With nearly a third of Japan’s population aged at 65 or over, life science and R&D real estate presents a compelling opportunity for property investors seeking to capitalise on rising healthcare demand and increasing pharmaceutical research and development, according to senior executives from Warburg Pincus, Lendlease, and CBRE speaking at Mingtiandi’s 2024 Tokyo Forum on Tuesday. Watch the full recording>>
In a spotlight interview at the Yardi-sponsored forum, Warburg Pincus principal Tag Yuxiang pointed to growing healthcare expenditure in Japan, along with the country’s limited supply of dedicated R&D facilities and strong government support, as providing a favourable backdrop for investors to generate attractive returns on life science projects.
“In the life science and R&D space, there are two factors,” Tag said. “Firstly, the demand is very strong. You look at government support, you look at the ageing population. I think everyone is aware that in developed markets, the ageing population is pretty serious. In Japan, nearly 30 percent of the population is above 65. Healthcare expenditure is expected to be over 10 percent of GDP in a few years; Secondly, on the supply side, if you look at just how underserved this space is: there are very few third-party assets for lease. So if you can convert or develop assets that cater to the demand, you have a winning strategy.”
The forum saw Yuxiang joined onstage by Andrew Gauci, chairman of Japan and executive director of development partnerships for Lendlease, and Shigeko Mizutani, managing director of valuation advisory and consulting services for Japan at CBRE.
Releasing Capital
The growing interest in Japan’s life science property sector comes as Japanese corporates, including pharmaceutical companies, are increasingly seeking to unlock value from property holdings and redeploy capital towards higher-value initiatives, with Gauci pointing to this trend as presenting opportunities for property developers and owners to work with corporates on real estate projects.
Andrew Gauci (L) of Lendlease, Tag Yuxiang of Warburg Pincus and Shigeko Mizutani of CBRE at the forum
“Technology is where (corporates) should be spending their money,” Gauci said. “Freeing up the capital is key. Whether it’s AstraZeneca or any of the other major pharmaceutical or life science companies, there’s a lot of capex into technology, research and development. They shouldn’t be putting their money into sheds. And I think that realisation is gradually growing.”
That view was echoed by Mizutani, who pointed to increasing preferences among life science firms and pharmaceutical manufacturers for leasing facilities instead of plowing large amounts of capital expenditure into refurbishing ageing buildings.
“Not just the society but the buildings themselves are aging,” Mizutani said. “(Corporates) need to put capex into rebuilding or refurbishing the buildings, whereas if you can find leased laboratories, you will be able to lease rather than spending huge amounts of capital into the property…so that is one source of demand that is driving this market. And it’s not just the life science, but also the manufacturers.”
Bespoke Facilities
With life science facilities serving more specialized requirements than traditional offices, the executives highlighted the importance of understanding the needs of clients, and of the industry, to ensuring a successful investment. Through Vita Partners, which was established in July 2024, the project construction business has delivered over 200 projects in APAC for life sciences clients over the last 20 years.
“When you keep building these facilities, you know exactly how to build them and what buildings can be converted into what the client needs,” Tag said. “I think that is a very powerful tool. And we saw that as a key selling point to partner with Lendlease. More importantly, it’s a relatively nascent sector and it’s hard to get access to the tenant base if you want to buy a building and convert to life sciences and R&D, you need to know who to call.”
Yuxiang and Gauci cited the example of the Leaf Minatomirai, a Yokohama mall which was recently converted into an R&D workplace, with that property serving as the seed asset of Warburg Pincus and Lendlease’s newly-established Asia Pacific life science joint venture which reached final close in late July and currently has around $1.5 billion of assets under management.
Lendlease and its co-investor in the project, Dutch pension fund manager PGGM, in February having completed their conversion of a retail property into a 24,206 square metre (260,551 square foot) R&D facility. Gauci pointed to the importance of bringing to market a property aligned with the requirements of clients as key to Leaf Minatomira’s success in landing tech tenants including a semi-conductor unit of Samsung.
“So actually the key really is finding or filtering what’s required by an R&D or life science operator,” Gauci said. “And we got the chip manufacturing part of Samsung with a bit of an R&D facility within that space. And only our building could facilitate what they needed. And you’ll see in Minatomirai there are a lot of office buildings with empty space, but not ours.”
In addition to its tie-up with Lendlease, Warburg Pincus in 2023 established a joint venture with EGW Asset Management, a unit of Japanese real estate investment management firm EastGate, to invest in life science and R&D real estate in Japan.
That venture has since acquired the Technowave 100 office and data centre facility in the R&D hub of Yokohama, with plans to convert the property into laboratories for life science and R&D use.
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