In London property circles 2021, and 2020 before that, was characterised by a mass gathering of information on the life sciences sector. This was in train before Covid-19 struck – driven by increased healthcare spend globally, scientific discovery and the UK’s ageing population – although of course the global health pandemic has played a contributing role in the sharpening of focus.
Over this period there was a lot of discussion around the definition of the sector. This included the specification of space and who would occupy it, debate around demand, and comparison with traditional office space from a space efficiency, build cost and rent premium perspective. How could existing office space be retrofitted (as Gyroscope did at Rolling Stock Yards, N1, or Autolus at White City Place, W12) or new schemes future-proofed through lab enablement and adaptability?
The challenge for developers to date has been rationalising lack of historical take-up data with addressing supply shortfalls in a market where the existing demand might have high growth potential, but remains small-scale in nature and early-stage in enterprise terms. Such demand is therefore largely unable to pre-commit to space.
Creating an ecosystem
Local planning authorities that host the principal or potential emerging clusters – Hammersmith & Fulham, Camden, Tower Hamlets, Lambeth and Southwark – have similarly been on a learning curve, albeit some more so than others. This has been particularly evident in terms of the requirements of a commercial life sciences market cluster versus those of the institutional facilities that form part of London’s traditional healthcare and educational infrastructure. Crucially, success will depend on creating and curating the right ecosystem.
In this environment, the Savills Science team has been in strong demand on everything from planning and development consultancy to project management and fit out, and leasing and sale. The market education process is very much still ongoing, but as projects move through planning and into the delivery stage, first-hand knowledge and experience across landowners, developers and institutions is building.
Towards the end of last year, we started to see some capital markets evidence in London. Pricing was keen, following on the heels of some of the levels seen in much more established markets in Cambridge and Oxford. This year is likely to be a big one. Despite the mixed response to the MedCity demand report study, the view from the coalface is that there is now a substantial list of occupier requirements for central London, which need to be satisfied in the short term.
We should start to see the first meaningful transactional evidence in the London land market for genuine life sciences-led development opportunities. This will be triggered by an important “pump priming” role of a handful of forward-looking institutions. They are packaging and promoting opportunities with the specific objective of securing delivery of space that will cater to these requirements as well as their respective “home-grown” demand. Such entities are able to attach value to the commercialisation of academic intellectual property and R&D, meaning they have key drivers over and above traditional commercial real estate return metrics. This is likely to add supply into the market, and increased transparency on demand and uptake.
US investment
We are also seeing an uptick in appetite and activity from some of the US life sciences heavyweights: IQHQ made its first acquisition in the UK in 2021, in Cambridge; Breakthrough Properties bought in Oxford; Longfellow has kick-started a UK business; and Biomed Realty is in acquisition mode. This year will also see on-the-ground project delivery milestones at BAPF/REEF’s Tribeca Scheme and Brookfield’s Arlington at Manbré Wharf in Hammersmith, W6, (pictured), as well as ground-breaking at Belgrove House, N1, the MSD London Discovery Centre prelet.
This does not mean that the London landscape is about to be transformed overnight. Life sciences is likely to remain a minority subset of the mainstream London commercial market for the foreseeable future. However, it does very much look like this will be the next stage of evolution of the market. Crucially, it is likely that we will start to see more evidence to support the value growth potential of the sector in key geographical spots around the capital. This will add weight and confidence to the momentum that has been building to date.
The London life sciences sector
Speculative development of purpose-built R&D space:
- Kadan’s 114,000 sq ft Brandan Road scheme, north of King’s Cross, N1
- Arlington’s 250,000 sq ft Manbré Wharf in Hammersmith, W6
- Reef Group’s 600,000 sq ft Tribeca scheme in King’s Cross, N1
Occupier demand:
- 750,000 sq ft of live life sciences requirements currently focused on London in 2022
Inward investment:
- 300% increase in the number of venture capital-backed biotech firms progressing beyond seed funding over the past five years, fuelled by growth sectors such as AI, personalised medicines, microbiome therapies, genomics and vaccine technology
- An estimated £10bn of live capital chasing UK science-led opportunities
New markets in digital health
Digital health companies are engaged in building hardware and software solutions to empower individuals to more easily keep track of their health, and to enable healthcare providers to better communicate with and treat patients.
The space includes a host of mobile applications designed to track fitness activity, sleep, nutrition, weight and medication intake, as well as digital wearable devices, AI platforms and genomics testing technology.
While digital health forms part of the life sciences sector, these occupiers are different in that very few require lab space, so instead they can adapt more traditional office space to suit their needs. This allows them to be far more footloose than the wider life sciences market and less constricted by a tight supply of bespoke space.
It suggests that their evolution within London can be quicker and, with the significant increase in capital raised in this area over the past five years, the market should expect to see a number of new deals coming through in 2022. Names to look out for in the sector include Babylon Health, Elvie and Zoe.
Figure 1, below, shows that London has seen around £3.8bn of digital health capital raised over the past five years (2017-21), averaging around £760m per annum during that period.
Figure 2 shows that London has seen a relatively larger proportion of digital health fundraising as a percentage share of the life sciences total.
Oliver Fursdon is head of central London commercial development, and part of Savills Science
