Life sciences real estate stood strong against the economic turmoil of 2022, although the market couldn’t match the peak reached in 2021. Venture capital investment continued to flow into the sector, boosting demand for life sciences space. Developers have rushed to address a lack of supply, creating new clusters and expanding existing R&D facilities.
Louise Ward, partner at Charles Russell Speechlys, said: “2022 has been a buoyant year for real estate transactions in the life sciences sector, characterised by a number of new entrants to the market making their mark, together with some high-profile deals and developments for some of the more established players in the market.
“There has also been a rise in establishing partnerships or joint ventures. I would expect this trend to continue into 2023.”
Matt Lee, head of science and technology at Carter Jonas, added: “When talking to potential international entrants into the UK market, the opportunity to collaborate with universities and organisations such as the NHS remains an important factor. As such, new developments in the core life science markets of Oxford, Cambridge and London are expected to underpin the sector.”
New and old names
Notable deals over the year included Amazon Property’s £250m fund making its first life sciences purchase through a joint venture with investment company Lateral. The partners bought vacant Mortlock House in Cambridge, leased within months to Nuclera. Lateral has since launched talks with potential funding partners on raising another £300m in equity, as part of a long-term ambition to create a sizeable life sciences portfolio.
Longfellow Real Estate was another new entrant into the sector, having partnered with Canada’s Public Sector Pension Investment Board for the £170m acquisition of Capital Park in Cambridge. Norges Bank Investment Management joined the jv later in the year with a view to acquiring an additional £1.5bn of assets in the UK, with an initial focus on the Golden Triangle.
Breakthrough Properties, a joint venture between Tishman Speyer and Bellco Capital, also made its first UK life sciences purchase early in 2022, with a view to bringing its WeWork-style lab concept, known as StudioLabs, to the UK.
A similar co-working lab offering was launched in West London by ARC, the Brookfield platform created early this year to bring science and tech organisations together. This was followed by the launch of the concept in Oxford, with an ambition to extend the offering across ARC’s entire 1.6m sq ft network.
Oxford Properties also said it is planning the launch of an operating platform for its life sciences portfolio in the coming years, while Pioneer Group is scaling up its incubator programme across the UK.
Cautious with capital
Zac Gauge, UBS’s head of real estate research and strategy for Europe, said: “Companies are being more cautious in their capital expenditure and preserving cash runways – one impact we’re seeing is a preference for fitted lab space, with higher rents, to spread costs over future years. Relationships with occupiers and having a proven track record of delivering space will become key differentiators as the sector matures.”
Tom Mellows, head of UK science at Savills, said: “With occupiers looking to conserve cash, it will be the landlords who provide both flexibility and the right type of space who stand to benefit the most.”
Christopher Walters, head of UK life sciences at JLL, added: “While the Golden Triangle remains one of the largest and most significant life sciences clusters in the UK, we’re also seeing a shift in which occupiers are moving towards cities in the bid to attract the best talent in what is a tight labour market.”
On the development front, major life sciences schemes are being planned in London. Plans went in for what is claimed to be Europe’s largest commercial lab at North Quay, E14. Canary Wharf Group and Kadans are set to deliver a 22-storey, 750,000 sq ft scheme, in a push to establish the UK as a “science superpower” in a global arena capable of competing with the likes of Boston, San Francisco and Singapore.
Lateral is drafting plans for a scheme in Whitechapel, E1, which also has the potential to develop into an east London life sciences cluster.
Outside London, British Land is eyeing further expansion of its burgeoning life sciences portfolio, including taking a role in the development of upcoming phases of the Cambridge Biomedical Campus. The FTSE 100-listed REIT has signed an agreement with the campus to become a partner in the masterplan.
Cambridge City Council has also reconsidered its decision over a 600,000 sq ft lab scheme off Fulbourn Road after initial proposals were thrown out late last year. The U-turn follows heightened tenant demand for lab space, which has driven availability to essentially zero for functional lab and office space. Blackstone’s BioMed Realty is set to start the construction of up to five buildings early next year, with completion targeted for 2024.
In Oxford, Stanhope and Cadillac Fairview have been confirmed as development partners for St John’s College’s £700m Oxford North project, which seeks to create 939,000 sq ft of lab and office space alongside amenities, infrastructure and social value. The overall scheme will also include 480 new homes.
Savills’ Mellows said: “Looking at Oxford and Cambridge, supply will remain critically low in 2023. However, the pipeline of new lab stock is looking far healthier, with a significant amount of space due to complete into 2024 and 2025.”
Acute demand
In the meantime, developers were cheered by prime minister Rishi Sunak’s promise to relax planning laws for life sciences facilities and labs. As part of his bid to lead the Conservative Party, Sunak suggested changes to the planning rules that would make it easier to covert industrial space for life sciences and technology uses.
Richard O’Boyle, chief executive of Pioneer Group, said: “The UK government recommitted to its innovation agenda, which is welcome news, and despite fundraising levels dropping from 2021’s historic highs, life sciences companies continue to raise far more money than they did pre-pandemic – in a sign that the sector’s meteoric rise still has some way to go.
“Looking ahead to 2023 and beyond, we can expect to see the acute demand for innovation real estate continue as companies look to scale and commercialise.
“With development opportunities scarce, especially in core markets like Cambridge and Oxford, we can expect an increasing number of office-to-lab conversion projects to help address the huge supply and demand mismatches that exist within the sector.”
Mike Derbyshire, head of planning at Bidwells, added: “To capitalise on the opportunity, business space will need to evolve in tandem with science, and hard and soft infrastructure and housing will need to be delivered far more quickly than we have previously seen.”
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