Industry experts have urged the government to devise a solution that will boost life sciences-related real estate development across the UK’s key regions.
New research by Aviva Investors shows that London and Oxford are the top-ranked favourable locations in Europe for life sciences development, based on metrics including the quality of their clusters, scale, access to talent, funding and governance.
However, experts have flagged concerns about whether the UK can keep up with the competition it is facing from mainland Europe, which has recently seen an inflow of new investment into scientific research parks in established markets such as Paris and the Netherlands. New centres of excellence are also emerging on the continent, with Belgium, Sweden, Denmark and Germany among the markets to watch.
Jamie Renison, head of life sciences agency at Cushman & Wakefield, said: “There is strong international competition. Stronger policy support would help secure the UK’s future as a global leader in life sciences.”
Rob Burborough, partner at portfolio, programme and project management firm 3PM, said: “The UK has a very real opportunity to be a superpower on the global life sciences stage, and to some it might appear that we are already there. But we are at the very beginning of our journey, and success will only truly be long-term if we build the right ecosystems that will support its evolution. That is what we should be focusing on – the whole ecosystem, not just the ‘here and now’.”
Supply and demand imbalance
In the UK, a mismatch between the demand for laboratory space and its supply across the Golden Triangle continues to hurt the country’s ambitions to become a “science superpower”.
Recently announced government initiatives include a £650m package of support unveiled by chancellor Jeremy Hunt in May and an extension to the Horizon Europe Guarantee scheme until the end of September. However, experts believe more needs to be done.
Emma Goodford, head of life sciences and innovation at Knight Frank, said: “Recently announced government funding packages and measures aimed at accelerating the sector’s growth, though positive steps reflecting the importance of life sciences to the economy, increase the urgency with which new space must be delivered in markets of particularly high demand.”
Robert Crawley, director at Lateral, added: “Space can be found if you look for it and have the expertise, although it is next to impossible to deliver if you are not a seasoned life sciences real estate expert. That’s why so many investors are looking to partner with those with strong track records, which in a nascent sector is hard to come by.”
Active requirements across the Golden Triangle stand at 2.2m sq ft, but the region only has 385,000 sq ft of immediate supply, according to the latest data from Knight Frank.
Availability of space was constrained by 314,325 sq ft of life sciences take-up in the three months to the end of June, a 20% increase versus the same period in 2022.
Goodford said: “Through new development and refurbishment, new life sciences lab, office and educational space needs to be delivered at pace in order to permit the sector’s continued growth.”
Supporting the fledglings
Figures from Knight Frank showed that venture capital funding in the life sciences sector reached £1.3bn in the second quarter of this year, a 38% increase on the same quarter in 2022.
Louise Ward, partner at law firm Charles Russell Speechlys, said the ongoing lack of supply of life sciences real estate, particularly for “start-up” and “grow-up” companies, continues to be a major stumbling block to the UK’s ambitions to be a scientific superpower by 2030.
She said: “Traditional real estate developers have taken time to adjust their models away from the long-favoured FRI lease, backed by a strong covenant, and are only more recently starting to build the much-needed incubators and smaller footprints that aspiring life science operators need. But more needs to be done.
“Young companies that have not yet had a major breakthrough are unlikely to offer the security that would previously have been required, and nor do they have either the finance or the expertise to fit out a lab.
“The industry needs to continue to support these fledgling companies by building more small, fully fitted labs and making them available on flexible terms, perhaps with shared equipment and other facilities. Only then can those companies grow to be the strong covenant that the market so desires, and in turn provide the much-needed boost to the economy that the government is targeting.”
Slow off the blocks
A report from Cushman & Wakefield tracked £463.8m of capital raised in the first quarter, which is 4% above the figure recorded in Q1 2022.
Further research from Cushman & Wakefield showed that all life sciences schemes being brought forward total 1.6m sq ft, a third of which, measuring 504,300 sq ft, has already been prelet. A further 3.7m sq ft of life sciences schemes are consented but have not yet started.
Cushman’s Renison said: “The considerable inflation in the cost of construction due to worker shortages and material price rises, combined with the sharp increase in interest rates driving the cost of capital up, has meant that developments are taking longer to get underway – even those which have already been consented. These pressures are expected to become less acute as developers adjust to the new economic environment over the medium term.”
Stuart Grant, chief executive of science and innovation cluster network ARC, said: “Private and public sector collaboration to build science-ready infrastructure is vital to realise the UK’s innovation potential. At ARC, we are playing an active role in creating more than 1m sq ft of new lab-enabled space in the next two years.”
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