By Tom Leahy on June 14th, 2021
Investor interest in the life sciences sector has exploded. While the shadow of remote working has undermined office property demand, R&D-type properties have proved immune. As one commentator put it: you can’t do chemistry from home.
Just over $11 billion has been spent on R&D properties globally so far in 2021, compared with $16 billion in the whole of 2020, which was the second strongest year on record. (RCA records life sciences properties under the R&D feature of buildings). The surge is reflected in client questions to the Real Capital Analytics team of analysts: the group has fielded more data queries so far this year than in all of 2020.
Against a global backdrop of abundant liquidity but waning interest in certain asset classes – think retail, for example – the life sciences subsector has gained market share. In 2021 so far it accounts for just under 4% of all transactions in income-producing commercial real estate. This compares with a long-term average of 1.4%.
As has been the case historically, the U.S. is by far the largest market for life science properties in 2021, accounting for $8.9 billion of the total spent so far. Transaction volume was boosted by Blackstone’s purchase of a 13-property portfolio from Brookfield for $3.4 billion; however, the count of properties changing hands shows the scope of interest. Through early June, 111 properties have traded, which is more than half the 2020 total. RCA’s U.S. construction data also shows another 56 R&D properties under construction, worth an estimated $11 billion at current market prices.
While the sector remains relatively small in Europe and the Asia Pacific region, there is clearly demand judging by the talk from market participants. In Europe, $445 million has been spent in the U.K. and $222 million in Denmark. The largest deal was Harrison Street and Trinity Investment Management’s acquisition of the 12-property BioCity science park portfolio in the U.K. for $165 million.
The heightened investor interest is reflected in RCA’s Hedonic Series pricing analysis, which shows that the average price per square foot for R&D assets in the U.S. and Europe has increased by 10% in the last 12 months. This rate of growth outstrips the industrial sector in both geographies over the same period.
© Real Capital Analytics
Haley Crimmins contributed pricing analysis to this article.
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