Life Sciences Gains Fans in the Investor Community

Interest in life sciences was heating up before COVID-19. But the pandemic has accelerated that trend.

While investor interest is fed by the chase for a vaccine, the problems in hotel, retail, and even office also play into life sciences’ strength.

“Buyers are looking for other market segments subject to the same structural tailwinds enjoyed by industrial and apartments in which they can deploy capital,” Tom Leahy of Real Capital Analytics writes. 

So far, $10 billion of life sciences properties have sold in 2020, which is 1.9% of the total invested in income-producing commercial real estate, according to RCA. In 2019, $14.7 billion was sold, which was 1.4% of the total. Life sciences properties rank between data centers and student housing in terms of total transacted in the last five years.

In Q3, REIT Alexandria, which is the largest player in the space, made the most significant acquisition with the purchase of the Karlin Palmer portfolio in the Research Triangle Park in Raleigh/Durham, North Carolina for $615 million. In October, Ventas acquired a three-building portfolio in San Francisco for around $1 billion.

Currently, there $9 billion of life sciences properties presently under construction in the U.S. There is more than $2.5 billion under construction in the Boston metro area, another $1.2 billion in San Diego and $1 billion in Austin, according to RCA.

In addition to the search for a vaccine, Leahy writes that advancements in technology, data capture and analysis and a rapidly aging population in the developed world are attracting vast amounts of capital to the life sciences sector, which encompasses pharmaceuticals, biotech and medical technology industries. 

While other sectors struggle with falling rents and rising vacancies, rents are continuing to increase in life sciences. “It’s a function of basic supply and demand, and supply has not kept up with demand in many areas, so rental rates keep chasing the supply,” CGS3 attorney Dawn Saunders told GlobeSt.com in an earlier interview. “Rents are continuing to increase, with sustained growth in most areas. That growth has been consistent over time, which makes it attractive for investment.” 

Traditionally, life sciences companies tend to form in hubs around universities like Oxford and Cambridge in the U.K., Munich in Germany and San Francisco and Boston in the U.S, according to Leahy.

However, there is some evidence that life science hubs could emerge in new markets due to high costs and employees are moving away to take advantage of telework policies implemented during the pandemic. “This has created the perfect storm for life sciences companies to re-evaluate their real estate footprint and look at tier-two cities that have some of the factors essential to their success in a market,” Mark Hefner, CEO and shareholder of MGO Realty Advisors, told GlobeSt.com in an earlier interview.