The news this week that bio-pharmaceutical company Arakis has signed the first prelet in Cambridge in two years will be the tonic most local agents have been waiting for.
Churchmanor, the developer behind the 250-acre Chesterford Research Park, told EG that Arakis has signed for the 15,000 sq ft building 400 in only the third prelet in the city for five years. The company has been keen to expand its European R&D base following a £107m takeover in August last year by Japanese bio-pharmaceutical company Sosei (see p100).
Mergers and acquisitions have driven the city’s bio-tech market this year. That looks set to continue, and many hope this will spill over into commercial property. But will such activity be enough to turn the market round?
Cambridge had a disappointing 2005. Availability of laboratories reached a peak in the middle of the year and, according to Bidwells, by at the end of the year it was up nearly a fifth on the previous Q4, at 218,000 sq ft. To make matters worse, take-up took a nosedive in the middle of 2004, dropping by 60%, and has ticked over at 22,000 sq ft every six months for the past 18 months. By the end of last year, 16% of Cambridge’s lab space was vacant.
Offices also fared badly (see box, below). Some agents seem surprised that the figures for 2005 were not worse. “This summer is the worst I can remember. It was dead,” says Will Mooney, partner at Jeffersons. “A lot of deals seemed to take forever to happen, and only came through in the past few months, but I don’t think occupiers could have got much better deals.” Those with the keenest eyes got hold of space for £16.50 per sq ft, while prime rents were £23.50 per sq ft.
Words of caution
Rent-free periods have dropped from 12 months to six, “although contributions to fit-outs still feature highly”, says Ben Green, associate at Cheffins.
However, there is good news. Pfizer is believed to be on the brink of taking 24,000 sq ft at Granta Park, and Amgen has announced a £1bn R&D expansion programme. Many agents believe the mergers and acquisitions trend will also favour those trying to sell lab space.
But there is a note of caution. For every Sosei story of expansion, there is another of a company that has retrenched, says Rob Arnold, head of PricewaterhouseCooper’s European life sciences practice. “In bio-tech mergers and acquisitions, there tends to be subsequent cost-cutting. If you are putting two R&D pipelines together, the only reason to do that is to drop the weaker project. That means, in the medium term, you’ll lose heads,” he says.
Fewer people means less sq ft. For example, Ionix Pharmaceuticals on Cambridge Science Park was swallowed up by Vernalis, one of the largest consolidators in the industry, for nearly £13m in July. Ionix has since vacated its facility at building 418 on the park.
Arnold points to another Cambridge Science Park inhabitant, Kudos, which AstraZeneca took over for £210m cash in December: “In the short term, Astra is going to keep the Kudos property and the senior management but, ultimately, they’ll disappear, particularly given AstraZeneca’s large centralised functions.”
“The pace of start-ups has slowedmarkedly,” says Arnold. As a result of new “use it or lose it” rules, venture capitalists are opting to give more cash to blue-chip companies than to small start-ups.
No intention of selling
Property investors remain committed to the long-term prospects of the sector. Morley has launched Quantum, a £750m fund investing in science parks. It is also funding Chesterford Research Park which, on top of the Sosei prelet, it is about to start another round of speculative building (see box).
Neil McLeod, asset manager at Morley, says: “We’ve put significant amounts of investment in over the past two to three years, and we have no intention of selling up,” he says, adding: “Pharma companies willcontinue to be acquisitive, but there will also be more partnering on specific drugs, and that points to more space.”
Bidwells echoes those bullish sentiments. It recently raised its 2010 forecast for laboratory rents from £26 per sq ft to £35 per sq ft, and that for offices from £28 per sq ft to £31-plus per sq ft. Jamie Green, partner in the firm’s business space team, says: “The supply and demand demographics are still way out. Take-up has dug into the available space, and very quickly. We’ve seen all the good stock from the last boom pretty much disappear.”
If that continues, Green believes the market could see pressure on rents, so that by the end of the year Cambridge could be achieving £21 per sq ft. But he adds: “I don’t want to say it’s a grass-roots recovery. We’ve had 50,000 sq ft of take-up in labs, and that’s abysmal. And it’s been a bleak three or four years. October looked better, but off a very low base.”
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Arakis, Chesterford Research Park Building 400 ●15,000 sq ft purpose-built research and development building, with two floors of offices and 42 parking places ● 15-year lease at £20 per sq ft ● Work starts this month, with completion scheduled for February 2007 The park ● Developer Churchmanor has 250 acres, with 350,000 sq ft of existing space, to provide a total of 600,000 sq ft laboratories ● Consent for a further 250,000 sq ft ● Recently completed £5m Nucleus facilities building ● Speculative construction under way of 40,000 sq ft Emmanuel wet lab ● A further 15,000 sq ft will be started in the next 12 months Juggling a takeover and moving headquarters at the same time is a tall order. “It’s not a timeto worry about the extra pence per sq ft,” says Stuart Gibson, financial director at Arakis. Japanese company Sosei acquired the Cambridge-based biopharmaceutical company in February for £107m. Arakis’s prelet for 15,000 sq ft on Chesterford Research Park will more than double its accommodation on the park. Expansion was on the cards before the merger and Cambridge will now become Sosei’s European base. But being taken over is normally when companies look at cost savings. Gibson admits that rents and incentives handed out on other parks were tempting, but says: “If I lose one employee because they don’t like the location, it costs me morei n the long run. We are happy here and, when you are paying recruitment fees of £20,000, you don’t mess around with 50p per sq ft.” Gibson says Arakis had a cursory look at alternative sites, but: “Cambridge traffic is a nightmare. We didn’t even consider locations such as Cambridge Science Park.” Facilities on Chesterford – 12 miles to the south of Cambridge -also impressed him. “Normally landlords promise things and they don’t happen, but Churchmanor Estates has put them in already,” he says. The ability to stay in one building was paramount. Gibson says communication is a big part of Arakis’s business and staff are never seated in departmental teams. “For example, in finance, we are spread throughout the building,” he says. “That way, people walk around and hear more interesting things. And there are no office politics, which is fantastic. We’ve got to deal with being on two floors– but being in two buildings would have ruined our strength.” |
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Offices Supply 947,000 sq ft, down 10% on Q2. Grade A 320,000 sq ft Take-up 222,000 sq ft, level with Q2, but down 26% on previous year Prime rents £23.50 per sq ft, level with Q2, up 9.3% on 2004 Laboratories Supply 218,000 sq ft, down 1% on Q2. Grade A 170,000 sq ft, static on Q2 levels Take-up 22,000 sq ft, level on Q2, but down from 60,000 sq ft in 2004 Prime rents £20 sq ft, down 17% on Q2 2004 Source: Bidwells |
