Specialist life science real estate is expanding – with growing opportunities for commercial property investors. Swiss Life Asset Managers is committed to solutions that combine innovation and responsibility to achieve long-term investment objectives. The changing life science real estate landscape is an opportunity for a sustainable portfolio.

Specialist life science real estate is expanding – with growing opportunities for commercial property investors. Swiss Life Asset Managers advocates solutions that combine independence, responsibility and confidence meeting long-term financial objectives. The changing life science real estate landscape is an opportunity for a sustainable portfolio.

The sector known as ‘life sciences’ covers a wide range of scientific fields and can be broadly described as the application of biology and technology to the study of health improvement. Life sciences include areas as diverse as pharmaceutical research and manufacturing, through to medical diagnostics, genome-mapping, and the development and production of medical devices.
As this type of research and development is so vital, life science companies often prefer to set up near public and private research institutions. At the same time, new companies are constantly emerging from these organisations, driving local occupier demand.
From a real estate perspective, life science companies require a mix of office, lab space and production facilities. They often need real estate that provides specialist functions, such as clean rooms or R&D facilities. Established domestic companies often possess their own stock, whereas start-ups are likely to rent most of the space they need. Start-ups are increasingly active as technology is integrated into healthcare services through biotech and medtech.

Eglitis Andri
Given the attractive risk-adjusted return prospects, allocations into life sciences can be an interesting way to diversify real estate portfolios for stable, long-term returns.

The sector appeals to attractive tenants
It’s important to consider regional differences, as companies in continental Europe are more reluctant to rent than they are in the UK. For investors, high owner–occupation implies a lack of product, which can be addressed, for example, by sale-and-lease-back agreements. The life science real estate sector offers landlords attractive tenants: many companies have strong credit ratings and negotiate long-term leases. This allows them to secure specialist  life science real estate from a strategic perspective, driven by their occupants’ investments in individual fittings.

In contrast to the US, the European life science real estate investment market is less mature and more difficult to measure. According to the Urban Land Institute, transaction volumes in life sciences in 2020 were less than 1% of the overall EUR 275 billion invested. Stock traded was characterised by a high share of cross-border investors. Initial yields are about 100 basis points above the level of prime office or residential assets.

Several factors fuel the industry
Given the attractive risk-adjusted return prospects, allocations into life sciences can be an interesting way to diversify real estate portfolios for stable, long-term returns. Swiss Life Asset Managers, via its German operational property specialist BEOS AG, manages investment portfolios that hold a number of flex properties which are occupied by suitable tenants, but classified as part of the industrial and logistics sector. In 2020, BEOS AG acquired an office and laboratory building in Essener Bogen Business and Technology Park in Hamburg. The property, with approx. 11,000 m² of rental space, serves as headquarters for a biotech company. A further building with 11,000 m² of office and lab space is set to be built for the company on an adjacent site.

The life science real estate sector is still a fledgling category in Europe – but for investors, the benefits of properties designed and occupied by such tenants are clear. Demographic change, rising healthcare spending and new technologies are all fuelling the industry, while the properties themselves feature an attractive risk–return profile through diversification across product type and tenants. With risk management embedded in our asset management approach, we can help you achieve sustainable performance across all market conditions.

First published in Insights Real Estate October 2021.
Author: Andri Eglitis, Head Research, Swiss Life Asset Managers, Germany

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