Science and technology are lifting the tribulation for real estate investors

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ÖXFORD NANOPORE’S MinimumION is a small but powerful device. When a hotel worker in Sydney tested positive for Covid-19 last March, the portable became DNA Sequencer traced the infection back to a flight attendant for an American airline to avoid a general lockdown. The success of biotech firms – another celebrity being BioNTech, famous for the Covid-19 vaccine – is sucking capital into the life sciences. When such companies expand, they do so not with offices or shops, but with scientific laboratories with white walls and shiny surfaces.

Commercial real estate investors have long relied on office, retail and industrial buildings. Less conventional assets such as cell towers were reserved for specialists. Now the big guns in real estate are also competing for them. As a result, labs have become the hottest commercial property item, along with other facilities that power the digital economy. Data centers and infrastructures that connect smartphones are booming.

The motivation of the investors is clear. The pandemic has rocked commercial property prices around the world. American retailers closed nearly 15,000 stores in 2020. By mid-October, the offices were only a third full as people were interested in remote work. The risk profile of some conventional real estate investments has deteriorated significantly.

In contrast, demand for assets like laboratories and data centers has never been so strong – a trend that was visible before the coronavirus spread. When rental income for shops and restaurants plummeted last year, data traffic from virtual meetings and online shopping exploded. Organizations using the underlying data centers and cell towers are demanding more from them. These digital economy winners look as safe as houses.

The change is reflected in the changing composition of the ten largest real estate investment trusts in the USA (REITS). A decade ago, the most valuable vehicle of its kind was the Simon Property Group, the largest mall owner in the country. Today it is American Tower, a rapidly growing owner of tens of thousands of telephone poles around the world. Five of the top ten REITS currently manage either data centers or cell towers.

The loudest buzz currently surrounds the life sciences and laboratory areas. Investors are flooding the healthcare sector with capital. Drug makers, medical device manufacturers, and other life science companies have raised a record $ 103 billion in venture capital so far this year, up from $ 63 billion in 2019, according to the previous year JLL, a real estate consultancy. A generous part of the capital goes into real estate. JLL It is estimated that up to US $ 87 billion is now flowing into life sciences real estate worldwide. That equates to a third of all global commercial real estate spending in the second quarter of this year.

Landmark deals pop up frequently. In October GIC, Singapore’s sovereign wealth fund, bought 40% stake in Oxford Science Park from Magdalen College, part of Oxford University; The deal valued the park ten times its value five years ago. Blackstone, a private equity firm, recently doubled its share of life sciences space in the UK and invested over $ 1 billion in two new locations. Shares in life science REITS booming.

It is now becoming more and more difficult to get laboratory space. In Boston, where much of the United States is located, fewer than 5% of the labs were available in the third quarter. In the Golden Triangle, as the area between London, Oxford and Cambridge is called, the premises have been used up. The Harwell life sciences campus near Oxford will expand 1.5 million square feet over the next seven years to meet demand – three quarters of all office space that London’s financial district will add this year. Chris Walters, Director at JLL, estimates the unmet demand for laboratory space in and around Cambridge at 1 m² – that is almost a quarter of the retail space in Oxford Street in London.

Where the markets are tight, participants will try to expand the offer. With sci-tech real estate, it’s harder than it sounds. Building new telephone poles means following strict planning laws and NIMBYS. New data centers need land with access to cheap electricity and high-speed internet. Life science firms tend to group themselves around top universities and academic medical centers that provide chemists, microbiologists, and other experts to populate their laboratories. One solution is to find secondary locations. Cities like Los Angeles, which is fairly close to the San Francisco Bay Area, and Pittsburgh, home of Carnegie Mellon, a university known for its artificial intelligence skills, attract startups that are inundated with capital . In Great Britain, life sciences hubs are emerging in the north, in which pharmaceutical giants such as AstraZeneca and GSK Have production facilities.

This can also be remedied by converting existing offices and commercial space. Boston Properties, one of America’s largest offices REITS, says it can convert 5 square meters of traditional sites and buildings into laboratories. It’s not an easy process because laboratories are complex spaces where biosafety rules apply. They need four times as much air as offices. Waiting lists in London for “wet” laboratories, facilities that handle hazardous chemicals and other hazardous substances, are getting longer. But real estate investors are ready to try. In New York, renovations could almost double the city’s rentable laboratory space, according to real estate consultancy Newmark.

Empty shops are also being repurposed. Savills, a UK property company, estimates that London has at least 1.8 square meters of retail space that could be converted into laboratories. The high ceilings of the shops offer plenty of space for powerful ventilation and service elevators for moving hazardous materials. It will undoubtedly be years before supply catches up with demand. But while the location of work and trade moves, so do real estate investors.

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This article appeared in the business section of the print edition under the heading “Labor Rats”


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