Life sciences real estate: The next sound investment in Vancouver | RENX
GUEST PILLAR: Increased capital reserves, low interest rates and record highs in the stock markets have sparked new interest in investment opportunities for commercial real estate.
Traditionally, investors have often been attracted to Vancouver’s supply, high-demand office and multi-family markets due to their stable occupancy, steady rent growth and exceptional liquidity.
However, the limited supply and constantly compressing returns in traditional asset classes have led to increased interest in opportunities outside of traditional office space.
Several asset classes have seen significant gains since the pandemic began. One notable and perhaps unexpected change has been the life sciences investment sector, where we are now seeing firsthand the development of this relatively new asset class, which is growing in both availability and demand.
Global investors looking for a stable place to invest capital are increasingly viewing life science real estate as an alternative solution to solving both availability and return problems.
Many investors know that investing in commercial real estate offers both returns and stability and are exploring opportunities outside of the traditional office, apartment, or industrial sector.
Life science is a fast growing sector
Life science real estate investors simply buy laboratory space and rent it to life science companies – but what happens when there is no space to buy or lease?
The sector has seen increased interest over the past year as biotech and pharmaceutical companies experience this sudden buy-in from venture capitalists and investment firms. and understandably, considering it’s a best-performing sector that is essentially recession-proof and with growing demand.
Since the fall of last year, large amounts have been made available for REITs with life science portfolios.
In October 2020, renowned Blackstone Real Estate Partners announced that they were raising $ 7.5 billion for their new life sciences fund as part of their long-term return on investment strategy.
Blackstone also announced plans to manage BioMed Realty, which recently sold for $ 14.6 billion (with a portfolio of 11.3 billion euros) under a contract with the largest private owner of life science office buildings in the United States Million square feet targeting leading innovation markets such as Boston, San Francisco and San Diego).
This transaction was part of a long-term strategy to attract investors looking to maintain or increase their exposure to the life science office. and Blackstone isn’t the only great player to notice.
Madison International announced a $ 1.7 billion investment in US life science developer IQHQ, and Tishman Speyer formed a US life science real estate development company with Bellco Capital that raised $ 1 billion for purchase from laboratory facilities around the world.
Put Vancouver on the radar
Until now, investment trusts were familiar with the global hotspots for life science real estate in Europe and the USA.
However, the increased global demand for land will pave the way for cities with strong science and basic life science foundations – cities like Vancouver.
Real estate investors are showing a noticeable interest in investing in laboratory space in Canada’s life science hubs in Montreal, Toronto and Vancouver. In 2019, British Columbia biotech companies raised $ 700 million from the top four deals. This was followed by the inclusion of a record $ 1.5 billion in 2020.
In late 2020, AbCellera dominated with its successful IPO with a current valuation of over $ 10 billion. It joined Zymeworks and Aurinia, two other biotech companies in British Columbia with billions in valuation.
Unfortunately, we’ve seen tons of expanding local businesses fled to neighboring hubs or even overseas due to the lack of space in Vancouver.
From a commercial real estate perspective, founding principles based on stable long-term returns and significant up-front costs will not adequately promote the economic development of our city.
To see more developers in life sciences real estate projects, we need to adjust our thinking and view life science real estate as a new and fast growing asset class that generates sustainable returns simply because of increasing demand.
The emergence of this asset class is another opportunity for property investors – and since there is an abundance of capital in this sector, investors are taking note.
Life science room is missing
The problem in our city is the lack of supply. Tenants who want to rent laboratory and biotech space cannot find availabilities that meet the requirements for laboratory operation. Often requiring significant up-front costs to retrofit or build, businesses are often forced to look elsewhere.
Much of the vacant space that already exists in Vancouver is not compatible as laboratory space because their floor slabs are not large enough to accommodate the mechanical and ventilation systems required.
Laboratory-grade spaces have complex requirements, including high ceilings to allow additional vents for fresh air circulation, which in turn creates the likelihood of site builders to decrease in site density.
It is important to understand that this type of property development may not be the most conventional route, as asset class developers are inherently and financially incentivized to build a product in demand. High demand means more competitive rental prices and higher occupancy.
Not only is real estate in the life sciences a solid investment, but developers can make a contribution to Vancouver’s healthcare infrastructure for generations to come.
With the venture capital available to the biotech sector, there is potential for exponential growth and fundamental support for BC’s economic recovery. Such a development has the power to innovate, attract investment and create high-paying jobs.
However, emerging companies need to be innovative. The resources of these companies would be better used to hire researchers and fund studies than capital to invest in retrofitting or building land. The solution would be to bring together the insurmountable demand and the insurmountable ecosystem to build a larger facility that can help solve the problem.
New hospital offers new opportunities
This is happening in other cities in Canada, and for the first time there is an opportunity to take this mission forward here in Vancouver. . .
The new St. Paul’s Hospital at Jim Pattison Medical Center has just begun construction of the largest hospital renovation project in British Columbia’s history. It is planned to transform the future of healthcare by delivering this much-needed infrastructure.
Providence Health Care (PHC) is seeking a development partner to set up the Clinical Support and Research Center (CSRC), a state-of-the-art medical research and innovation center and professional office complex on campus.
This new building will be the hub of the city’s biotechnology and medical research industries, and will promote Vancouver as a world-class center for medicine and healthcare.
The CSRC will consist of fully integrated wet and dry research laboratories, medical offices, meeting and conference rooms and administrative offices in Vancouver’s emerging technology district.
The aim is to enable local life science companies to innovate and to offer them room for local growth.
The CSRC will be located on approximately 114,000 square feet in the new St. Paul’s Hospital at Jim Pattison Medical Center and can accommodate a density of approximately 680,000 square feet through rededication. The developer will lead the design and construction of the CSRC component.
The aim is to develop the site to the maximum density, exceed the space requirements of Providence Health Care and make rental space available to tenants in the private healthcare sector, biotechnology and other compatible technology and research users.
Developers pay attention to it
Less than a year ago, CBRE worked with Providence Health Care on the sale of the St. Paul’s Hospital site on Burrard Street. Through this process we started looking for development partners for the new hospital and our vision of where the future investor would come from was limited.
Now, less than a year later, CBRE has close to 100 percent buy-in interest from the developers and investors we dealt with during our Phase 1 marketing process.
The growing interest shows that developers are gradually realizing just how much this real estate niche is growing, and most importantly, they seem excited to be a part of it.
While the COVID-19 pandemic has sparked increased need and demand for space dedicated to life sciences, a variety of factors will contribute to the longevity of this asset class, including the changing needs of an aging population and technological advances in industries like AI, gene therapy and other life-extending advances.
As investment in this sector increases, it is still in its infancy.
To truly see the continued success of this asset class, Vancouver needs to build and build more offering so that existing businesses don’t expand elsewhere.
Undoubtedly, the pandemic will have an impact in the years to come as countries and companies seek resilience in the field, but the life science industry will certainly retain its value.
Tony Quattrin is the vice chairman of CBRE’s Capital Markets.