Our industry is engaged in an important dialogue to improve sustainability through ESG transparency and industry collaboration. This article is a contribution to this larger conversation and does not necessarily reflect GRESB’s position.
In today’s investment landscape, the life sciences sector has been leading the embrace of social value. This sector, already a leader in all things environmental, is increasingly looking for a competitive edge from an ESG agenda focused on actions that positively impact society, perhaps ahead of all other sectors. The focus on social is about both ethical responsibility to people and planet, but crucially also amplifies investor appeal. Life sciences offer an excellent case study in examining the opportunities offered by prioritizing social value creation, and the way that investors view this sector as a way to enhance their “S” credentials while maintaining a favorable commercial position.
Life sciences on the rise
In recent years, the life sciences sector has increasingly attracted interest for its role in advancing healthcare and for its potential for stable returns. As the world population surpasses eight billion, the demand for advancements in healthcare becomes more pressing. Factors such as increasing life expectancy and a rise in chronic diseases underscore the importance of the life sciences industry. In particular, demographic shifts, such as the aging population in Europe, highlight the growing need for innovative healthcare solutions.
Clearly, there is a need, and investors have started to recognize the demand for it. Pharmaceutical research and development expenditures continue to rise globally, and European markets have become appealing to investors. Compared to the US, the European market offers a range of advantages: costs are lower, both purchase prices and operational expenses are generally less in Europe. Likewise, favorable infrastructure (things as different as comprehensive public transport systems and high-quality local education are important here), as well as legal frameworks and relatively low labor costs, contribute to the attractiveness of European life science investments. This is good news for both real asset investors and healthcare innovation.
Despite comprising a relatively small portion of total real estate investments, life science properties exhibit resilience and stability, making them an attractive option for investors seeking diversification and long-term growth, especially given current market conditions. The UK, Benelux, and DACH have emerged as key hubs for life science real estate investments, driven by their strong research and development ecosystems, as well as generally strong governmental support for all things STEM in these jurisdictions.
A crucial aspect shaping the success of life science investments is the establishment of clusters of excellence: industry stakeholders working together locally to drive innovation and collaboration, often connected to university centers. Clusters can therefore facilitate knowledge exchange and enhance competitiveness, as well as tapping into local labor markets. Data suggests that for those tenants operating within clusters, they tend to be more productive and innovative compared to their isolated counterparts.
In light of these trends, investors are increasingly recognizing the potential of life science real estate as an asset class. While still relatively small in Europe, life science properties offer unique value propositions, characterized by specialized infrastructure requirements and long-term demand resilience. As investors seek to navigate complex and unfavorable markets, and while the office sector continues to struggle, the life sciences sector is one of the industry’s biggest good news stories.
Social value in the life sciences: Social savvy, commercial sense
The integration of social value considerations into investment decisions within the life sciences sector is not just socially responsible; it’s also commercially sensible. The life sciences sector offers more than only financial returns; it’s increasingly becoming a focal point for investors seeking to generate social value alongside profits. The life sciences sector inherently contributes to society – advances in medicine for the benefit of us all – so social value is a natural bedfellow. As more products come on to the market with an explicitly social agenda, and the rise of standards highlighting the commercial case for social – particularly Fitwel’s new Social Performance benchmarking tool which demonstrates the key link between social and ROI and cost-savings on an asset level – we are seeing more and more asset managers taking social forwards in the life sciences.
Alice Bennett-Morris works in Direct Real Estate Investments at UBS, where she is an Investment Manager working on their UK Life Science strategy, which is aligned to Article 8 of the EU taxonomy with a focus on delivering social outcomes. She says:
“Our product aims to acquire strategically located sites across the key UK Life Sciences clusters and develop such sites (both ground-up and re-development) to create globally recognized Life Sciences facilities and campuses. The improvement of society is inherent to the life sciences sector’s pursuit of developing treatments that extend and enhance human lives. Thus, real estate has a key role to play to help facilitate the growth and expansion of the sector by providing buildings to allow research, development, and manufacturing to take place. Follow-on social impacts include the potential for facilities constructed to significantly reduce the costs of goods for occupiers, passing on savings to end users and patients, and making new and curative therapies more affordable in the market, supporting their viability.
The social side of ESG is generally less advanced than the environmental. However, we are fielding an increased number of enquiries regarding our approach to social value from investors, highlighting the escalation in its importance. We are very pleased to have entered our strategy to participate in the 2023 GRESB assessment for the first time, where we scored 94 out of 100 in the development submission, placing us third in our peer group and awarding us a four-star rating. This is a testament to our focus on ESG principles across the product, and we continue to aspire to evolve and improve our strategy with a particular emphasis on social value.”
For tenants, prioritizing social value aids in talent recruitment, while – as studies have shown – retention bolsters brand trust, promotes diversity and inclusion. and supports employee well-being. In a competitive job market where 76% of workers prioritize finding employment with socially conscious businesses, aligning employer values becomes crucial to attracting and retaining talent. Established life science leaders like GSK are investing in social initiatives, such as STEM education programs, to address social needs and as a recruitment tool. This focus extends to real estate decisions where location remains key. Tenants select locations that engage with communities and promote well-being, and are located near clusters of excellence.
Looking ahead
In conclusion, the integration of social value in the life sciences sector represents a success story for investors, since this is not just ethically responsible but also commercially sound. The life sciences sector exemplifies the mutually beneficial relationship between social responsibility and commercial success. As investors continue to seek avenues for stable returns in a volatile market, the life sciences industry stands as a model for creating meaningful impact while delivering financial returns.
It is reasonable to assume that the best practice examples we are seeing for social in the life sciences will provide confidence for other sectors looking to replicate their successes and build standout investment cases for new products as the market starts to recover in 2025 and beyond.
This article was written by Sarah Coughlan, Director and Head of Social Wellbeing at EVORA Global.
References
“Millennial Employee Engagement Study“. Cone Communications. Accessed June 7, 2024.
