It was just a matter of weeks into the UK’s coronavirus lockdown that Legal & General’s Future Cities business completed on a major investment to grow Liverpool’s science and tech sector.
Through its SciTech joint venture with Bruntwood, it bought a 25% stake in Sciontec Liverpool, the company that operates Liverpool Science Park. Sciontec is a spin-out development company of KQ Liverpool – the strategic and placemaking organisation which is overseeing a £2bn development programme in the city’s first Mayoral Development Zone.
The £12m deal puts Bruntwood SciTech, the UK’s largest science and innovation property platform, into its idea of perfect company: investing alongside world-leading institutions – namely Liverpool John Moores University and the University of Liverpool – and a willing government partner in Liverpool City Council.
“Legal & General has a purely objective assessment of the growth potential of Liverpool’s science quarter,” L&G’s Future Cities managing director John Cummins told a Liverpool MIPIM webinar afterwards.
“With the Liverpool School of Tropical Medicine, the University of Liverpool, and Liverpool John Moores University, strengths in sports science and, essentially, a practical and pragmatic council and combined authority, what Liverpool has is world-leading.
“Our investment committee and the cabinet committee don’t care that I’m from Liverpool and an LFC fan, they care about the fact that we’ve found an amazing opportunity to create long-term investment, to create jobs and create growth areas in the city and they agree that we need to get away from the golden triangle of London, Oxford and Cambridge in order to fully grow as a nation. They understand that we need to develop the opportunities that we can see in these great northern cities like Liverpool.”
Network of districts
The Bruntwood/L&G Capital SciTech joint venture was officially launched in October 2018. The 50:50 joint venture saw the two partners invest £360m of capital, property and intellectual assets into a new company, Bruntwood SciTech. On launch the business had some 1.3m sq ft of assets, but through the jv it plans to grow that asset base to 6.2m sq ft over the next 10 years, creating a £1.8bn portfolio.
Bruntwood SciTech’s portfolio is already home to more than 500 science and technology businesses in key regional cities such as Manchester, Birmingham and Leeds. The jv also includes the internationally recognised Alderley Park campus in Cheshire, which is now home to one of the government’s three national ‘Mega Labs’ to facilitate mass testing for Covid-19.
And the jv is currently seeking further opportunities to invest in innovation districts alongside local partners, explains Eleanor Jukes, a strategist turned senior investment manager with L&G’s Future Cities vehicle. The key driver is to create a network of innovation districts across the UK and to facilitate the movement of businesses and ideas around that network.
“This is one of the key investment themes we are chewing over. We’re looking at where the innovation districts are now and where the innovation districts of the future could be. And how can we, as an urban regeneration business, support those,” says Jukes.
“Innovation and knowledge intensive industries are so important to our economy now as we orientate away from just consumer-led products. And it’s certainly what we are thinking about across all our portfolio: which local areas, which cities, which towns can support innovation?
“I’m doing a lot of work with the SciTech board, looking at the elements of an established innovation district or one that could emerge in the future. So it might be having a university. It might be having a really strong hospital. It will be looking at where there’s a strong proportion of small companies. It will be playing into the connectivity point – do they have the digital infrastructure provision there to support the tech-enabled businesses. Do they have a local government or municipality that will support innovation-led businesses and recognise the importance of innovation to productivity?”
Call for innovation policy
Bruntwood SciTech recently orchestrated a very public rallying cry for a new national innovation policy to help grow the sector – made all the more urgent by the need for the UK economy to bounce back from Covid-19 (see The manifesto). The 10-point manifesto includes a target for every UK region to have a centre of world-class research excellence by 2040 and greater collaboration between UK cities in order to boost science and technology innovation.
The manifesto calls on more businesses, with the support of the public sector, to back new ideas and innovation-based activities to increase the absorptive capacity of UK cities, improving their ability to convert investment into innovation, jobs and growth.
In July, a copy of the manifesto and its more than 30 signatories from the public and private sectors was sent to Alok Sharma MP, secretary of state for business, energy and industrial strategy, to call for his department’s support.
Investing in innovation is a priority L&G’s Future Cities business has been pursuing outside of the SciTech jv too, through projects such as Newcastle Helix, a jv with Newcastle City Council and Newcastle University, which will eventually create more than 4,000 jobs, 500,000 sq ft of office and research space, and 450 new homes. And more recently, Future Cities announced a £4bn partnership with Oxford University. Both projects could offer huge opportunity to involve SciTech too.
The 50:50 Oxford University Development jv will deliver 1-2m sq ft of new science parks where academic departments, university spin-outs and commercial partners can work together to create new companies and high-quality jobs.
