Germany's importance as a research and production location has ‘grown significantly’
By Sara Seddon Kilbinger, Senior Reporter, REFIRE
The healthcare and pharmaceutical industries are playing an increasingly important role in the real estate industry, with numerous clusters emerging throughout Europe, according to a new study by JLL, ‘EMEA Life Sciences Cluster Outlook 2023’.
According to the study, Berlin-Potsdam and Munich are among the direct followers of the leading clusters around London, Oxford and Cambridge. The study places the Rhine-Ruhr and Rhine-Neckar regions in the established midfield, while the Hamburg region is counted among the developing clusters.
‘Germany's importance as a research and production location has grown significantly in recent years,’ said Dr. Alexander Nuyken, head of Life Sciences Markets JLL EMEA. ‘Nevertheless, Germany as a life sciences location still has some catching up to do in order to catch up with the European leaders. Not least, the lack of space for research and production could prove to be a crucial bottleneck.’
Despite the sector’s growing popularity, investment fell by around 25% last year to €9.64 billion, following a record year in 2021. The drop last year is primarily due to the shortage of investment properties. Investors are responding by creating new inventory through redevelopment and repurposing.
‘ESG criteria play a major role in this across all types of bioscience buildings,’ Nuyken said. ‘For investors and users alike, the focus is on the employees who implement the companies' strategies and growth plans in sustainable and technology-enabled real estate.’
In the case of new developments, however, this also means that they cannot be built on the periphery alone, but must also be integrated into existing infrastructure in order to be attractive to employees. Networking, cooperation and the formation of focal points also play a crucial role in the life science sector: ‘Joint ventures between developers, companies and research institutions create new platforms to bundle competencies and reduce costs; for example, back-office functions are outsourced,’ Nuyken said. ‘At the same time, the market is currently experiencing several company takeovers and mergers.’
The study takes a closer look at six regions, including Berlin-Potsdam and the Rhine-Ruhr region. In each case, the four guiding criteria of economic environment, talent pool, investments and real estate market are evaluated.
According to the study, Berlin - in association with Potsdam - benefits from a strong start-up scene, which attracts both funding and talent. This is also fuelled by the increasing convergence of cell biology and data processing. However, there is a shortage of property and space, as almost all life science real estate in Berlin and the surrounding area is already occupied and too little is being rebuilt. ‘Potsdam still offers many options here. At the same time, public support for life science companies has grown significantly, so the cluster will continue to develop,’ Nuyken said.
The Rhine-Ruhr area from Cologne to Dortmund is a European industrial centre with numerous universities, where companies have primarily located production. While the cluster's large geographic footprint offers a number of very large science parks, not many of them are commercially oriented. ‘Given the metropolitan area, the cluster's proximity to the Netherlands, Belgium, and France, and its strong anchorage, the potential for developing an ecosystem is there,’ Nuyken said. ‘Important impetus for this would be increased by investment from abroad.’
UK announces new life sciences funding
Over in the UK, the government is also keen to supercharge the £89 billion life sciences industry. It's easy to see why the UK government is banking on life sciences: with the car industry collapsing and financial services and tech firms laying off staff, it remains one of the few sectors exhibiting real growth.
Earlier this week (28 March), the UK government announced that four UK life sciences companies will receive £277 million to help fund and advance manufacturing projects in medical diagnostics and human medicines. This funding comes from government and private investment in a bid to boost the sector’s capacity for manufacturing and innovation.
Nonetheless, finding lab space in the UK can be very challenging. According to Bidwells, an estate agent in the Cambridge area, there is demand for over 1 million square feet of lab space yet only 10,000 square feet is available.
The four companies who will receive grants are Ipsen, Pharmaron, Touchlight and Randox. The government will award £17 million and unlock an additional £260 million from the private sector. The government predicts that this funding influx will create 320 new jobs and safeguard 199 jobs within the sector. It marks the first big commitment from the UK’s Life Sciences Innovative Manufacturing Fund (LSIMF), a £60 million government fund from the Department for Business, Energy and Industrial Strategy (BEIS), which is meant to support businesses investing in manufacturing projects in the UK.
‘The industry is being transformed by the pace of change: from AI to genomics, biomanufacturing to smart stents and personalised immunotherapies, technologies are converging to create a new era of advanced digital products,’ said the Minister of State for Science, Research & Innovation, George Freeman, in a statement.
In response to the news, the Association for the British Pharmaceutical Industry (ABPI)’s chair of the Medicines Manufacturing Industry Partnership, Brian Henry, said: ‘There is a major opportunity to further develop the LSIMF so that the scale and efficiency of the scheme enables the UK to compete for major internationally mobile life sciences investments.’
Life sciences offer constant cash flow, less susceptible to crises
Back in Germany, interest in life sciences has largely been fueled by the runaway 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; last year alone, the company’s revenues totalled €17.31 billion.
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.
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’s most recent figures. 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.
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.
However, some big pharma firms are starting to look beyond Europe. Bayer’s Stefan Oelrich has accused Europe of becoming ‘innovation unfriendly’ due to policymakers making it more challenging to generate commercial returns on investments. As a result, the pharma giant intends to shift the focus of its pharmaceutical business to the US and China and away from Europe and the UK, where governments are making ‘big mistakes’ in how they manage health budgets.
Speaking during an interview at the JPMorgan Healthcare conference in San Francisco, California, Oelrich said that Bayer was ‘deprioritising Europe to some degree’ and focusing on the US and China, where its pharma division has already established a significant market presence. He added that Beijing was increasingly welcoming of innovation, while higher drugs prices in the US enabled the company to compensate for rocketing costs caused by high inflation.