The life-sciences sector of commercial real estate doesn’t usually make big headlines compared to multifamily and office properties. But the recently announced $1.5-billion acquisition of a portfolio owned by Wexford Science & Technology by Ventas was certainly a significant purchase for any sector.
The deal, set to close in the fourth quarter, gives Ventas a 23-property portfolio that is 97% leased. Wexford is an arm of the prominent private-equity firm The Blackstone Group, which absorbed the portfolio of BioMed Realty Trust at the beginning of the year.
A number of factors contributing to growth
A report released by JLL on the life sciences sector last year sheds some light on its growth. All of the major life sciences markets, which include Boston, Raleigh-Durham, San Francisco, San Diego and the New York City metro area, saw significant upticks in rents last year. These are places where firms “cluster” because of the amount of industry talent from which they can find qualified employees.
This growth is due to accelerating demand for generic drugs as a result of the Affordable Care Act, pricing pressure due to limited supply in the health-sciences commercial real estate sector, and the increased approval of new drugs by the FDA.
Both domestic and international interest abounds
Speaking of BioMed Realty Trust, its executives recently spoke at a conference in San Diego, touching on what makes the life sciences real estate sector unique. Some of the extra challenges that brokers face include zoning issues, hazardous-waste-disposal requirements and highly-specific legal considerations. In San Diego, the industry is particularly hot, with 1.7 million square feet of absorption last year, along with a double-digit increase in transaction rates.
On an international scale, T3 Advisors is doing a lot of health-sciences work overseas for domestic companies. These firms are looking for business primarily in Europe, where there is also more demand for pharma products. They are interested in site-selection services that will help them find training facilities near airports where people can get educated on how to administer their products.
In the Boston metro area, there are a number of foreign investors interested in life sciences commercial real estate. Potential buyers from Europe, Asia and the Middle East are specifically looking for properties in Cambridge’s Kendall Square neighborhood, where dozens of biotech labs, pharmaceutical firms and life sciences incubators are concentrated.
Why brokers need to pay attention
There’s a lot of excitement about commercial real estate’s life sciences sector, and for good reason. It’s set to thrive for years to come, despite the challenges that developers might face. With an aging baby boomer population, it’s a pretty safe bet that the development of medications and treatments will only increase. Space needs will increase accordingly, and brokers should position themselves to serve this growing and lucrative market.