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Life sciences: a new frontier for the industrial property sector?

Life sciences

With vaccines, pharmaceuticals, and medical devices often on newspaper front pages, we ask CBRE’s James Jorgensen what’s next for Australian life sciences real estate. 

The life sciences industry – comprising pharmaceuticals, biotechnology, medical devices, and the like – has increasingly been a focal point of attention given the events of the last year and a half. 

That said, expansion of the industry was already well underway pre–COVID, due to large and ageing populations, as well as increased industry activity across the Asia Pacific. 

Recently, CBRE published a substantial new report entitled “A New Era of Life Sciences Growth: Opportunities for Occupiers and Investors” – assessing the state of play in APAC’s life sciences real estate sector. 

James Jorgensen – Victorian State Director, Industrial & Logistics, for CBRE says that the commercial real estate giant is one of the largest life science property specialists globally, with a large team that specialises solely in the sector across the European, American, and Asian markets. James says that while life science is a less mature sub sector in the Australian property market, CBRE is better positioned than anyone to service this emerging category – through its global networks and the various transactions it has already handled. 

He confesses that while the majority of his experience is in the core Industrial & Logistics sector, he and CBRE are very excited to be at the cutting edge of the life sciences area given its societal importance and growth potential. 

“It’s an exciting opportunity for CBRE in the Australian market,” he says. 

What really grabbed James’s attention was Charter Hall’s recent $106 million acquisition of GlaxoSmithKline’s (GSK) life sciences campus at Boronia in Melbourne’s east.

“When we began the campaign earlier this year, we expected the property to fly to a traditional industrial developer – in this case Charter Hall – but with the expectation they would knock the site over and put up standard industrial logistics property, given how that sector’s booming,” he says. “But we quickly realised that that was not going to be the case, and that there is so much in this life sciences sub sector. There was so much interest in the GSK site from other pharmaceutical manufacturers and life science groups because they recognised its highly specialised and valuable infrastructure. Charter Hall quickly recognised that, too.”

Given his general expertise in industrial and logistics real estate, we asked James whether life sciences industrial property historically followed a different pattern – in terms of investment, ownership, and tenancy – and whether this trend might change.

“In the past, it has usually been the occupier who will build and develop their own facility for highly specific purposes,” he says. “But I think this might be where we see a shift in the trend going forward. In the last few years in Australia we’ve seen some big sales and leasebacks of pharmaceutical drug properties. And to return to the recent GSK example, a lot of pharmaceutical groups did want to buy the site because this naturally gives them a feeling of controlling their own destiny. But Charter Hall outbid them all and now there is no option for such groups but to be tenants.” 

James says that it wouldn’t be surprising if such discrete cases were part of an increasing trend whereby life sciences properties became an even more prized development asset class – with companies like Charter Hall or its equivalents buying up these campus-style facilities to set up for life sciences.

CBRE's James Jorgensen
James Jorgensen, Victorian State Director, Industrial & Logistics, CBRE.

Much has been made in the media of the need to improve and protect pharmaceutical and medical supply chain sovereignty in wake of COVID-19. But how important a factor is this in shaking up the life sciences real estate space?

“It’s a big factor,” James says. “We have Commonwealth and State government task forces set up for exactly this purpose. Research into mRNA vaccines is obviously a big deal and potentially lucrative – as well as lifesaving. But it’s not just limited to COVID.” 

Federal and State governments are looking ahead in terms of health security, and want to be able to produce vaccines on our shore – an agenda they are pushing very hard, he says. “So, if you’re a big global pharmaceutical player looking to open doors to Australia to manufacture these vaccines, there is hot competition between governments – Victoria and New South Wales in particular – to attract you to set up in their capitals.” 

And if the government is incentivising such relocations, then the demand for and value of these properties is sure to boom. 

But even without COVID and the government funding it provoked, Australia was already a prime location for high-tech pharmaceutical manufacturing, James says.

“Obviously, Australia has a world class healthcare system and already has an established network of elite universities and research institutions,” he says. “This ensures that the country – particularly with the hubs in Sydney’s Macquarie Park, Parkville in Victoria, and expanding hubs in the other major cities – already has a great comparative advantage in attracting global life sciences companies to our shores, thus underpinning investor-interest in Australian life sciences real estate.”

One potential barrier to growth in the sector, says James, is access to Greenfield sites. “To analogise with the kinds of constraints we see in the traditional industrial real estate sector – two of the major hurdles are planning and zoning issues,” he says. “We’ve still got land supply here in Melbourne, but zoned land is fast running out. For anyone – developers or occupiers – wanting to convert unzoned land into zoned land for life sciences facilities, it is a fairly protracted and risky process, which further complicates the issue. And on the other side, for global pharmaceutical manufacturers who want to own their own site – it’s going to be even more challenging at the moment with the constrained land supply.”

But notwithstanding such barriers, James is keen to underscore just how big this sector could be. “I don’t think we know quite how big yet,” he says. “We’re in the early stages here in Australia – but it could be really exciting.”

Yet while the future of the sector is uncertain, James and CBRE are ready to test the waters. 

“Charter Hall bought the Melbourne site, and now they’re at the cutting edge of this sector,” he says. “And so are we. Because we’re going to run a pilot leasing program for them. GSK has about two and a half years to exit the site and leave all the infrastructure – and CBRE is commencing a leasing program for it. I can tell you there’s already a lot of interest in it.

“It’s not going to be a normal logistics property that’s advertised online. We have a target list of groups who will be included in an ‘Invite Only’ EOI leasing program. It is a pioneering opportunity for us to discover the depth of this exciting market.”

For more information on the state of the life sciences industrial property sector, download CBRE’s new report by clicking here

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