Shanghai sees life science property leasing demand on the rise

Shanghai, April 26, 2022 – The biopharmaceutical industry is a national strategic emerging industry and therefore an important sector for both China and Shanghai. It is a significant pillar to build in order to seize the high ground of the global science and technology revolution. Shanghai has issued its targets for the industry in its latest development plan, aiming to make the city a world-class biopharmaceutical cluster by 2025. In this context, JLL released its latest research report Shanghai's life science property: Primed for growth, in which 61 life science companies and 19 life science property investment institutions were surveyed. The report offers a comprehensive analysis of the market trend and investment opportunities in this important sector.

The report shows that the leasing demand from the life science industry accounted for 13% of the overall demand in 2020, but this share climbed to 26% in 2021. “Innovation-led growth has driven interest and investment in the life science sector, fueling competition among companies in Shanghai. The life science property sector – as a host for R&D, offices, and other business activities – will become increasingly attractive to investors,” said Anny Zhang, Managing Director for JLL East China and Head of Office Leasing Advisory for JLL China.

Accelerated development driven by market demand, policy, talent inflow, and capital support

Shanghai’s 14^th Five-Year Plan indicates that the biopharmaceutical market in Shanghai was valued at over 600 billion yuan in 2020, and the city is looking to grow the market to 1 trillion yuan by the end of 2025. The report also points out that the high market demand for healthcare services and technologies is the driving force behind the industry’s growth.

Policy support and system reforms boost the life science sector. Strong government support in the areas of “reform” and “innovation” will reshape the market positioning of the biopharmaceutical industry and promote a paradigm shift in the industry.

Introduction of foreign talent and return of overseas Chinese fuel innovations and breakthroughs. The Chinese government has introduced a series of policies to attract both overseas Chinese and foreign talents, and companies are providing high-value research opportunities and other incentives to enhance their competitiveness in the global talent market. LinkedIn data from 2021 shows that China has a strong appeal to overseas top talent. Notably, the inflow of talent from the US and the UK, the leading countries in the life sciences industry, to China is 2.3 times and 2.26 times the number of Chinese outflows to the respective countries.

Continued capital investment supports the development of the life science industry. Over the last decade, private equity and venture capital investments in life science companies have grown significantly. Average annual investment in life sciences rose to a new level in the 2018-2021 period, nearly doubling its level from the previous four years. Additionally, we noticed that Shanghai-based life science companies received nearly 25% of the country’s total capital investment in this sector.

Daniel Yao, Head of Research for JLL China, indicates, “Looking ahead, Shanghai as well as China’s life science industry, is expected to prosper further, supported by strong market demand, supportive government policy, better talent acquisition strategies, and sustained capital inflows. ”

Leasing demand on the rise with strong rental growth trend to continue

Leasing demand from life science companies in Shanghai has continued to expand in recent years, making this sector the second-largest source of demand in Shanghai’s core business parks in 2021. JLL statistics show that the leasing demand from life science companies has climbed from 13% of all industries in 2020 to 26% in 2021

Zhangjiang submarket saw the most active life science leasing activities among Shanghai’s business parks, recording both expansion demand and new setups from companies over the past two years. In addition, Zhoukang, Pujiang, and Lingang Blue Bay submarkets also are becoming popular locations for life science companies. Each submarket benefits from distinct positioning, supportive policies, and other resources.

JLL has estimated the future supply of life science R&D office properties in each of Shanghai’s industrial parks based on detailed plans from the city’s administrative districts as well as the development progress of individual business park areas. Approximately 1.6 million square meters of life science properties are expected to enter the market in the next three years. Although the expected supply is substantial, most of these projects have already been pre-leased or customized by committed life science companies. Overall, the market has achieved an average pre-leasing rate of 70%. In the short term, R&D office properties will remain in short supply and the leasable space will remain limited.

“Strong demand from life science companies and scarcity of vacant space has led to a steady increase of the rent level of life science R&D properties. Vacancy rates for these properties in Shanghai will remain below 5% over the next three years, and the rent level of R&D properties will continue to rise steadily,” said Stephen Yu, Head of Shanghai Business Park Services of JLL Office Leasing Advisory.

Promising long-term investment opportunities 

Life science real estate has gained increasing attention from institutional investors as an alternative investment asset – a result of the sector’s positive development outlook and strong leasing momentum. JLL Research’s survey of real estate investors showed that 90% of the respondents are examining opportunities in life science real estate, while 11% have already invested in the sector.

Sun Ling, Head of Capital Markets for JLL East China said, “The city will need to pay attention to the growth of large-volume, multi-functional concentrations of life science activity. These include both independent mixed-use life science developments and larger-scale bioclusters, which can give investors new perspectives in terms of long-term core/core-plus strategies.

The experience of mature markets such as the US shows that a pilot life science development can provide established life science firms with stand-alone R&D properties, and provide incubators and well-equipped co-working lab spaces to small and medium-sized start-up firms. It also is essential for developers to provide supporting lifestyle amenities to foster a sense of “life science community” among tenants.

Besides independent investments, investors also are considering a variety of potential collaborations, such as with life science firms, PE/VC firms in the life science industry, governments, and other domestic and foreign funds. These collaborations can improve outcomes for both the investors and life science occupiers, resulting in larger scale concentrations of life science activities and amenities that we term “bioclusters”.

As Shanghai moves further in building world-class life science innovations hubs, JLL expect both independent mixed-use life science developments and larger-scale bioclusters, to attract tenants from different stages of business, significantly increasing “corporate cohesion”.