Life Sciences are Real Estate’s $10 Billion Life Line

Unless you’re a mad scientist, you can’t do chemistry at home. That’s why, while the future of post-pandemic white collar office spaces remains up in the air, one kind of commercial real estate is booming.

Over $10 billion has been spent this year on buildings used for life sciences and research. That’s 4% of all the commercial real estate transactions in the world through May, or double last year’s share.

Catalyst in the Equation

Even before vaccines became the fuel that’s firing the world’s economic rebound, funding for medical innovation had labs in high demand. In the last five years, rents for life science spaces went up 90% in the San Francisco Bay Area for example, compared to just 20% for conventional office space.

The pandemic didn’t change the equation, it was merely a catalyst that sped things up:

• Last year, life science building sales and refinancing tallied $25 billion, more than twice the $9 billion in 2019.
• Blackstone made a $6.5 billion profit refinancing BioMed Realty Trust, the largest private owner of life-science offices in the U.S. It also bought $3.4 billion in lab buildings in December.
• In the U.K., where life sciences real estate has had a 166% increase in transaction volume in the last three years, a science campus is being built in the heart of a financial district on a site that was once supposed to be Deutsche Bank’s London HQ.

“The pandemic only amplified the demand growth, but it’s a trend we think will continue for years,” Nadeem Meghji, Blackstone’s head of real estate in the Americas, told The Wall Street Journal. “This is about, broadly, advances in drug discovery, advances in biology and a greater need given an aging population.”

No Tenant? No Problem: The higher rents are translating even into higher property values, so much so that many life science builders are going ahead without tenants lined up. Startup IQHQ, for example, raised $2.6 billion last year to break ground on laboratory buildings without any signed leases.

“We build spec, but we don’t build blind,” said its president, Tracy Murphy. “I don’t see any end in sight for money coming in.”