by 20 real estate developers and investors to discuss life sciences in January, following 100 conversations in 2020, reflecting the strength of interest. Not every area is suitable for a life sciences centre, as the infrastructure of nearby universities, major hospitals and good housing or cultural activities is also needed.
Although Britain’s so-called Golden Triangle of life sciences centres in London, Oxford and Cambridge leads the way in Europe, areas such as Bio Science Park in the Dutch city of Leiden, which is home to Johnson & Johnson vaccine producer Janssen, is one of several major European ones.
Private equity giant Blackstone’s real estate life sciences investment in Britain, which is made through its $20 billion enterprise value portfolio company BioMed Realty, includes several science park buildings in Cambridge. Meanwhile, British insurance and investment group Legal & General last year invested 200 million pounds in Oxford University’s Life and Mind Building.
L&G recently sold five buildings in a Cambridge science park after a fierce bidding war for a total 97 million pounds, 59% above valuation levels. In addition to U.S. investors and Canadian pension funds, Middle Eastern money is also showing interest. Real estate demand is outstripping supply. In Cambridge, there are lab requirements of more than 400,000 square feet, and supply of less than 100,000.
Life science buildings range from traditional offices and laboratories to “dry labs” – research offices with extra technology needs. The buildings may have special requirements such as extra power supplies, arrangements for the safe disposal of hazards and higher than average ceilings. Investors and developers have to kit out buildings without necessarily knowing who their future tenants will be, and if there will be one or several. And developers have to be flexible so that buildings can be altered relatively easily. Industry sources say bespoke buildings can be hard to market to new tenants.