Life sciences real estate moving into the mainstream
Life sciences real estate is finding favour with investors keen to capitalise on BioNTech’s success
Life sciences real estate in Germany is moving into the mainstream, following the enormous success of BioNTech in Mainz in creating a COVID-19 vaccine.
BioNTech has transformed Mainz’s fortunes and, predictably, real estate investors now want in. For the first time in three decades, Mainz has become debt-free thanks to the tax revenues generated by the company’s global success. The company announced first quarter revenue of €6.4 billion and is predicting total revenue for 2022 to be up to €17 billion.
Such assets have long been a part of many investors’ portfolios in the US and the UK. In addition, COVID-19 vaccines have generated record sales in the pharmaceutical industry over the past 18 months, including in Germany. And international investors want in on the action, according to Helge Scheunemann, head of Research at JLL Germany. “Companies from the U.S. are pushing into Germany, thanks in part to the success of BioNTech,” he said. “This increases the pressure on the real estate market and makes it interesting for investors.”
Part of the attraction for investors is that such properties are considered to be less susceptible to crises and offer a constant cash flow as they typically have long-term tenants. This has very much shown to be the case during the pandemic. In Germany, investments are primarily made in so-called clusters in which companies from various industries, including chemicals, biotechnology and pharmaceuticals are located, according to JLL, which describes Berlin, Munich, the Ruhr region, connected with the metropolitan regions of Düsseldorf and Cologne, Hamburg and Leipzig as such clusters.
Last year, almost 800,000 square metres were transacted in these clusters, soaring 26% y-o-y, according to JLL. Munich leads the pack, accounting for 211,800 square metres, followed by Hamburg with 102,200 square metres. Typically, properties of between 1,000 square metres and 2,500 square metres accounted for most take-up. The pharmaceutical industry is the biggest tenant, accounting for 29% of all take-up, followed by the two biotechnology segments of therapy and diagnostics (20%) and research and development (19%). Yields are typically between 3% and 6%, depending on the location.
Berlin commands highest rents
Berlin commands the highest rents at €32.60 per square metre, followed by Munich with €25.30 and Cologne with €22.60, according to JLL. Institutional investors do not, for the most part, hold significant stakes in science and technology-related real estate in their portfolios in Germany, something that JLL expects to change.
Berlin is an important cluster due to its strong research and hospital landscape as well as the region’s closely coordinated business and politics. The biotechnology, pharmaceuticals and medical technology sectors are particularly strong. The transaction volume for life sciences real estate in Berlin totalled €634 million between 2017 and 2021, according to Cushman & Wakefield’s Life Sciences 2022 report, which it published in May.
In Munich, the existing research institutions and the university attract new companies and start-ups. With two established biotechnology innovation and start-up centres (IZB) in Martinsried and Freising, the Munich market offers attractive and modern laboratory and office space. The transaction volume for life sciences real estate in Munich totalled €1.27 billion from 2017 to 2021, according to the report.
In Germany, the financial resources for life sciences come mainly from the public sector and non-profit initiatives. According to the report, real estate has developed into an investment niche that follows long-term macro perspectives, similarly to student housing, health care properties and data centres. "Several major global investors are planning to enter or make acquisitions in this segment," said Simon Jeschioro, head of Investment Advisory at Cushman & Wakefield.
Science parks high up on the list
One investor keen to up its exposure to such assets is Cologne-based asset manager Diok, which is targeting science parks. Diok, which specialises in office real estate, recently sold 49.9% of its share capital to an international consortium of private investors known as Alvarium Investments. At the same time German industry veteran Dr. Ralf Nöcker of London-based 64 Investments is joining the Diok board to represent Alvarium and the consortium including his own company. Earlier this month, he told REFIRE that the attraction of the Diok portfolio is the nature of the €220 million of office assets, many of which are science parks or otherwise related to research and development - a sector with a lot of perceived growth potential.
Nöcker's company, along with capital partner Alvarium, plans to build out on this future-oriented science park focus, while at the same time reducing Diok's outstanding debt position. “The German science park market is currently highly fragmented, and with increasing investor interest in the sector, we see a compelling opportunity to build a scalable institutional-quality commercial real estate portfolio,” said Jonathan Elkington, partner and COO of Alvarium.
The medium and long-term growth prospects for the life sciences sector are good as the trends and drivers of the sector will continue to ensure increased demand in the future at both global and national levels, according to Cushman & Wakefield. As such, life sciences represent an attractive niche that is increasingly outgrowing its niche status. The sector offers a wide range of investment opportunities from the new development or the upgrading of science parks and innovation centres to the re-purposing of existing real estate, giving investors the opportunity to further diversify their portfolios while seizing growth opportunities.