Chapter 2 – White Paper “Life Science Real Estate – A New Asset Class in the Institutional Portfolio”
Location Decides – The Importance of Life Science Clusters
In the past, the rule in the classic real estate market was: location, location, location.
This has long been viewed in a more differentiated way, but especially in life science real estate, this principle falls far short of the mark.
Here, it is not the city centre location or transport connections that determines the success of an investment. Rather, the decisive factor is integration into a functioning ecosystem – a cluster of science, research, capital, talent and companies. It is precisely this spatial concentration of players that promotes the exchange of knowledge, access to technology and cooperation with universities and non-university research institutions. For start-ups and smaller companies, settling in such an environment can directly increase competitiveness.
Cluster instead of location – a structural difference
While office properties can function in a wide variety of locations, life science real estate is concentrated in specific locations.
The reason lies in the way the industry works. Research and development are highly collaborative. Companies, universities, clinics and research institutions work closely together. Knowledge transfer, access to talent and proximity to basic or applied research are not soft factors, but central prerequisites for growth and innovation.
This gives rise to clusters – spatially clearly demarcated ecosystems in which innovation is created and scaled. This cluster logic is much more pronounced in the life science segment than in classic commercial real estate. The more specifically a property is geared to life science requirements, the more the location in a regional cluster or leading science park comes to the fore. On the other hand, the more suitable a property is for third-party use, the more likely it is that classic prime real estate locations can also function.
International examples such as Boston/Cambridge or Oxford have shown for years how strongly this cluster logic influences the demand for real estate. Similar structures are increasingly developing in continental Europe.
European clusters are gaining in importance
A clear hierarchy of life science locations is also emerging in Europe. This is less about countries than about specific micromarkets in which research, industry and infrastructure are concentrated.
In recent years, several relevant clusters have emerged in Germany that have one thing in common: proximity to renowned universities and research institutions. The leading regions include Berlin-Potsdam, Munich and the Rhine-Neckar region. In Berlin, for example, the Charité, various clusters of excellence and the Adlershof Technology Park act as a strong attraction for research and companies. In Munich, Martinsried, LMU, TUM and the IZB in particular characterize the cluster. The Rhine-Neckar region, on the other hand, combines top-class university medicine, non-university research and private-sector innovation in a particularly dense density.
One example of this is Heidelberg. With the University Hospital, the German Cancer Research Center, the European Molecular Biology Laboratory (EMBL) and other research institutions, a closely interlinked ecosystem has developed there over decades. In such markets, demand does not arise abstractly at the city level, but specifically in a few established micro-locations such as Neuenheimer Feld.
Why clusters are not replicable
A key difference to other real estate segments is the lack of interchangeability of locations.
Office locations can be reassessed and, in some cases, recharged via infrastructure, urbanity or market cycles. Life science clusters, on the other hand, are created over decades. They are based on scientific excellence, political funding, private-sector dynamism and institutional networking. It is precisely this long-term development that creates barriers to market entry – and stability at the same time.
For investors, this means that those who invest in established clusters participate in demand that is structurally sound. Those who invest outside such clusters take on a significantly higher risk – even if the building is of high technical quality.
The consequence for investment decisions
Choosing the right location in life science real estate is not a tactical, but a strategic decision.
It provides:
- the rentability of the space
- the quality and stability of the tenants
- long-term performance
- and the property’s exit capability
A technically high-quality property in a weak environment will find it difficult to hold its own in the long term. Conversely, a property in a strong cluster can also develop considerable potential if it first needs to be further developed operationally or technically.
It is noteworthy that the quality of the location in the life science segment is very clearly prioritized. Particularly important are the location within a regional or local cluster, integration into knowledge networks, proximity to university and non-university research institutions, and access to skilled workers. Good accessibility, regulatory support, and an attractive environment for employees also play an important role.
Local understanding as a competitive advantage
Access to these clusters requires more than market analysis. A deep local understanding is crucial.
1. Which institutions are growing?
2. Which companies are expanding?
3. Where do new collaborations originate?
4. What space is becoming scarce?
5. How are regulation, funding and infrastructure developing?
These factors are often not publicly visible, but have a significant influence on the development of demand.
Successful investment and asset management in this segment are therefore based on a local presence, resilient networks and a continuous exchange with local stakeholders.
Conclusion: Life Science follows its own location laws
Life science real estate is not a nationwide market, but a network of a few, highly specialized locations. The quality of an investment is determined less by the building alone than by its embedding in a functioning cluster.
For institutional investors, this means that location decisions must be made even more precisely in this asset class than in traditional segments. Those who identify and understand the right clusters lay the foundation for sustainable performance. Those who underestimate them risk structural disadvantages that can hardly be compensated for later.
