How Adaptive Reuse Unlocks Australia Life Science and R&D Real Estate Returns
Capital chasing Australia's life science and R&D real estate sector is already outpacing the supply of suitable investment opportunities. That imbalance is likely to persist over the medium term, creating a challenge for institutional investors looking to deploy capital into the sector.
Repurposing existing buildings is one of the practical ways to reap the potential upside of Australia’s life science and R&D sector, given the scarcity of purpose-built stock and the high costs that can make new build developments economically challenging.
Australia's life science and R&D real estate market
Our market intelligence points to Sydney currently having more than 50,000 sqm of qualified enquiry for laboratory and R&D space, while Melbourne has more than 40,000 sqm. Yet suitable supply remains limited.
The underlying demand is supported by Australia's growing clinical trials and R&D activity. Australia is an attractive destination for international sponsors because of its research capabilities and government incentives. Notably, The Australian Trade and Investment Commission (Austrade) identifies clinical trials as a key strength of Australia's life science sector, supported by cost-effective operations, world-class infrastructure including purpose-built facilities, and a stable regulatory environment1.
Australia’s life science ecosystem is also well established, with around 1,500 pharmaceutical and medical technology companies, 55 medical research institutes and 40 universities involved in clinical research2. This concentration of activity drives demand for specialised facilities and can help support the rental levels required to make new developments viable. However, new development-grade rents of around $1,200–$1,500 per sqm per annum in Sydney and $1,000–$1,300 per sqm in Melbourne mean investors generally require long lease terms to justify the capital costs, while there are limited occupiers who can currently pay the economic rents required for new developments.
Repurposing as an alternative
Adaptive reuse provides another route into the market.
Existing offices, industrial buildings, obsolete data centres, hospitals and telecommunications facilities can potentially be converted into laboratories and R&D facilities without the full cost and carbon impact of replacing the existing structure. This principle has been successfully applied before in other property sectors. For example, the former Department of Education Building in Sydney was transformed into Capella Sydney, a hotel that retained its existing structure and heritage elements3.
This also creates an opportunity for investors pursuing ESG objectives in real estate. Infrastructure Australia forecasts that the upfront embodied carbon in Australia’s pipeline of infrastructure and buildings will range from 37 to 64 Mt CO₂e per year between 2022–23 and 2026–27, with most of these emissions originating from the manufacture of construction materials4. Adaptive reuse can reduce the upfront embodied carbon associated with new construction by retaining existing structures and avoiding some of the emissions associated with manufacturing and transporting new building materials.
What makes a building suitable for repurposing?
Not every building is suitable for repurposing, particularly where physical constraints, construction costs, tenant lease structures and rental ceilings can affect the viability of a conversion. Factors such as floor-to-floor heights, structural capacity, floorplate configuration, mechanical and electrical infrastructure, plant space and servicing access can affect the suitability of an asset for life science or R&D use.
Additionally, CBRE's research also highlights the importance of location. For example, Melbourne Biomedical Precinct (MBP) alone brings together more than 40 hospitals, medical research institutes, biotechnology organisations and universities, and attracts around 23% of Australia's annual competitive research funding2. This concentration highlights the importance of proximity to established research, healthcare and talent ecosystems when assessing potential assets for life science use.
Building risk-adjusted returns
For institutional investors, the objective is to generate an attractive risk-adjusted return while maintaining predictable income.
Long-term leases can provide greater income visibility when significant capital has been invested in specialised infrastructure. Execution risk can also be reduced through established relationships with occupiers, government, technical consultants and construction contractors.
As Australia’s life science and R&D asset classes mature, capitalisation rates could compress, in line with the trend already seen in more established offshore life science real estate markets. For example, CBRE's research of the established United States life science market found that cap-rate compression and net operating income growth contributed to the sector’s strong investment performance over the past decade5.
The sector also provides significant social value, with clinical trials contributing over 8,000 jobs in Australia6. For investors, the sector’s role in advancing healthcare outcomes can also strengthen its appeal to occupiers with aligned social and ESG objectives, supporting tenant demand and retention.
An opportunity in underutilised real estate
Australia's life science and R&D sector needs more specialised space, and the adaptive reuse real estate market helps bridge gaps in the economics of purpose-built development by bringing suitable, underutilised buildings into a supply-constrained market. At the same time, building adaptation can reduce environmental impact while creating new investment opportunities in research and healthcare, sectors that contribute to better health and societal outcomes.
Vita Partners brings together technical, regulatory and construction expertise to identify and execute adaptive reuse opportunities across Asia Pacific. Learn more about Vita Partners' approach to sustainable real estate or get in touch to discuss investment opportunities in Australia's life science and R&D sector.
References
- Australian Trade and Investment Commission - Life Sciences in Australia Industry Capability Report.
- CBRE - Life Sciences: Mapping Occupiers across major Australian Cities. 6 May 2025.
- Capella Sydney - The Arrival of Capella Sydney Heralds a New Beginning in the Luxury Hotel Landscape Precinct. 6 September 2022.
- Infrastructure Australia - Embodied Carbon Projections for Australian Infrastructure and Buildings. 15 July 2024.
- CBRE - U.S. Life Sciences Real Estate Investment Trends. 11 June 2024.
- Australian Trade and Investment Commission - ACTI fuels global expansion for Australian clinical trial companies. 8 July 2026.