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The Life Science Sector Emerging As An Asset Class

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The life science sector emerging as an asset class.

Demand for life science assets is on the rise in Australia as the ageing population will continue to put more demand on the growing sector, according to a report from CBRE.

The report also found that the industry is emerging as a major growth sector, with increased levels of investment from pharmaceutical companies and the government contributing to rising demand.

There is currently a significant shortage of quality life science facilities in Australia and only a small number of investors are seeking exposure in this emerging asset class. The life sciences industry includes medical laboratories, medical research organisations, pharmaceutical companies, and biotech firms.

Sandro Peluso, CBRE's Director of the Australian Healthcare and Social Infrastructure team, said that there is a growing appetite for life sciences venture capital and private investment opportunities.

He said that while investors are starting to seek quality assets in the life science field, the sector is still relatively new.

The report noted that life science operators often commit to long lease terms of 10-15 years (or more) due to the capital needed to set up such facilities. Additionally, with record low vacancy rates, having a life science operator in a facility is likely to drastically increase its market appeal when it comes time to sell.

One of the key reasons for future growth is the rise in Australia’s average age, which is expected to increase significantly and lead to rising demand for medical treatment and life-extending products. According to the report, Australia's population aged 85 and above is expected to increase from 534,000 in 2021 to 1.28 million by 2041, representing an increase of 140%.

The Australian Government uses the National Health and Medical Research Council, Biomedical Translation Fund, and the Medical Research Future Fund, alongside university grants, to fund health and medical research.

Since the beginning of 2010, total government research spending allocated for health sits at 16.5%, compared to a median of 7.8% in other countries

Pharmaceutical companies are also expanding their production capabilities in Australia, including R&D, manufacturing and distribution. On top of that, life sciences businesses are also active in real estate acquisition, disposition, and debt and equity recapitalisation strategies across the sector.

Mr Peluso said developers and investors are also focused on the sector's strong underlying fundamentals.

He said despite the significant shortage of quality life science facilities in Australia, it is becoming a sector of interest for investors as it continues to grow due to the rising demand for medical treatment and the increase in government funding.

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