Credit: Jamesteohart | Adobe StockLife Sciences Real Estate: Niche know-how and unique challenges
Ahead of upcoming Life Sciences event, GRI Club dives into the sector’s challenges and opportunities for investors and developers
November 16, 2023Real Estate
Written by Helen Richards
Notes by Fedra Rodríguez
The field of life sciences is gaining significant importance and attention globally, with the real estate sector playing a crucial role in supporting the rapid growth of the industry.
Alliances between European investors, real estate giants, and governments are slowly appearing, and these collaborations have led to an increase in transaction volumes in the sector.
However, many of the companies involved in the development of medical and biological research clusters still rely on the support of American and Chinese developers and investors, indicating that the European life sciences real estate market is far from reaching its potential.
This niche market offers the opportunity of substantial gains for experienced stakeholders, but entering the market can prove challenging.
In general, the UK places significant emphasis on research and development (R&D), a vital part of its economy. The country’s prestigious universities and institutions and the rapid development of Covid-19 vaccines have highlighted the UK as a leader in European life sciences.
The country’s recent rejoining of the Horizon Europe scheme will now spur this sector further, offering the country's leading academic research institutions a renewed opportunity to participate in the world's most extensive international scientific collaboration network, from which they received €2 billion in funding during the scheme’s predecessor (2014 - 2020).
The focus is on providing flexible workspaces and administrative services to support the development of these smaller companies. They often occupy multi-tenanted buildings with room for expansion, and emphasis on building amenities to retain talent. Many developments are mixed-use buildings with restaurants, accommodation, halls, cultural centres, and numerous facilities.
Life sciences tenants value flexibility and will pay for it. With larger holdings which can offer a mix of accommodation, tenant movement can be positively managed. It is necessary to get under the skin of these companies: understand their intellectual property, who is behind them, who leads them, and with which hospital or university they’re working.
The right buildings, infrastructure and amenities play a crucial role in fostering a healthy and vibrant life sciences ecosystem, however the crucial factor is location. Life sciences ecosystems are highly location-sensitive, thriving in environments with the presence of a distinguished research university or institution, fostering the scientific knowledge necessary for innovation and providing access to a skilled talent pool.
This raises the intriguing possibility of repurposing redundant office spaces into life sciences assets.
The technical requirements for life sciences spaces, as well as the elaboration of an all-singing-all-dancing ecosystem, points to significantly higher development and build-out costs than for traditional offices. However, reported high retention rates suggest these are usually a one-time additional cost only.
To mitigate the risk, incubator and accelerator ecosystems often pool tenants with different risk profiles, diversifying the overall risk, or even lease to third-party operators, such as lab coworking firms, to reduce the landlord's risk exposure.
While large pharmaceutical companies may have their sustainability goals, small and medium-sized enterprises may prioritise these concerns differently. Therefore, landlords should take a proactive approach, engaging with tenants to meet sustainability requirements.
Although the sector's complex demands and heightened sensitivity to location may create hurdles in entering the market, they also function as protective measures, establishing inherent supply constraints and, in turn, guaranteeing a consistent demand and strong fundamentals.
The life sciences real estate sector is certainly unique, presenting distinctive challenges and opportunities. Support systems, location sensitivity, evolving property characteristics, and sustainability considerations play pivotal roles in shaping the sector. As life sciences companies continue to flourish and expand, investors and property developers must remain attuned to the dynamic needs of the industry to seize the exciting opportunities it offers.
These challenges and the niche strategies needed to enter the sector will be discussed in detail on December 6 at GRI Club’s Empowered by Women - Life Sciences event in London. In partnership with Oxford Properties, the event will gather the leading female voices in real estate, among which include experts in the sector of life sciences real estate.
Read more and register, or refer a female leader from your company here.
Notes by Fedra Rodríguez
The field of life sciences is gaining significant importance and attention globally, with the real estate sector playing a crucial role in supporting the rapid growth of the industry.
Alliances between European investors, real estate giants, and governments are slowly appearing, and these collaborations have led to an increase in transaction volumes in the sector.
However, many of the companies involved in the development of medical and biological research clusters still rely on the support of American and Chinese developers and investors, indicating that the European life sciences real estate market is far from reaching its potential.
This niche market offers the opportunity of substantial gains for experienced stakeholders, but entering the market can prove challenging.
