This booming sector can help drive the UK recovery – and it’s hungry for space.
The search for a covid-19 vaccine has shone a light on the life sciences sector and the many research institutions around the UK that have committed significant resources to this endeavour. However, a number of fundamentals have been driving growth in the sector since before the pandemic. Long-term healthcare needs are changing. An ageing population and increases in life expectancy and lifestyle-related diseases, together with rapidly evolving technologies, big data use and developments in personalised therapies, all point to increasing demand for space to house a burgeoning life sciences industry.
The sector has been resilient to the economic downturn caused by the pandemic, with rent collection holding up well, and supply and demand dynamics remaining strong. There is huge potential for investors keen to support academic output in this sector and satisfy the demand for laboratory and office space in various locations across the UK.
The UK’s life sciences industry is highly regarded around the world and home to some of the most prominent research universities globally, with Oxford, Cambridge, UCL and Imperial College London at its core. Some 42% of the UK’s life sciences companies have spun out from academic institutions, and the sector receives significant support from the government which, before covid-19, committed £22bn a year to the sector in the 2020 budget.
The UK is an increasingly desirable location, thanks to its high-quality intellectual property, attractive exchange rate and salary arbitrage
Oxford, Cambridge and London form the so-called Golden Triangle, a hub consisting of world-class research facilities, incubators and innovative small businesses. It is the third-largest technology cluster in the world, after Silicon Valley and Boston. Oxford is home to Oxford Sciences Innovation, an incubator and seed fund set up in 2015 by the university and external investors with an initial £600m of capital. OSI invested £65m in 30 companies in Q2 2020 alone and is currently looking to raise another £600m. While the more mature US life sciences sector is undoubtedly the global leader, the UK is an increasingly desirable location, thanks to its high-quality intellectual property, attractive exchange rate and salary arbitrage. This will mean more capital, more jobs, and more demand for space in the Golden Triangle.
Yet there is a significant undersupply of appropriate stock across the UK’s various centres of excellence, with laboratory-enabled space typically trading at a 10% premium to office rents (with much more pricing confidence). Other factors such as rising house prices and rents on commercial property are threatening the development of the life sciences sector by outpricing the talent and start-up businesses that spring up from these locations.
Last year it was reported that around 125,000 sq. ft of take-up in Oxford was related directly to companies funded by OSI. The global spotlight the city has received in recent months due its vaccine research will undoubtedly see it grow further. Despite this, Oxford still suffers from a lack of bespoke laboratory space, forcing some tenants to adapt existing office buildings themselves in order to meet their needs. This is not optimal for growing businesses at the cutting edge of health technology.
Numerous factors make London a key member of the Golden Triangle cluster. It boasts four of the world’s top ten universities, several leading R&D facilities, including the Francis Crick Institute, and a deep talent pool. The sector faces an ever-increasing requirement for affordable space in the capital. However, the growing trend of collaborative working could present greater opportunities to those who can provide flexible space. Differing laboratory configurations can meet the needs of a diverse range of companies and ensure the already limited space is used more efficiently. Scientific R&D will also be more resistant to current shifts in working practices, being an activity that cannot be carried out from home.
Covid-19 and ongoing vaccine trials will ensure the life sciences sector stays firmly under the microscope, which means the need for fit-for-purpose space with affordable rents is unlikely to be dampened. Investors can capture this trend and will play an important role in more ways than one. A recent report by New London Architecture predicts that the enhancement of the UK’s Golden Triangle could help drive the UK’s overall economic recovery post-covid. This should be a win-win for both investors and the sector, with a boost for life sciences and accompanying employment and innovation.
