COMMENT: The UK life sciences sector demands attention. In 2018 it encompassed 5,600 companies, £64bn of annual turnover and 246,000 employees. Given the UK’s ageing population, technological change and rising quality-of-life expectations, the sector is primed for further growth.
Life sciences occupiers are knowledge-based and add significant value to local economies. Therefore, growing demand from these occupiers will indirectly support a wide array of businesses and services relying on them.
Occupiers are spread throughout the UK but concentrated in the South and East. From a real estate investment perspective, the tendency of life sciences occupiers to seek out particular locational drivers means there are leading indicators of where clusters have the potential to emerge and grow.
This creates opportunities to identify and access markets likely to benefit from these changes and which have low levels of supply. Suitable stock in these locations should experience shorter voids, above-average rental growth and resilient capital values.
Our research indicates that life sciences could be the next big thing for the UK occupational market
Traditionally, life sciences occupiers favoured large, out-of-centre campuses with a high proportion of lab space. This is now changing. Demand is growing for more traditional office space in accessible city centre locations. This shifting demand has three main drivers.
Firstly, life sciences occupiers rely on skilled talent, which increasingly wants to work in modern, well-specified workplaces that are accessible. These desires can be more easily fulfilled in city centres and central urban locations than the campuses.
Secondly, occupiers are conducting more primary research using technology, which means human workers spend less time in the lab and more in the office. Indeed, medical technology companies account for more than half of all jobs in the sector. Greater reliance on data and tech increases the attraction of better digitally connected locations. This makes occupying central buildings with a higher office content and lesser lab space more appealing.
Thirdly, 82% of UK life sciences companies are small and medium-sized enterprises. These companies have similar location preferences to start-ups – flexible office space in central locations, where they can cluster with like-minded firms. Life sciences accelerators and incubators are constantly being set up, and there is growing availability of on-demand lab space. Central office space is better able to cater for this type of demand rather than out-of-town locations.
Our research indicates that life sciences could be the next big thing for the UK occupational market. Demand for space is growing and it is changing. This will lead to the emergence of new life sciences clusters in certain regional city centre locations and consolidation on selected established clusters.
Real estate investors need a multi-dimensional investment approach in order to capitalise on the opportunity this presents. This means applying different acquisition, management and repositioning strategies in different locations, according to the maturity of the cluster and the nature of the most active life sciences occupiers. With an appropriate strategy, the growth of UK life sciences could deliver strong upside to informed investors.
We’ve analysed existing, emerging and planned UK life sciences clusters based on this rationale, including Oxford, the Thames Valley and Leeds.
Established and emerging clusters with the strongest potential for long-term growth are those that include excellent public transport accessibility, access to ultra-fast broadband, high density of skilled workers alongside a university or other major anchor, presence of an incubator space, significant amenity provision and flexible floorplates.
Tom Duncan is senior analyst for investment strategy and risk at Mayfair Capital
