When the real economy changes, so must its real estate
The growth of e-commerce called for more warehouses than existed in 2011. Thus, real estate investors built warehouses all over the world to meet leasing demand from online retailers that were selling all sorts of goods online. Industrial real estate investors were also rewarded: the global non-levered annual return of industrial properties over the time period 2011–2023 was 11.8% compared to 6.8% for the global commercial real estate market.3
The growth and the outperformance of the industrial real estate sector took place because the real economy was changing: people wanted to buy more goods online than before. This led to changes in the composition of real estate assets that the economy needed.
There are parallels between the industrial sector more than a decade ago and the life sciences sector today. Life sciences is facing a clear growth path due to increased demand from companies developing and producing goods, e.g., drugs and vaccines, that the real economy increasingly needs.
On one hand, there are macrotrends, such as improved prosperity in developing countries and a proportionally aging global population, that drive the life sciences growth rate. On the other hand, trends in the industry itself, e.g., mRNA vaccines, AI-assisted drug development and home-shoring of pharmaceutical manufacturing, are also important as they are likely to increase the sector’s demand for dry labs, wet labs and manufacturing sites in the near future. This is reflected in the fact that the number of life sciences companies has grown by double digits in e.g., Switzerland (17%), the UK (15%) and Germany (15%) over the last five years.4 Output is also on the rise: pharmaceutical production in the EU grew from EUR 290 billion in 2020 to EUR 340 billion in 2022, which represents a growth of 17% over two years.5
This growing industry needs appropriate premises, i.e. real estate, to house businesses, development and manufacturing. In many cases, these premises do not exist today, which means that there is a structural deficit of appropriate buildings. In conclusion, the European life sciences industry needs to have, literally, more room to grow.
