European life sciences real estate remains an immature segment of the market but there are compelling and immediate opportunities for development and investment, according to a new research paper from the Urban Land Institute (ULI).
At a time when real estate investors and developers are showing increasing interest in life sciences real estate based on the structural growth potential of the sector, the report found that life sciences companies increasingly want to be in urban clusters, not in edge-of-town science parks. This creates an opportunity to reinvent redundant buildings in urban centres – especially retail or industrial space.
Technology trends accelerated by the pandemic have presented structural issues for some of the more traditional real estate sectors. When it comes to adaptation for life sciences, retail buildings have the advantage of delivery access, goods storage areas, plant space and high floor-to-ceiling heights. Industrial buildings can also lend themselves well to repurposing because of adaptability and cheap build.
Tenant requirements in the life sciences sector tend to be very specific and volatile, depending on the tenant’s phase of development, ranging from start-ups and scale-ups to mature pharma companies. Demand includes a wide variety of different types of lab spaces in addition to office and manufacturing space and may change rapidly if organisations get access to venture capital and other funding sources following a promising idea. Inexperienced real estate players tend to struggle with this uncertain and specific tenant demand, lacking the operational expertise.
Additional challenges that have come to the surface include lack of suitable real estate, data and knowledge about the sector. In fact, the report revealed that one of the greatest challenges to invest in the sector is the relative scarcity of information. In the top three responses to survey questions about investment in LSRE, respondents noted:
• Lack of suitable real estate, 64%;
• Lack of knowledge about the sector, 31%; and
• Lack of data to make informed decisions, 28%.
To overcome these barriers, ULI’s report calls for more transparency around transactions, building specifications and rental and pricing levels to give confidence to investors and remove a reliance on assumptions as to risk and return. Alignment of interest between owners and occupiers is key for life sciences given the large diversity and volatility in occupier demand, which requires continuous adaptation, flexibility and hands-on stewardship.
‘Following the growth path that life sciences real estate followed in the US over the past couple of years, this report shows a similar strong case for investment in Europe’s life sciences real estate, although there are still some hurdles to tackle,’ commented ULI Europe’s CEO Lisette van Doorn.
Established real estate players in the US life sciences market have capitalised on demand there and started to look further afield for the next top life sciences destinations, Van Doorn added. ‘Some are exploring opportunities in Europe and making acquisitions. They are being followed by real estate players within Europe.’
