Life Sciences real estate – a new darling of real estate investing
Given the current pandemic situation the interest of the real estate investment community in the life sciences real estate sector is poised to grow tremendously in the years to come. Technically, this is office real estate but because of the pandemics it is becoming a hot sector. Major life sciences markets around the country report non-existent vacancy rates. This employment, space, investment demand is driven by significant capital flows into the life science sectors from industry investors and tenants (established bio-pharmaceutical, biotechnology, venture capitalists, and other seed investors).
Recent Blackstone deal brought life sciences real estate front and center with $3.5 billion property purchase from Brookfield Asset Management; Alexandria Real Estate Equities recently raised $1.1 billion in a new share offering, the largest raise in company’s history; BioMed Realty, which was taken private by Blackstone in 2016 announced that it is moving forward with its 2.5 million sf ft development pipeline. In short, the market is hot.
Several positive trends contribute to all the activity in the life sciences real estate:
- Economic trends that benefit further growth of the life sciences real estate, namely aging population that requires pharmaceutical research. Regardless of the pandemic, this trend will be continuing;
- Most office buildings have been hurt because businesses were forced to go virtual but the pharma businesses cannot be remote;
- Traditional life sciences markets are located in the geographical areas that are harder to develop in, such as Cambridge or SF Bay Area.
There are obviously risks. Such great demand from investors has driven the prices to the new high. The investment opportunity in life science going forward will be in the opportunity to convert existing and fully functionally obsolete and physically deteriorated space to the highest-best-use of life science campuses and incubators. This poses yet another risk – investors can drive up the supply of the life sciences real estate. The risk could be mitigated because conversion is not as straight forward, it require, for example, sophisticated ventilation and gas and water delivery systems.
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