In the second instalment of our Life Sciences series and as part of our City of Tomorrow campaign, we look at the demand drivers for the Life Science space and the delivery challenges developers face.
Spoiler alert: The industry is yet to provide an answer…
Demand (plenty of)
Demand for Life Science space has been on an upwards trajectory for several years, and the Covid-19 pandemic has only accelerated this demand by accentuating its importance.
for London makes for interesting reading. It found that in 2021 there was a demand for over 500,000 sq ft of Life Science Space (read labs and lab-enabled space) in London - a fourfold increase from the previous research conducted in 2016. Only a year later, reports suggested that demand had grown further to 750,000 sq ft.
Record demand in Oxford and Cambridge, in tandem with a severe lack of space, could easily see this rise further still and in very short order. Demand is significantly outstripping supply at the current rate, yet this is not for lack of investment appetite; there is currently an estimated £10 billion of live capital chasing UK science-led opportunities. The immature, but growing market, is attracting investors due to higher rents and limited competition.
Supply (Lack of)
The lack of supply is a problem for start-ups and smaller companies, where there is little fit-for-purpose, cost-effective space in locations deemed to optimise success.
With monied investors and limited supply, it is perhaps not surprising that London is now home to increasingly innovative laboratory space models targeting the supply issues inherent in small-scale lab suites. For example, customisable, modular wet lab units can be scaled up or down, depending on the occupier’s needs at any particular time.
Delivery (Challenges of)
Existing and future Life Science assets look like a good bet for investors seeking good returns in a growing market, but what is the reality of attracting occupiers and how does this impact future demand and growth?
Angus Marlow-Thomas, Partner in the Office Agency Team, has recent experience in letting Life Science schemes in Kings Cross and Shoreditch, which affords him a unique insight into the nature of demand in this burgeoning submarket. He explained, “the market must develop a more detailed understanding of the occupiers’ requirements to assist developers in delivering the right type of space, be it speculative development or design and build for specific occupier needs.”
What attracts occupiers, and what challenges do letting agents face?
Investors can be attracted to this type of asset given the long-term security of income and higher return associated with longer leases, but what about the occupiers? To understand the demand for Life Science space in London, we need to know what attracts occupiers and what challenges agents face when letting space. We have identified five key aspects of a property that occupiers find attractive and five potential obstacles facing London commercial letting agents.
- Being within a Life Science, health and educational ecosystem
- Excellent transport links
- A varied selection of amenities
- Impressive sustainability credentials
- Access to green and blue space
- Providing fit-for-purpose space for such bespoke requirements – i.e., how do you build for the broadest possible audience?
- Fit out/specification and the associated costs
- The scale: small start-ups will require flexibility and reduced upfront capital expenditure
- Timing; difficult to forecast growth and investment
- Clarity on upcoming demand for both small- and large-scale requirements
It is clear that successful space needs to be scalable, adaptable, bespoke and limit upfront capital expenditure. Anyone who’s able to deliver this seemingly impossible combination will have cracked the Life Science delivery code. To our knowledge, no one has managed it, and it remains in doubt whether it is even possible.
Until the code is cracked, supply will be constrained, and Life Science space will come with inherent compromises for both occupiers and investors. However, those compromises, to date at least, seem to pale in the face of the benefits both parties can realise, so the sector continues to feel its way and grow. Watch this space.
Missed the first article in this series? Check it out here.