Asset ‘Ecosystems’ Gather as Life Science Reaches New Heights

Australian scientists had a hand in the development of penicillin, the first bionic ear, the world’s first cancer vaccine and pacemakers, among other breakthroughs. But despite this illustrious history, Australia has watched with envy as other countries reap the benefits of a life sciences explosion. The sector is tipped to overtake technology in terms of investment and innovation this century, according to life sciences developer Kurraba Group chief executive Nick Smith. “The life sciences market here is 20 years behind the US and 10 years behind Asia and Europe,” Smith says. “We’re probably the number one in the OECD nations at producing IP [intellectual policy] but are terrible at retaining it onshore.” Covid sparked a seismic shift in government focus to the sector, however, and the key to its growth now appears to be the development of real estate ecosystems to support it. Opportunity and potential The Australian biotech sector is, based on ASX-listed market capitalisation, valued by PwC at more than $250 million. Universities, biotech companies and developers are working to grow that. “Our IP here is strong, and not just in biotech devices but also agriculture and food testing,” Smith says. “But until recently, everything has remained on campus [at universities] or sent overseas, and the research facilities have not existed to commercialise this IP. “There’s a big push by federal and state governments to change this.” ▲ Kurraba Group chief-executive officer and co-founder Nick Smith. The Government has invested serioous money to do just that, including the $20-billion Medical Research Future Fund and the $500-million Biomedical Translation fund to commercialise biomedical discoveries. This drive has been underpinned by an ageing demographic, says ISPT’s Rob Pepicelli. “Australia allocates about 20 per cent to healthcare research and development compared to an OECD average of 10 per cent,” Pepicelli, the property fund manager’s head of portfolio for healthcare, life sciences and education, says. “And like many developed nations we’re experiencing some of the strongest growth rates in ageing and tech driven healthcare advancements, including, more recently, artificial intelligence. We’re poised as a country to benefit from this growth.” ▲ Renders of Kurraba Group’s proposed Sydney’s Health &amp; Innovation Hub at 100 Botany Road. But Australia has lagged behind, partially because it has been unable to “connect the dots” between academic and university IP and commercialisation, ranking last of all OECD countries for business collaboration with higher education or government institutions. Collaboration sits at just 1.6 per cent of all product and/or process innovation-active businesses in 2016–17, which is when it was last calculated. That compares with an OECD average of 14.2 per cent and far below countries including the UK, Finland and Austria. Capital injection While Australia lags behind in some aspects, it is well-placed to take advantage of domestic and international capital. “There is a big weight of capital [causing] oversupply in the US, where everyone turned offices into life sciences buildings over the past couple of years,” Smith says. According to CBRE, 31 per cent of new life science space had been converted from offices in the US, a trend sparked by Covid in 2021 that continued into the fourth quarter of 2022. ▲ Tenanted by the University of Sydney, 1 Central Avenue has a 97.1 per cent occupancy and 6.6-year Weighted Average Lease Expiry (WALE). “But the APAC region hasn’t seen that growth, and we’re a long way behind. However, capital from the Middle East, the US ... is all keen to deploy and we’re now at the forefront when they do,” Smith says. Assets are high value and strategic, and Kurraba Group acquired on behalf of a private investor this year the Biomedical Building at 1 Central Avenue, South Eveleigh, for $103 million from Centuria Capital group. The site is about 7km south of the Sydney CBD by road. Kurraba also recently filed plans for its $490-million Waterloo life sciences campus, and inked a deal with a multibillion-dollar Singaporean private equity firm that is providing tenants and equity to the business. Closer to home, ISPT teamed up with Australian Retirement Trust for its Camperdown project, which will deliver 30,000sq m of net leasable area. It also broke ground this year on its 12,096sq m A-grade medical office building Brenan Place at Fitzroy backed by mandate partner Hesta, and topped out its $600-million Health Translation Hub in Sydney’s Randwick Health &amp; Innovation Precinct last month. ▲ ISPT head of portfolio, healthcare, life sciences and education Rob Pepicelli. “Our funds are very interested in this sector, and it will continue to be attractive to domestic investors,” says Pepicelli. For more evidence, look to the world’s biggest asset owner, BlackRock, who seeded a $1.5-billion laboratory real estate fund in September and acquired, alongside Wentworth Capital, two life sciences facilities in Sydney. “It is overseas capital but their approach is to partner with local capital which provides opportunities to partner with them and domestic funds and investors,” Smith says. Developing for biotech Building and retrofitting for life sciences, however, is a tricky business. “As a sector, it straddles office, medical and industrial, and that’s why we see the diverse range of capital getting involved,” Smith says. “We’re not the cheapest country, and there are not many buildings that these tenants can go into—they need gas reticulation systems, extra floor-to-ceiling heights and a whole ecosystem around it.” The key to a successful life sciences project, however, is clustering. “We need to create an ecosystem where those startups, that knowledge, the data requirements, all have to be within reach.” ▲ BlackRock and Wentworth’s acquisition included a 24-hour blood processing facility at Alexandria. That means locations near knowledge and digital infrastructure. In the east coast capitals that includes Herston and Boggo Road in Brisbane, close to UQ and QUT; Waterloo where UTS, the UNSW and three research hospitals are in Sydney; or Monash in Melbourne. “The curation of the product is really important,” Smith says. “You might have labs but it’s not just a building for pathology, it’s multi-tenanted and faceted.” Kurraba has identified strategic partners in Brisbane and Melbourne but does not want its projects siloed from each another. “We really want our buildings to talk to each other across that country, and have the IP grow and be transferred within and between each state,” Smith says. ▲ ISPT’s Health Translation Hub is a collaboration with the UNSW, who agreed to take two-thirds of the facility for 20 years. Pepicelli says that given Australia punches above its weight in university rankings and medical devices—including the launch of the southern hemisphere’s only commercial-scale MRNA vaccine manufacturing facility in Melbourne this year—and global companies with a presence here, we can expect further growth. “Governments around the world are taking more control of onshoring vaccines but also medical equipment,” Pepicelli says. “They don’t want to have their supply chains reliant on imports, which will be a key driver of this sector. “So we as a nation need to pull together to ensure these precincts stand apart to stand apart from the overseas opportunities.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

Asset ‘Ecosystems’ Gather as Life Science Reaches New Heights

Want to read more?

Disconnection by Design: Why ‘Untech’ is the Next Big Amenity

Office Eyes Slowdown as New Stock Supply Becomes a Trickle

Why Salta Won’t Break Ground on $400m Pipeline

Precinct Proposals Bloom as Brisbane Middle-Ring Sheds its Past

Newest Land Lease Player Plots Sector Shake-Up

Asset ‘Ecosystems’ Gather as Life Science Reaches New Heights

Want to read more?

Disconnection by Design: Why ‘Untech’ is the Next Big Amenity

Office Eyes Slowdown as New Stock Supply Becomes a Trickle

Why Salta Won’t Break Ground on $400m Pipeline

Precinct Proposals Bloom as Brisbane Middle-Ring Sheds its Past

Newest Land Lease Player Plots Sector Shake-Up

Billbergia, Metrics Chase 46 Storeys in $400m Towers Uplift

Arup to Lead Brisbane Games Victoria Park Masterplan

Melbourne’s Public Art: Driving Cultural and Economic Value

Billbergia, Metrics Chase 46 Storeys in $400m Towers Uplift

Arup to Lead Brisbane Games Victoria Park Masterplan

Melbourne’s Public Art: Driving Cultural and Economic Value

Disconnection by Design: Why ‘Untech’ is the Next Big Amenity