Does the Life Sciences Sector Offer Strong Investment Returns?

The Real estate markets have taken a big hit during the Covid-19 period with some sectors recovering well like the logistics and warehousing and some not likely to show signs of improvement for a while like retail. Many in the real estate sector however do give reason for optimism and one of those reasons is life sciences real estate.

With the market already seeing strong demand conditions attributed to an ageing population, rising healthcare spending, and very positive venture capital investments, the start of the pandemic has only accelerated this growth.

The very quick development of several effective Covid-19 vaccines led to a significant increase in global funds focusing on the life sciences sector.

Research and development of vital medicines, as well as increased testing and treatments to tackle Covid-19, have also boosted confidence in the market.

As the task of tackling unsolved complex human diseases has a long way to go, investors are convinced that the growth momentum of the life sciences sector is set to continue in a post Covid-19 world.

Scientific innovation is increasingly being addressed using talent from both technology and medical science, often found clustered in knowledge-based markets including London, Oxford, Cambridge, Manchester and Newcastle.

Furthermore, ongoing demand from crucial cancer, gene therapy, and immunology research continues to provide sustained demand amid expansion efforts from sector-focused real estate investment trusts (REITs).

One of the most significant aspects is market rent increase inside the research clusters, which is a relative value component that should be understood.

We believe that life science capitalisation rates are equivalent or somewhat tighter than comparable-quality office cap rates therefore indicating higher contractual rent increases as well as forecasts for greater market rent growth.

However, higher rent growth is to be expected as occupiers of life science space rely on the growing significance of life science developments which has ensured a co-location in close proximity to research and health institutes where companies gain access to patients as well as partners.

This sector is certainly one to watch and Investors remain close to it.