Whilst many traditional property sectors remain under pressure, an asset class is emerging in the background that is still underestimated by most market participants: life sciences property. This refers to laboratory buildings, research centres, biotech campuses and highly specialised premises for the pharmaceutical and healthcare industries.
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Unlock content Accept the required service and unlock contentWhat was long regarded as a niche market for a handful of large corporations is increasingly developing into a standalone investment segment. In the US and the UK, life sciences property has been one of the most exciting sectors of the property market for years. Germany, on the other hand, is still in the early stages of this development, and this is precisely where a unique opportunity may lie.
An asset class with exceptional drivers
The success of life sciences property is based on several long-term trends that operate independently of short-term economic fluctuations. The population is ageing, healthcare expenditure is rising steadily, and research is becoming increasingly important for national economies. At the same time, companies and public institutions are investing ever-larger sums in the development of new medicines, therapies and technologies.
Unlike traditional office space, research cannot be shifted to a home office. Whilst many companies are reducing their space requirements in the office sector, research facilities continue to require physical infrastructure. Laboratories, cleanrooms and specialised research facilities are indispensable and cannot be replaced by digital working models. It is precisely this structural demand that makes life sciences property so attractive.
International role models
A look across the Atlantic reveals the potential of this asset class. In the US, regions such as Boston, San Francisco and San Diego have developed into world-leading life sciences clusters. Millions of square metres of new laboratory and research space have been created there in recent years. At times, demand was so strong that rental rates rose significantly faster than in many other property sectors.
The UK, too, has created a thriving ecosystem with the so-called ‘Golden Triangle’ centred on London, Oxford and Cambridge, which attracts international companies, investors and research institutions. The premium rents achieved there demonstrate the value that specialised laboratory space can command in established science hubs.
By comparison, Germany still appears to be an emerging market. However, it is precisely this gap that opens up considerable growth opportunities. Whilst some international markets are now struggling with oversupply, the supply of modern laboratory space remains scarce in many parts of Germany.
Where Germany’s life sciences hotspots are emerging
Unlike residential or office property, life sciences projects do not thrive in every location. Successful developments emerge where universities, research institutions and innovative companies already form a functioning ecosystem.
Hamburg, in particular, is increasingly coming into focus. With Science City Hamburg Bahrenfeld, one of Germany’s most significant science hubs is set to emerge there by 2040. An environment is developing around the University of Hamburg and the German Electron Synchrotron (DESY) that could generate significant long-term demand for research and laboratory space.
Another key region is the Rhine-Neckar region. Here, companies such as Merck, BASF and Boehringer Ingelheim, together with renowned research institutions, form one of the densest life sciences networks in Europe. The combination of industry, science and capital makes the region particularly attractive.
Mainz, too, has developed into a remarkable location in recent years. The international success of BioNTech has demonstrated the potential for innovation that exists there. Thanks to targeted political support and new development projects, the region continues to grow steadily and is increasingly recognised as one of Germany’s most exciting life sciences hubs.
Why laboratory premises are so expensive
Anyone who thinks of life sciences property merely as converted office space is significantly underestimating the technical requirements. Modern laboratory buildings require complex ventilation and air-conditioning systems, specialised safety measures, increased ceiling load-bearing capacities and, in many cases, cleanroom technology. Added to this are emergency power supplies, sophisticated filter systems and specific requirements for the building’s structure.
These technical features mean that construction costs are significantly higher than for traditional office properties. High-quality laboratory buildings often incur total costs of several thousand euros per square metre and require lengthy planning and development periods. Investors must therefore have a significantly longer investment horizon than in many other asset classes.
The high barrier to entry becomes a competitive advantage
However, it is precisely the complexity of this segment that creates a key competitive advantage. Because the technical requirements are high and specialised expertise is needed, supply remains limited. At the same time, demand is rising steadily.
This market structure has also been reflected in rental rates in recent years. Whilst numerous property segments have faced stagnant or declining trends, research, pharmaceutical and biotech premises have seen significant increases in rents. Institutional investors have long recognised this trend and are increasingly investing in such projects.
Not everything points to an easy market entry
Despite the positive outlook, there are challenges. A large proportion of existing laboratory space is owned by the users themselves. Universities, research institutions and pharmaceutical companies often hold their properties on their own balance sheets. As a result, the available supply for investors is comparatively small.
Added to this are protracted approval procedures and complex coordination processes with local authorities and government bodies. Furthermore, the biotech sector in particular is heavily dependent on the availability of venture capital. Fluctuations in the capital market can therefore have an impact on demand for new research space.
Conclusion: Germany is only just getting started
Life sciences property is one of the few property segments to benefit simultaneously from several long-term megatrends. Demographic change, rising healthcare expenditure and high levels of investment in research ensure a stable demand base, whilst the supply of suitable space remains limited.
By international standards, Germany still has considerable potential to catch up. This is precisely where an interesting opportunity lies for investors, project developers and property owners. Those who understand the specific characteristics of this asset class and identify the right clusters could benefit from a trend that is likely to gain significant momentum in the coming years.
The question is therefore no longer whether life sciences property will grow in importance. The more exciting question is who will recognise the potential of this market early enough.