The United Kingdom
The UK has emerged as a dominant player in European life sciences, accounting for over a third of the funding invested thus far into the sector. The European markets sitting just behind the UK include Germany, Switzerland, France, Belgium, and the Netherlands.In general, the UK places significant emphasis on research and development (R&D), a vital part of its economy. The country’s prestigious universities and institutions and the rapid development of Covid-19 vaccines have highlighted the UK as a leader in European life sciences.
The country’s recent rejoining of the Horizon Europe scheme will now spur this sector further, offering the country's leading academic research institutions a renewed opportunity to participate in the world's most extensive international scientific collaboration network, from which they received €2 billion in funding during the scheme’s predecessor (2014 - 2020).
Tenants & Location Sensitivity
Companies and start-ups in the life sciences sector have the potential for rapid expansion, and the possibility of acquisition by international giants. However, they require support, similar to how business incubators help start-up companies secure investment.The focus is on providing flexible workspaces and administrative services to support the development of these smaller companies. They often occupy multi-tenanted buildings with room for expansion, and emphasis on building amenities to retain talent. Many developments are mixed-use buildings with restaurants, accommodation, halls, cultural centres, and numerous facilities.
Life sciences tenants value flexibility and will pay for it. With larger holdings which can offer a mix of accommodation, tenant movement can be positively managed. It is necessary to get under the skin of these companies: understand their intellectual property, who is behind them, who leads them, and with which hospital or university they’re working.
The right buildings, infrastructure and amenities play a crucial role in fostering a healthy and vibrant life sciences ecosystem, however the crucial factor is location. Life sciences ecosystems are highly location-sensitive, thriving in environments with the presence of a distinguished research university or institution, fostering the scientific knowledge necessary for innovation and providing access to a skilled talent pool.
Life sciences assets are highly location-sensitive. (Image: evening_tao)
Spaces
The integration of digitalization and automation has transformed the property characteristics required for life sciences research. Today, life sciences spaces are no longer dominated by wet labs but necessitate various spaces for different purposes, resembling offices with flexible office-to-lab space ratios.This raises the intriguing possibility of repurposing redundant office spaces into life sciences assets.
The technical requirements for life sciences spaces, as well as the elaboration of an all-singing-all-dancing ecosystem, points to significantly higher development and build-out costs than for traditional offices. However, reported high retention rates suggest these are usually a one-time additional cost only.
Tenant Covenant
With a number of life sciences companies being young start-ups, risk of failure is high, thus concerns regarding tenant covenant risk arise. The preference for short-term leases also adds to this concern.To mitigate the risk, incubator and accelerator ecosystems often pool tenants with different risk profiles, diversifying the overall risk, or even lease to third-party operators, such as lab coworking firms, to reduce the landlord's risk exposure.
Digitalization and automation have transformed life sciences property characteristics. (Image: silvapinto)
Life Sciences and ESG
Sustainability is a critical consideration in the life sciences sector, where assets consume ten times more energy and four times more water than traditional offices. Additionally, the generation of unsafe chemical waste and the carbon emissions associated with out-of-town locations pose environmental challenges.While large pharmaceutical companies may have their sustainability goals, small and medium-sized enterprises may prioritise these concerns differently. Therefore, landlords should take a proactive approach, engaging with tenants to meet sustainability requirements.
Investors
Life sciences ecosystems have demonstrated a resilience to market cycles, consequently drawing more attention from core real estate investors. Considering the limited number and concentration of specialised investors, entering the sector can be challenging. Opportunities for core investors, however, may lie in development or repurposing projects, collaborating with experts in the field of life sciences.Although the sector's complex demands and heightened sensitivity to location may create hurdles in entering the market, they also function as protective measures, establishing inherent supply constraints and, in turn, guaranteeing a consistent demand and strong fundamentals.
The life sciences real estate sector is certainly unique, presenting distinctive challenges and opportunities. Support systems, location sensitivity, evolving property characteristics, and sustainability considerations play pivotal roles in shaping the sector. As life sciences companies continue to flourish and expand, investors and property developers must remain attuned to the dynamic needs of the industry to seize the exciting opportunities it offers.
These challenges and the niche strategies needed to enter the sector will be discussed in detail on December 6 at GRI Club’s Empowered by Women - Life Sciences event in London. In partnership with Oxford Properties, the event will gather the leading female voices in real estate, among which include experts in the sector of life sciences real estate.
Read more and register, or refer a female leader from your company here.
