2021 is shaping up to be the year of life sciences exploding into real estate circles; regular informative webinars, multiplying press articles and speculative developments are increasing in numbers across the UK. Though across the pond in the States, the sector has been fruitful for nearly 50 years already. The global pandemic has shone a light on the importance of life sciences, and with an aging population and an increase in human transmitted diseases, there’s no time like the present to get up to speed.
Unequivocally, the UK have world leading scientists and researchers with Cambridge, Oxford and London – The Golden Triangle – all globally renowned for their accomplishments within the space. In the UK, there’s over 5,000 BioTech firms and close to a quarter of a million jobs. We are among the top 5 in the world for operating in life science. Evidentially there is talent and demand, and albeit steady up until now, interest in the sciences is increasing; data shows that investment going into the sector was £2.8bn in 2020, 10 times what it was in 2012. On account of the difference between healthcare policies, the US is extremely well funded in science, research, medicines and therapies and at present is benefiting from the largest amount of capital ever deployed into the space. To put this into perspective, London receives 10% of the investment that Boston does although they both produce the same number of life science papers.
Real estate is an enabler here, and the built environment must accommodate the 24/7 lifestyle of workers. Typically, life science facilities are developed in a campus-like ‘cluster’, whereby multiple companies occupy a park with amenities and collaborative space to serve their needs throughout the day, week and lifecycle of their research purposes. Boston, San Francisco and New York all offer life science cluster models. Closer to home, the likes of Granta Park in Cambridge is a great example, at 1.3m sq ft in size with 30 life science companies operating from the park.
From an investment perspective, resilience of income and secure rent payment is a buoyant strength of the science sector that is often publicly funded. Moreover, the parks have an enterprise value; science needs to be performed in a laboratory setting and researchers are still turning up to work every day, whereas traditional sectors have momentarily closed leaving some yields and rents in hot water. A huge appetite coupled with an imbalance of supply is an attractive prospect for investors looking to diversify; research by JLL suggests there is currently £15bn targeting the UK market.
Redevelopment of existing real estate is undoubtedly at the forefront of landlords and developers minds. With an unwavering amount of empty retail space, is there potential for life sciences to take-up some of the vacancy in the UK? Issues around privacy, security and the public’s perception of scientific research may act as barriers for conversion near town centres. Not to mention the challenge in requiring dated buildings to tick very specific boxes. Brownfield sites are also contenders for redevelopment to science life clusters. However, the cost of doing so is yet to be fully understood, but offers a more environmentally conscious way to address the supply and demand imbalance. It is clear that there is an ever growing expertise in the real estate industry to understand the very specialist sector. Some of the key themes in property development are consistent – access to talent, connectivity to infrastructure, co-location with like-minded neighbours and flexibility of high quality accommodation to name a few, but developers and investors cannot rely on these qualities alone.
This sector isn’t led by real estate, its lead by talent and ecosystems. Attracting and retaining the best talent in the field is paramount for R&D and the quality of real estate on offer plays a huge role in this. A world away from foosball and free beer, in order to appeal to academia’s best mindsets the working environment must produce ecosystems inclusive of; collaborative space, nearby University’s / Uni hospitals, round the clock amenities and services, transport links and sufficient infrastructure, flexi-labs to accommodate lifecycle and variance of research, and state of the art buildings.
With a pressing demand for new supply, activity in the sector is gathering pace as evident in Brockton Everlast’s acquisition of 5 assets at Cambridge Science Park achieving significantly higher than asking at just short of £100m, and Arlington receiving planning consent for a 123,000 sq ft life science development in Hammersmith. As is evident with student accommodation and BTR, broadly speaking, where the States go, we follow. If we can learn how to replicate the successful growth in life science real estate from the US, and even improve on it, the sector may be set to receive the funding (private and public), research facilities and working environment that it unquestionably deserves. With an ever growing focus from investors in ESG, we will continue to see the wall of capital moving towards life science investments.