Life sciences deal activity in China has eclipsed investment in all other markets across the Asia Pacific (APAC) region, a sign of confidence in government policies supporting the sector and the market’s untapped opportunities.

Transactions in APAC during the first nine months of 2023 surpassed full-year volumes in 2022, with China dominating deal activity, JLL data shows.

Notable among these deals was Simcere Pharmaceutical’s RMB850 million ($120 million) sale-and-leaseback of the Zhangjiang Medical Valley Life Sciences Industrial Park to Concora, a subsidiary of Ascent Investment Group's biomedical industrial park business.

“Investors are increasingly targeting sale-leasebacks by life sciences companies looking to recycle capital to focus on their core research and development (R&D) business,” says Susan Ding, Director, Research, China, JLL. “In this approach, the buyer operates and manages the business park which houses R&D labs and office spaces, while the seller becomes the anchor tenant securing the occupancy rate and providing stable rental income.”

The government's years-long planning and policymaking efforts have played a crucial role in the success of these clusters, both at the country and state level.

Take the Healthy China 2030 blueprint, which was launched in 2016 to improve healthcare services and financial coverage through reformed legislation and institutional reorganisation.

In its latest five-year development plan, Shanghai is also prioritising the growth of its biopharmaceutical market to achieve RMB1 trillion ($141 billion) by the end of 2025, up from RMB600 billion ($85 billion) in 2020.

To be sure, recovery in leasing and investment activity in China’s life sciences sector remains significantly below the peak levels observed during the pandemic. But a major development fuelling investor optimism is the slew of impending drug patent expirations, an enticing opportunity for those seeking to enter the sector.

While there has been a gradual recovery in investment activity this year, the overall decrease in life sciences funding over the past two years, primarily influenced by interest rate hikes, has dampened leasing activity in the asset class.

Despite this slump, approximately 9 million square metres of land has been allocated for the development of life sciences stock in Shanghai alone by 2025.

This could potentially lead to an oversupply scenario, Ding warns, unless funding rebounds swiftly.

However, concerns remain premature as new opportunities emerge.

“For instance, the trend of technology companies venturing into life sciences in areas such as AI-driven drug discovery could present new opportunities,” says Ding.

“In the near term, investors, especially insurance companies and financial institutions, continue to be attracted by the stable performance of life sciences real estate in terms of rent and cash flow.”