By Sebastian Obando for National Real Estate Investor
Commercial real estate investors are showing increasing interest in biolab facilities as healthcare research and development has accelerated due to the pandemic.
“[There is] an increased demand for laboratory space which, when coupled with low vacancy rates in most life science cluster markets, drives rental rates higher,” says Russell Brenner, president of the medical office and life sciences division with CA Ventures. “Very few sectors can demonstrate the same level of rent growth, especially in the COVID-19 environment. Similar to medical office, life sciences are viewed as a defensive asset class.”
Data firm the CoStar Group is receiving more inquiries about lab properties in 2020 than before, says managing consultant Paul Leonard. That is likely because of the pandemic, but also because the segment has been consistently outperforming other commercial properties in select markets for years now, Leonard notes.
Investor interest is very high across the country, as the work conducted in lab buildings is not easily accomplished off-site, offering the sector a degree of protection against the work-from-home trend, says Matt Withey, managing director at Virtus Real Estate Capital. He adds that tenant demand has remained very strong over the last several months.
“Several buyers with discretionary capital who have historically targeted traditional offices are now looking into the life science space,” says Withey. “Same goes for developers within the larger life science markets.”
Among the biggest examples of the sector’s current popularity, private equity giant the Blackstone Group has made the decision to sell the BioMed Realty Trust, the second-largest U.S. owners of life science buildings, from a fund that would sell it or take it public to another Blackstone fund that has the ability to hold it indefinitely, according to the Wall Street Journal. The decision was driven by a preference expressed by Blackstone’s investors, who did not want to cash out of the sector. The sale of the company, which operates 93 buildings across the country, was completed at a purchase price of $14.6B and represents a $6.5B increase from the price Blackstone paid for it in 2016.
Kathleen McCarthy, global co-head of Blackstone Real Estate, says “life science is one of the Blackstone’s highest conviction themes.” “In real estate, many of our investors are eager to maintain or increase their exposure to life science office,” she adds.
As a result of these dynamics, Brenner expects to see even greater investor allocations to the sector in 2021 and for demand to outpace supply of available properties, continuing to drive pricing upward.
Read more at National Real Estate Investor.