Pandemic sparks demand for biotech properties

More investors are betting on life sciences real estate amid unrelenting outbreaks of Covid-19 infections worldwide.

The Coronavirus pandemic has accelerated a property segment that has always been very niche and receives very little attention – research laboratories and corporate offices for the life sciences industry. Life sciences is the umbrella term to cover all health-related sectors like pharmaceutical, biotechnology, medical equipment, food science and healthcare, and includes research and development into new vaccines for Covid-19.

Not only are specialised labs needed, the real estate demand for this segment includes logistics facilities (including cold storage) and manufacturing facilities.

Though not new, such a specialised property class has attracted a lot of investor interest since the Coronavirus pandemic started in late 2019. Among the reasons is its notably low vacancy rate which any landlord would be pleased.

It’s also a very stable income earner as the tenant would not be moving out anytime soon once settled in. This is because of the vast initial outlay, the expensive and sophisticated equipment onsite and most of all, the researchers must be physically present in the lab ensuring no work-from-home (WFH) disruption – this is one job that can’t be performed from home!

The market has been growing rapidly in North America and Europe (UK) even before the pandemic but since 2020, it has experienced exponential growth due to the race to get the Covid-19 vaccine out. Also, more companies are looking to take advantage of expiring pharmaceutical patents, according to CBRE. Additionally, there’s more demand for high-specification logistics facilities, including cold storage, partly due to specialised storage requirements for mRNA COVID-19 vaccines.

Unsurprisingly, the sector is expected to see strong growth in the next five years, according to Cushman & Wakefield’s “Life Sciences 2020: The Future is Here” report. The market for the global prescription drug market alone is expected to surpass US$1 trillion by 2022.

Repurposing opportunity

The pandemic has caused the property market in most countries to slowdown and stagnate especially the office and retail market due to widespread lockdowns and work-from-home directives across the globe. With increasing vacancies in these two sectors, it’s the perfect time now to think about repurposing or converting them into spaces that are in demand now. Labs and warehousing are two areas that have caught the attention of governments and private sector developers.

For example, in Montreal which has the highest concentration of biotech research facilities in Canada, property developers are busy buying empty buildings built in the 1980s and 1990s, as well as industrial warehouses to convert into lab space. The demand is unrelenting as more new entrants
get into contract research and contract manufacturing, hence requiring more such custom-built labs and manufacturing spaces.

Deloitte Life Sciences reports that Novartis, Pfizer, and Fujifilm have increased investments in gene therapy manufacturing while contract manufacturers such as Catalent and Thermo Fisher Scientific are also ramping up operations to support gene therapy R&D.

“In the current market, contract manufacturing agreements are growing for next-generation therapies because a lot of pharma companies prefer to use contract manufacturers instead of manufacturing the products themselves. The rapid ability of contract manufacturers to scale is set to continue,” the report concludes.

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