Investment across the Golden Triangle in the first three quarters of 2023 has dropped by 78% year-on-year, according to Cushman & Wakefield.
The most recent data from the consultancy has shown £421m invested across life sciences-related real estate in the Golden Triangle markets, down sharply from the bumper £1.9bn transacted over the first nine months of 2022.
The slowdown in investment activity so far this year comes amid transactions being withdrawn, put on hold or returned to the market after going under offer. Most recently, Royal Mail Group and Parcelforce Worldwide have withdrawn the disposal of their freehold site at 24-58 Royal College Street in King’s Cross, NW1, after two phases of competitive bidding.
Michael Aston, head of life sciences for the UK at Cushman & Wakefield, said: “Appetite among investors to acquire new, additional sites for ground-up development has been much quieter [in Q3] than it was before.
“I think the bill cost inflation, the funding costs and interest rates are deterring a lot of investors from acquiring new sites that require ground-up development. Investors are increasingly more interested in value-add opportunities, such as standing stock, which can be refurbished.”
In contrast, last year investor confidence was boosted by post-pandemic economic recovery and strong stock markets. In addition, 2022 benefited from the era of cheap capital, which has now come to an end amid the rapid rise in interest rates and borrowing costs.
As of October 2023, yields stood at 4.75% for the life sciences sector in the Golden Triangle, up 50 basis points from the start of the year. The outward movement over the past 12 months totalled 100bp.
Cushman & Wakefield predicts yields to remain under pressure for the remainder of 2023.
More positively, new assets across the key markets of Cambridge, Oxford and London are continuing to come on the market, suggesting that activity could pick up pace going into 2024.
Also, venture capital investment into UK life sciences companies has increased by 24% over the past three months to £784m, marking the highest quarterly volume since Q4 2021.
Cambridge-based life sciences companies accounted for a 53% share of VC investment in the three months to 30 September. London-registered firms followed with 31%, while Oxford accounted for 5% of VC funding. The rest of the UK made up the final 11% of the quarterly volume.
The most notable VC raises over Q3 2023 have been into Apollo Therapeutics, totalling £178m, CMR Surgical at £127m, and Ellipses Pharma securing £109m. In the M&A market, Abcam has agreed to be acquired by Danaher for $5.7bn (£4.7bn), in a deal which is due to complete next year.
Aston said: “Investment feeds through to new space requirements quite quickly.
“Growth companies particularly like fitted space so that they can just plug in and get on with creating intellectual property. They are generally not interested in developing their own buildings or taking shell and core [space], which in turn encourages landlords to fit out space to a degree.”
Cushman & Wakefield tracked 2.7m sq ft of active requirements seeking science and innovation space in the Golden Triangle as of 30 September, up from 2.5m sq ft recorded on 30 June.
The pipeline under construction in the Golden Triangle totalled 2.2m sq ft as of the end of Q3 2023, of which 38% has already been prelet or is under offer.
New construction starts on site were reported at the Refinery and Victoria House in London, Trinity House and Harwell Campus in Oxford, and CamLife in Cambridge.
Overall, data showed 6.7m sq ft of life sciences space within the Golden Triangle that has planning consent. However, Cushman & Wakefield warned that not all consented schemes are likely to progress through to completion in the near term owing to the escalating construction output costs and the elevated cost of debt.
As such, the consultancy expects strong occupier demand, combined with the low availability and continued growth within the life sciences industry, to continue to push rents upwards – albeit at a slower pace.
According to Cushman, rents remained stable in Q3 2023 in Cambridge and Oxford at £65 per sq ft and £62.50 per sq ft respectively, while London saw a further increase to £130 per sq ft from £120 per sq ft recorded in Q2 2023.
The most recent deals at Babraham Research Campus have set new rental highs in Cambridge, at £68 per sq ft.
Aston said: “Rents are still going up, and how much longer they can go up, how much faster they can go up is a big question because we will reach limits of affordability.
“But I think Cambridge has more room to go. I can see that going up further and getting closer to £75 to £80 per sq ft.”
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