Life Sciences Real Estate: The Next Solid Investment in Vancouver | RENX
GUEST COLUMN: Rising capital stocks, low interest rates and record market valuations have fueled new interest in commercial real estate investment opportunities.
Traditionally, investors have often been drawn to Vancouver’s limited-supply, high-demand office and multi-family markets due to their stable occupancy rates, steady growth in rental rates and exceptional liquidity.
However, the limited supply and ever lower returns in traditional asset classes have sparked increased interest in opportunities outside of conventional office spaces.
Since the start of the pandemic, several asset classes have made significant gains. A notable and perhaps unexpected change has been the life sciences investing sector, where we are now directly witnessing the development of this relatively new asset class with increasing availability and demand.
Global investors looking for a stable place to invest capital are increasingly looking to life science real estate as an alternative solution to help solve availability and return issues.
Many investors know that there is the advantage of both returns and stability when investing in commercial real estate and seeking opportunities available outside the traditional office, multi-family or industrial sectors.
Life sciences, a growing sector
Life science real estate investors simply buy lab space and lease it to life science companies – but what happens when there is no space to buy and to rent?
The sector has received increased interest over the past year, with biotech and pharmaceutical companies experiencing this sudden take-over from venture capital and investment firms; and that’s understandable, given that it’s a high performing industry, mostly recession proof, and the need is growing.
Since the fall of last year, significant sums have been allocated to REITs with life science portfolios.
In October 2020, renamed Blackstone Real Estate Partners announced that it had raised $ 7.5 billion for its new life sciences fund as part of its long-term return on capital strategy.
Blackstone also announced its intention to manage BioMed Realty, which recently sold for $ 14.6 billion under a deal with the largest private owner of life science office buildings in the United States. United (with an 11.3 million square foot portfolio focused on key innovation markets such as Boston, San Francisco and San Diego).
This transaction was part of its long-term strategy to attract investors looking to maintain or increase their exposure to the Bureau of Life Sciences; and Blackstone isn’t the only major player to take note.
Madison International disclosed a $ 1.7 billion investment in US life sciences developer IQHQ, and Tishman speyer formed an American life sciences real estate development company with Bellco Capital which raised $ 1 billion to buy laboratories around the world.
Put Vancouver on the radar
Until now, investment trusts have known about the global life science real estate hot spots in Europe and the United States.
However, increased global demand for space will begin to pave the way for cities with strong academics and foundational foundations in the life sciences sector to flourish – cities like Vancouver.
Real estate investors are showing significant interest in investing in lab space at Canada’s life science hubs in Montreal, Toronto and Vancouver. In 2019, BC biotech companies raised $ 700 million in the top four deals; This was followed by a record fundraiser of $ 1.5 billion in 2020.
At the end of 2020, we saw AbCellera dominate with its successful IPO with a current valuation of over $ 10 billion. She joined Zymeworks and Aurinia, two other BC biotech companies with valuations in the billions.
However, we have unfortunately seen countless growing local businesses flee to neighboring hubs, or even overseas, due to the lack of available space in Vancouver.
From a commercial real estate perspective, the founding principles of long-term stable returns and high up-front costs will not adequately facilitate the economic development of our city.
In order to see more developers engage in life science real estate projects, we need to adjust our thinking and view life science real estate as a new and rapidly growing asset class. , on its own, which provides sustainable returns through growing demand.
The emergence of this asset class offers a new opportunity for real estate investors – and with an abundance of capital entering this sector, investors are taking note.
The life sciences space is lacking
The problem facing our city is the lack of supplies. Tenants looking to lease laboratory and biotech space are unable to find availability that meets the demands of laboratory operations, and because they often require considerable upfront costs to renovate or build, companies are often forced to look elsewhere. .
Many of the pre-existing vacant spaces in Vancouver are not compatible as lab spaces because their floor plates are not large enough to accommodate the required mechanical and ventilation systems.
Spaces that can accommodate laboratories have complex requirements, including high ceilings to accommodate additional ventilation to circulate fresh air, which in turn leads to the likelihood of reduced site density for building owners.
It is important to understand that while this type of real estate development may not be the most conventional route, like any developer of asset classes, there is an inherent and financial incentive to create a product in demand. Strong demand means more competitive rental rates and higher occupancy levels.
Not only is life sciences real estate poised to be a wise investment, developers can also contribute to Vancouver’s healthcare infrastructure for generations to come.
With the venture capital money available for the biotech sector, there is the potential for exponential growth and fundamental support for BC’s economic recovery. Development of this type has the power to provide innovation, attract investment and create well-paying jobs.
But emerging companies need a place to innovate. The resources of these companies would be better used to hire researchers and finance studies, rather than deploying capital to renovate or build premises. The solution would be to bring together the insurmountable demand and the ecosystem to build a larger facility that can help solve the problem.
A new hospital offers a new opportunity
This is happening in other cities across Canada, and for the first time, it is possible to advance this mission here in Vancouver. . .
New Saint-Paul Hospital at Jim Pattison Medical Center has just started construction on what will be the largest hospital redevelopment project in British Columbia history. He plans to transform the future of healthcare by providing this much needed infrastructure.
Providence healthcare (PHC) is seeking a development partner to help establish the Clinical Research and Support Center (CSRC), a cutting-edge medical research and innovation center and professional office complex on campus.
This new building will be the center of the city’s biotechnology and medical research industry, putting Vancouver on the map as a world-class medical and healthcare center.
The CSRC will include fully integrated wet and dry research laboratories, medical offices, meeting and conference rooms, and administrative space in Vancouver’s booming tech district.
Its objective is to enable local life science companies to innovate and provide them with a space to develop locally.
The CSRC will be located on an approximately 114,000 square foot site in the new St. Paul’s Hospital at Jim Pattison Medical Center and will accommodate a density of approximately 680,000 square feet through rezoning. The developer will lead the design and construction of the CSRC component.
The intention is to develop the site to maximum density, exceeding the space requirements of Providence Health Care and leaving rental space for tenants of private health care, biotechnology and other compatible technologies and users of the research.
Developers pay attention
Less than a year ago CBRE was working with Providence Health Care on the sale of the St. Paul’s Hospital site on Burrard Street. Through this process, we began to explore development partners for the new hospital and our vision of where the future investor came from was limited.
Now, less than a year later, CBRE is seeing almost 100% interest from the developers and investors we engaged with during our Phase 1 marketing process.
The growing interest shows that developers are starting to recognize how much this real estate niche is growing and, most importantly, they seem excited to be a part of it.
As the COVID-19 pandemic has sparked an increased need and demand for the life sciences space, a variety of factors will contribute to the longevity of this asset class, including the changing needs of an aging population and technological advancements in industries like AI, gene therapy, and other advancements that extend lifespan.
While investment in this sector is growing, it is still in its infancy.
To truly see the continued success of this asset class, Vancouver needs to scale up and increase its offering so that existing businesses do not expand elsewhere.
There will undoubtedly be repercussions from the pandemic in the years to come, as countries and businesses seek to increase local resilience, but the life sciences industry will certainly retain its value.
Tony Quattrin is the Vice President of Capital Markets at CBRE.