Oxford: development of the Covid-19 vaccine.
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Researching an asset class

In the US, they’re already one of the hottest real estate investments, with Europe also seeing growing interest in life science facilities. However, investor demand exceeds supply, particularly in Germany. By Birgitt Wüst

Life sciences are probably the most exciting topic for real estate investment in Europe right now,” says Timothé Rauly, Global Head of Fund Management at AXA IM Alts. The subsidiary of global asset manager Axa Investment Managers has just raised €1.9 billion to spend on specialist laboratory and office space in Europe, primarily in the Netherlands, the UK, Germany and France. Already an established asset class in the US, the trend for investing in life science properties has now reached Europe. 


While the international scramble to develop a Covid-19 vaccine has been a contributing factor, the sector was on property investors’ radar prior to the pandemic. Interest has been fuelled by pioneering breakthroughs in the field of biosciences such as in cancer research, gene therapy and immunology research. As part of the life sciences revolution, more and more public and private finance is flowing into the sector and boosting research productivity, especially in affluent countries with an ageing population where healthcare plays a major role. 


Given the favourable outlook for this sector, space requirements are likely to increase further, which in turn is attracting the attention of real estate investors. The European market is “less mature” than in the US, though, says Andri Eglitis, Head of Research at Swiss Life Asset Managers Germany. Transaction volumes are “barely measurable”, which likely has more to do with a lack of supply than any shortage of investor interest.


The Jenner Institute Laboratories
David Levene

Life sciences clusters have a high density of research organisations

As Head of Research at CBRE, Jan Linsin confirms the relative difficulty of finding investment opportunities in Germany: “Many specialist life science facilities are occupied by their owners.” Referring to the experience of English-speaking and other European markets, he goes on to say that “investors are focused on acquiring buildings with pharmaceutical or medical tenants or are looking for sale-and-leaseback opportunities where properties are currently owner-occupied.” That’s the case in the “golden triangle” between Cambridge, Oxford and London, for example, which has enjoyed strong investor interest for years and recently hit the headlines with the development of the AstraZeneca vaccine. For AXA manager Timothé Rauly, the golden triangle is “definitely a location we want to continue investing in.” 


Such hotspots are characterised by a high concentration of research facilities and proximity to leading universities, hospitals and healthcare or pharmaceutical companies. “Long-term, life science works best in clusters – and the necessary conditions are only found in a limited number of places in Germany,” says Dominic Thoma, team leader for industrial investment at JLL Munich. Where new laboratories are set up outside of clusters, it’s generally due to specific user requirements, such as the need to deliver fast local analysis of Covid tests. 


In addition to the above criteria, an effective life sciences cluster is predicated on “an urban lifestyle and a high quality of life,” stresses Thoma: “Researchers in the biosciences are sought-after specialists – they can choose where they work.” It’s thus no coincidence that the hotspots in Germany are often close to attractive cities with respected universities and research institutions such as Hamburg, Munich (including the science suburbs of Martinsried-Planegg-Großhadern and Garching) and Berlin where – as Andri Eglitis points out – Swiss Life Asset Managers recently joined forces with Beos to acquire Max Dohrn Labs (2020) and the Curve Campus (2021), two life science buildings.


Long-term, life science only works in clusters.
Dominic Thoma, Team Leader Industrial Investment, JLL

Additional KPIs need to be included in due diligence

Sites in well-connected locations close to major cities command high prices, while buildings designed for research in the biosciences are more expensive to construct than conventional office properties. “Laboratory facilities and equipment require higher ceilings and wider corridors; the floors also need to be able to withstand higher loads,” says Thoma. “Then there’s the technology side, service ducts and disposal chutes, extraction and ventilation systems, water supplies, compressed air, medical gases, etc.” There are therefore limits on the extent to which offices can be converted to life science buildings. 


When conducting due diligence on life science properties, investors also need to consider KPIs that go beyond the traditional economic, demographic and real estate market and property data, adds Linsin. “For example, information about higher education research initiatives and funding, the availability of specialist staff, venture capital finance, the degree to which revenues are driven by individual research portfolios including the associated patent expiration schedules, potential state support and the availability of incubator facilities.” Despite these hurdles, the CBRE expert is confident that life sciences clusters will emerge in Germany’s research regions. That appraisal is shared by Eglitis: “Demographic change, rising spending on healthcare and new technologies are driving the industry, while the properties themselves have an attractive risk-return profile due to their diversification in terms of product type and tenants."


By Birgitt Wüst


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