Life Science REIT is set to test investor confidence in the long-term prospects of labs and related real estate after putting itself up for sale.
The company floated on the London Stock Exchange in November 2021 and has built a portfolio of assets across the Golden Triangle markets of Oxford, Cambridge and London. But it racked up losses as property values fell and has now launched a strategic review that could see it sold or wound down to return money to shareholders.
The move comes after attempts to sell assets or find joint venture partners hyperlink https://www.egi.co.uk/news/life-science-reit-eyes-join-ventures-in-place-of-fresh-equity/ failed to deliver.
The company has long been trading at a discount to its assets. It has a market capitalisation of roughly £150m, compared to EPRA net tangible assets of £260.4m.
Devina Rana, partner at law firm McDermott Will & Emery, said the discount would make the REIT “an attractive valuation proposition to deep-pocketed investors” but that sentiment for REITs’ investment approach varies.
“The overarching issue is that this investment type appears to be heavily impacted by external economic conditions, liquidity and debt structures, all of which have not been stable for some years,” she added.
Peak interest
Investment in life sciences real estate in the UK peaked during the Covid-19 pandemic in 2022. The country’s biotech and pharmaceutical industries had never seen as high levels of attention and funding as then, nor since.
Access to venture capital has enabled young life sciences businesses to hire talent, conduct more trials and drive research and development. Start-ups were rapidly turning into grow-on businesses, graduating from university incubators and hunting for their own space. Vacancy rates across science-related real estate quickly ticked down, pushing up rents and widening a gap in the market for specialist facilities.
Real estate investors and developers have been eager to catch up on the opportunity, with favourable market environment and elevated interest in life sciences further heating up the sector and stretching entry price point.
“There has certainly been a drop off in investment in life sciences real estate since its peak,” said Lynsey Inglis, associate at Charles Russell Speechlys. “However, this can be partly explained by the fact we are moving from an investment and development stage to the actual delivery of the space that was in such high demand at that time.”
Simon Farnsworth, managing director at Ironstone Asset Management, investment adviser to Life Science REIT, told Estates Gazette in March 2023 that even with hindsight of how the market would change, the company would still buy its existing assets again “twice over”.
Challenges and headwinds
Life Science REIT blamed “challenges and significant headwinds” for its underperformance. These include high inflation and interest rates which are negatively affecting investor sentiment and slowing down leasing activity across all three Golden Triangle markets that it had invested in.
The most recent data from DTRE has shown total science and technology take-up in Cambridge reached 99,300 sq ft across 14 deals by the end of 2024, comprising 75,800 sq ft of laboratory space and 23,500 sq ft of mid-tech space. This represents a 65% decline year-on-year, and a 39% drop compared with the average recorded between 2019 and 2023.
Lab take-up in London reached 30,400 sq ft across 15 deals in 2024, down by 43% year-on-year and 62% below the five-year average.
In Oxford, life sciences occupiers have signed for a total of 190,100 sq ft of labs, with an additional 18,200 sq ft of mid-tech space transacted. The figures represent a 7% year-on-year decline but are slightly above the region’s five-year average of 186,500 sq ft.
On the investment front, 38 life sciences and biotech firms headquartered in Cambridge raised a total of £610m in 2024, according to the data from DTRE, reflecting a 15% decrease year-on-year.
Venture capital raised by Oxford-headquartered life science and biotech firms totalled £419m in 2024, a 12% decline on 2023 figure.
Matt Smith, head of science and technology at DTRE, said: “Occupier confidence is beginning to return to the science and technology market following the second-best year for fundraising on record.
“Across the Golden Triangle, we are seeing increased levels of interest, and there are multiple 30,000-plus sq ft active requirements with the potential to catalyse these markets. DTRE expects this positive momentum to continue through the remainder of 2025.”
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