A blockbuster deal to invest in Boston lab property by the world’s largest sovereign wealth fund underscores the interest international investors have in life sciences real estate, although limited funding and restrictive capital markets are hampering actual deal flow.
“We still view this as a lot of pent-up demand,” said Matt Gardner, leader of CBRE’s advisory life sciences practice. “We've seen new investors arrive in the U.S. life sciences landscape from both Europe and Asia looking for those opportunities. The headwind is so strong that they're currently in formative stages of thinking through strategy.”
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The mid-November announcement that Norges Bank Investment Management would invest $746.4M in a pair of Kendall Square buildings in Cambridge, Massachusetts, owned by Boston Properties was one of the year’s largest life sciences transactions, valuing the under-construction projects at 290 and 300 Binney St. at approximately $1.7B.
“The investment aligns with our long-term strategy, and we are delighted to strengthen our partnership with BXP in a sector where we have high conviction,” NBIM Chief Real Assets Officer Mie Holstad said in a statement regarding the Kendall Square deal.
Norges, which oversees Norway's $1.4T pension fund, has made other investments in life sciences real estate, including a 41% stake worth $486M in another Binney Street property owned by Alexandria Real Estate Equities in December 2021. Canadian public pension funds have also been active in the Boston market, including Ivanhoé Cambridge’s partnership in a $545M Guest Street development in Boston Landing that completed earlier this year. Similar deals are being made globally, with investors outside of the UK pouring money into the country’s Golden Triangle biotech hub.
The focus on Boston, one of the United States’ three large lab clusters, fits with typical strategy from foreign investors seeking to diversify their portfolios. Gardner said many have concentrated in coastal hubs, though some are beginning to look at more emerging markets like Houston and Chicago, where the Chan Zuckerberg Biohub Chicago investment has helped validate the market for investors.
The uncertainty in the broader real estate industry and capital markets is driving foreign investors to seek safety in perceived core assets, such as Cambridge lab space, and there is a perceived better chance to get into the market as lots of domestic capital sits on the sidelines, Newmark Head of National Life Science Research Elizabeth Berthelette said.
Life sciences real estate maintains its appeal as a high-value, specialty asset type. As Colliers Director of Research Aaron Jodka told Bisnow late last year, “Life science is still the No. 1 alternative asset class across the globe.”
But Gardner said the “overwhelming prevailing trend is one of caution right now.”
While foreign investors are scoping out deals, not many have actually closed yet, which is building additional pent-up demand until interest rates change. Transactions have been especially slow in the San Francisco Bay Area and San Diego, Berthelette said.
Gardner argued that some new breakthroughs or significant activity among early stage startups could catalyze investment before the market becomes more fluid. But it is likely that more investments like Norges’ will wait until later in 2024.
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