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Big rewards but also big risks in life sciences sector

The Euan MacDonald Centre for MND research at Edinburgh BioQuarter

Life Sciences is a booming sector but investors must understand the special real estate requirements of this asset class, delegates heard at Real Asset Media’s Healthy Cities investment briefing, which was held online this week.

Variety of uses is one characteristic. “It is a business with very unique real estate requirements,” said James Sheppard, head of commercial UK & Ireland, Kadans Science Partner. “It needs very different buildings, from shiny high tech offices to industrial spaces, so you need to find locations that can accommodate all that.”

There can be an R&D space, quality control and manufacturing, which traditionally would be done in three different places or even countries, but now there’s a trend to bring them all together, he said: “Clearly a factory cannot be in the centre of Edinburgh, which is why I still believe there’s a need for out-of-town science parks.”

Everyone has a role: the public sector must continue to facilitate the growth of the sector and investors and developers must understand the occupiers’ needs and find the geographies that can accommodate them.

“In order to have a positive impact in environmental sustainability, investors and developers must lead by example,” said Chris Walters, investor & developer lead, life sciences, at JLL. “They must lead from the front in a really crucial sector.”

Companies, tenants, local authorities and communities all want sustainable buildings but that is a particular challenge in this asset class.

“It is difficult to be green because you need a lot of energy to power these buildings,” said Doug Cuff, vice president of UK real estate at IQHQ.

“We pay a lot of attention to the environmental impact of our buildings and put in solar panels and charging points for electric vehicles,” said Sheppard. “But it’s not easy, as science and lab buildings use a lot of energy.”

Another important factor to take into account is cost.

“There are big rewards in this asset class but also big risks,” said Cuff. “It’s expensive to build a life sciences building, roughly 40% more compared to offices, but it could be double depending on the type and use.”

It is crucial therefore to find the right partner to execute these projects and turn to the experts.

“If you are building a biology lab, you want to get it right first time,” he said. “If you get it wrong, it can be very painful.”

JLL’s advice is to take time to understand the local market and try to mitigate the risks, said Walters: “The scope of life sciences is very broad, and building the wrong stuff can be extremely costly and damaging.”