“The life sciences industry is thriving,” says CGS3 attorney Dawn Saunders. Like the industrial sector, life science has been a beneficiary of the pandemic. With the search for a vaccine and more focus on health and wellness, life science companies are expanding with significant capital investment from venture capital. As a result, the investment capital is surging into the life science market.
“There is a lot of VC money being invested in life sciences so these companies are well capitalized. This sector has traditionally weathered economic challenges well. The tech crash in the early 2000’s and the Great Recession are examples,” Saunders, a partner at law firm Crosbie Gliner Schiffman Southard & Swanson LLP, tells GlobeSt.com. “Life science companies also tend to invest heavily in their premises and stay for a long term, and rents are higher than other product types. Basically, these are stable assets with high rental streams, low turnover and high returns make life sciences a really attractive investment opportunity.”
While the life science market is healthy, other asset classes are in distress. Investment capital is fleeing to safer asset classes. “Look at reports from other sectors: retail is in trouble and office is struggling—especially in the wake of COVID and talk of increased telecommuting and a new paradigm for office space, the future of the office sector is uncertain,” says Saunders. “Industrial investment has been popular over the last several years and arguably may be reaching a leveling off point, although some would argue with me on that. Life sciences is a shining light in the real estate industry right now, so naturally owners and investors are looking to life sciences as a potential opportunity.”
Life science rents have not been hampered by the pandemic. Overall, rents are continuing to increase. “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,” says Saunders. “Rents are continuing to increase, with sustained growth in most areas. That growth has been consistent over time, which makes it attractive for investment.”
Strong rents equal strong asset values and positive forecasts for future appreciation. “Asset values are proportionate to rents, so those are continuing to increase, and that is helped along by the number of investors who want to enter this sector,” says Saunders. “Lab space is in limited supply and when a building comes to market, we are seeing bidding wars and prices increasing markedly as a result. It’s a seller’s market, but the number of deals on the market is limited so capital is being deployed for development or redevelopment opportunities.”