a.s.r. real estate

Interview Luc Joosten Property NL: Science Parks as core investment

Next Delft, is already the fifth science park asset which the ASR Dutch Science Park Fund has acquired. The building will comprise 10,000 m² of both office and manufacturing space. The building is being developed by Stone22, and is forward funded by the ASR Dutch Science Park Fund, the initiator of the process.

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Next Delft Building, TU Delft Campus

Luc Joosten, fund director of the ASR Dutch Science Park Fund, emphasises that the growth at these sites makes an investment in his fund particularly attractive. ‘Businesses on science parks grow much faster than those at other sites in the Netherlands,’ he says. ‘Employment at these kinds of locations has grown annually by 8% to 9% in recent years, faster than in the rest of the country.’

The ASR Dutch Science Park Fund was established in 2019. a.s.r. has so far been the sole shareholder, but the fund is open to other shareholders. Around €100 million has now been committed, but Joosten says the fund has a potential size of €0.5 billion to at least €1 billion in the medium and long term. In addition to Next Delft, the current buildings in the portfolio also include an existing multi-tenant building on the Twente campus, a new construction innovation lab for TNO on the TU Delft Campus and offices being built for Oldelft Ultrasound, also in Delft.

It is no coincidence that Delft is slightly overrepresented in the mix. The fund has entered into a partnership with TU Delft, in which the ASR Dutch Science Park Fund is responsible for the construction and operation of commercial buildings on the TU Delft Campus. Given the potential size of the fund, Joosten does not believe the current focus on Delft will negatively affect its diversification. a.s.r. has selected around 10 to 15 science parks in the Netherlands which it believes match the required profile. Examples are campuses around universities such as Leiden, Eindhoven and Enschede, but also land around University Medical Centres.

a.s.r. did not enter the world of science parks lightly. ‘Before launching the fund in 2019, we spent years researching all the available data,’ Joosten explains. ‘Our attention was drawn to this new category of investment real estate by the united leading science parks in the Netherlands. During the previous crisis, institutional investors were asked to develop ideas on how they could use Dutch pension fund assets to give the Netherlands a helping hand. One of the findings was that the growth of science parks, where Dutch innovation takes place, was being constrained by a mismatch between supply and demand for buildings. Universities have previously been required to dispose of any real estate they were not using themselves and concentrate on their core tasks. Commercial activities such as developing and letting out buildings to businesses are therefore no longer permitted. That’s where the opportunity lies for us.’

The investigated data showed that one of the benefits of investing in science parks is that tenants are very loyal. Leases with terms of 10, 15 or 25 years are not unusual. According to Joosten that is because tenants choose such locations in a very calculated way. They want to be close to the university because of the cross-fertilisation that takes place there and can only find it in that particular place. The tenant Oldelft Ultrasound, for example, was previously located close to the campus, but that was not sufficient. The business is now coming onto the campus itself and is delighted with the move.
‘That tenant loyalty means science park real estate performs differently than other types of real estate,’ Joosten explains. ‘Rents on science parks are invariably higher than average rents in the vicinity. Vacancy has also been low for many years due to the shortage of supply and the growth in employment.’

As a result of these factors, a.s.r. real estate sees science parks as a core investment. The forecast total return is in excess of 7%, however, which appears quite high in comparison with other low-risk investment products. ‘That’s because we got in early,’ says Joosten. ‘Investors have not paid much attention to these kinds of sites so far and currently only a few operators are involved in them. I expect that returns in this asset class will eventually decrease when it becomes a more standard investment category.’ Although there are still no blueprints for this type of investment in the Netherlands, science parks are already much more common in the United Kingdom and in the United States.

The campus atmosphere and the cross-fertilisation that tenants find so attractive depend entirely on the management of the campus. It must bring people and businesses together and provide a creative environment in which the knowledge economy can flourish. A university or major knowledge institution naturally plays a crucial role in that. But real estate can also have an important function: the Next Delft building has meeting rooms that are also available to the local community. In that way the building stimulates the economy, so the government chips in by providing a small grant.

In Joosten’s view, the Leiden Bio Science Park demonstrates that a university is ideally placed to set up such an ecosystem with various real estate investors. ‘It has shared ownership, but it’s one of the best science parks in the life sciences area in Europe.’

The real estate investor has no primary responsibility for the riskier category of tenants, the incubators and start-ups. ‘That’s mainly the university's responsibility,’ says Joosten. ‘Meeting demand for their accommodation is one of its primary core tasks. Our tenants mainly range from scale-ups with a proven track record to large companies with an extensive workforce.’

The innovative sector also has no particular need for special buildings, according to Joosten. ‘Laboratories can be accommodated in fairly standard buildings provided allowance is made for things like extra storey height and shaft space. Large companies also fit out the buildings themselves. They usually want to do that as it’s part of their primary business. The buildings are therefore easy to convert from lab to office and vice versa.’ The risks are also diversified because buildings can be both multi-tenant and single-tenant.

One of the advantages from Joosten’s perspective is that he is involved in the development from an early stage, as in the case of the Delft partnership, so he can help steer its progress. That does not mean he incurs risk in the development of the building, which after all would be inappropriate for a core fund. ‘For the development work we partner with a developer who bears the development risks. We compose the development team, supervise the marketability and flexibility of the building and get involved, for example, through forward funding.’

Does Joosten believe the fund’s growth opportunities will increase going forward? ‘Yes, I think we’ll accelerate. The coronavirus crisis has triggered a vigorous debate on the retention of innovative businesses in the Netherlands. The government is even taking equity stakes in businesses with promising technologies to stop them moving abroad. That’s where the opportunities are for us.’

If you would you like to know more about the ASR Dutch Science Park Fund, please contact:

Luc Joosten
head of Fund Management / fund director ASR Dutch Science Park Fund
M: +31 (0)6 83 64 81 85
E: luc.joosten@asr.nl

Olle Overbosch
fund manager
ASR Dutch Science Park Fund
M: +31 (0)6 30 50 68 41
E: olle.overbosch@asr.nl