Australia’s life sciences property sector is gaining momentum, driven by a growing research and development industry and strong property fundamentals, according to Colliers’ Ian Sanders and Joanne Henderson.
Sanders, the Head of Healthcare and Retirement Living, and Henderson, the National Director of Research, discussed investment trends, occupier demand, supply levels, and their outlooks for the life sciences sector on the Voice of Value podcast.
The growth in the life sciences sector has created a growing and specialist real estate need. There are now many specialist buildings – mostly associated with hospitals or universities – and the size of the sector as an asset class is growing.
Read an edited preview of the interview below or listen to the podcast on your preferred podcast platform here.
What are the headwinds and tailwinds for the life sciences sector?
Sanders: I think to understand the life sciences sector and the reason why people are very optimistic about it is because it’s structurally very sound. You can see that the government has spent on a recurrent basis $800 million to $1 billion each year in research and development, and that generally just grows year on year. There are other incentives and there are other initiatives across the country which add to that, but they always grow. Because of that, people can, in a sustainable sense, continue to invest and produce reasonably certain outcomes. So from a growth perspective, I think the tailwinds are a positive. From an asset class perspective, the life science sector is affected in the same way as other asset classes are in terms of cost to build, cost to serve interest rates, and so forth. But I have to say that relative to other asset classes, including health, which is pretty durable as well, life sciences holds up a lot better. And so while there are headwinds, they are lesser so than perhaps other asset classes.
Henderson: Just to add to that, the life sciences asset class from a property perspective is really part of that alternative sectors that we’ve started to see a lot of interest from institutional investors over the last few years. So a lot of those alternative sectors are really attuned to the population growth story. And as we know, population growth in Australia in a global context is expected to outpace many advanced economies over the next 10 years. So we are looking at about 1.4% per annum over the next 10 years. Australia has a lot of net overseas migration and we’re continuing to get that skilled migration come into Australia. So I think that the population growth, which links to healthcare expenditure, is really underpinning the life sciences sector and part of that alternative sector asset class.
Who is investing in life sciences and how is investor sentiment?
Sanders: Well, I think in this cycle, and this is probably true of other asset classes, the best assets aren’t necessarily being sold because they’re being held on to. But we are generally in the phase of build and construct and there’s been several major projects announced in Sydney and Melbourne and elsewhere, and they continue to work through the cycle. Those centres are generally funded by the healthcare and infrastructure REITs. So the investment competition is very strong. Obviously from an agency perspective we get lots of approaches from inbound investors, Singaporeans and Southeast Asia, in particular. And so we’re always on watch for the opportunity to support their entrance into the market as well.
Henderson: In terms of investor sentiment, we ran a Collier’s global investor intention survey at the end of last year that is still very applicable and we asked a whole range of questions around the core asset classes and where they were looking to invest. But one of the key things that came out of that report was a really big surge in respondents saying that they are looking at strategies in alternative asset classes. So that’s not just life sciences but that covers a lot of living sectors, data centres etc. Life sciences was actually one of the largest increases from 2021 to 2022, where it went from 12% to 44%. So investors are saying that they’re looking more closely and more seriously at life sciences in general. This is from a global perspective and Australia is up there in terms of global capital and cross-border capital coming from different global markets. So if you put the two together, I think that a lot of global capital over the next 12 to 24 months will really be looking to Australia and looking to the life sciences sector for that growth potential since we are in sort of early stages compared to places like the US and some places in Europe as well. So there’s a lot of growth potential, which is what investors are currently looking for.
Listen to the full podcast here ⬇️
The Voice of Value is a podcast series about Australia’s property industry. Powered by the Australian Property Institute, this series features in-depth conversations with Australia’s property leaders about their careers and passions, as well deep dives into different property markets.