However, the first priority is to address the shortage of accommodation for staff, students and key workers. “It’s about supporting the ecosystem associated with the university,” says Jukes.
She is also working on a project to deliver a life sciences building. “It will be a purpose-designed space providing things like wet labs alongside the usual academic teaching space. It echoes the strong focus that we see in the whole market at the moment in terms of life sciences,” says Jukes.
Then there are the more niche projects, such as building an overflow bookstore in Swindon for the Bodleian Library, one of the oldest libraries in Europe and, in Britain, second in size only to the British Library.
“So it’s been a lot of work to negotiate each of those deals, but really fascinating and will hopefully be a real flagship once those projects get out of the ground,” Jukes says.
The university’s pro-vice-chancellor for planning and resources, David Prout, told the university’s alumni website alumni.ox.ac.uk that one of its priorities in structuring the deal was to secure affordable rents over the duration of a lease on land where the freehold will continue to belong to the university. Another priority was that funding put into the agreements could not be traded on the open market “to avoid undesirable investors purchasing our leases”.
Indeed, crucial to this and other innovation investments is L&G’s ability to take the long view. Sitting within Legal & General Capital means Future Cities can invest from Legal & General’s principal balance sheet. Its objective is to generate long-term shareholder value by injecting new capital into key sectors where there has been a shortage of investment and innovation, thus giving it the patience for such long-term investments as Liverpool and Oxford to play out.
“We want our partnerships to be long term and for the future,” says Jukes. “Being able to demonstrate that we will take a lease of 40, 50, 60 years is testament to the strength of our balance sheet, but also the liabilities that underpin that and the need for annuity-driven investments across the UK. It’s a question of aligning long-term societal needs with the shareholder requirements of our annuity business.”
Working with local experts who understand what the local requirements for the built environment are – from Liverpool’s city council and universities to Oxford University – seems to be a winning formula, offering its shareholders the perfect risk mitigant in such uncertain times and potentially valuable dividends for society and the economy too.
The manifesto
As the UK counted the growing cost of the Covid-19 pandemic this summer, more than 30 leaders from across UK local and civic government, universities and research institutions put their names to a 10-point manifesto to boost the nation’s regional innovation potential.Signatories included Lord Jim O’Neill, West Midlands mayor Andy Street, mayor of Greater Manchester Andy Burnham, president of the University of Manchester Professor Dame Nancy Rothwell and Julie Wagner, president of the Global Institute on Innovation Districts.
The manifesto follows the publication of a new report produced for Bruntwood SciTech into the current state of the UK’s innovation infrastructure. It calls for a new national innovation policy with a greater focus on “place” rather than sectoral activities, backed by the government’s promised increase spending on R&D to 2.4% of GDP.
Bruntwood chief executive Chris Oglesby says: “It can take 20 years to develop a successful innovation district, as we have seen in Manchester’s Oxford Road corridor. But it is just one of a handful in the UK today and we believe there is the potential for one in every region. We can’t afford to lose any more time and risk falling further behind on the global stage.
“We need more R&D investment but of equal importance is creating thriving locations that attract talent and have the ecosystems that support innovation-led activities. The answer lies in building on the strengths of the world-class academic infrastructure that already exists in our cities. Bring together the parties needed to make innovation happen and then work collaboratively – including with other UK cities – to grow the pie rather than fighting over it.”
The manifesto also calls for the development of alternative investment models. “Property developers and investors need to offer more flexible solutions and capital alongside long-term investment strategies to support the development of innovation districts and places,” it says. “Coupled with greater flexibility for public sector investment funds and decision-making, this will support innovation in places.”
Global perspective: Innovation districts as a road to recovery from the Covid-19 generated recession
Early intel suggests that a small number of governments are developing multifaceted recovery packages aimed at creating a multiplier effect on the economy, write Julie Wagner and Tom Osha. These recovery packages include investments that are best aligned to jump-start the economy, create a longer trajectory of job growth, construct pathways for economic mobility, including traditionally underserved communities, and expand the city’s or region’s competitiveness.
Achieving such a multiplier effect sounds like a tall order. But some government officials have already identified viable avenues to get there by thinking through short-, medium- and long-term goals for driving recovery. This explains why in some parts of the world, innovation geographies – such as innovation districts and innovation precincts – are informally being asked to develop detailed lists of the kinds of projects and types of support they would need to drive inclusive, long-term growth in economic development. Innovation districts are compact geographies of innovation found primarily in cities. They are anchored by R&D-intensive institutions, such as universities and academic medical centres; companies; clusters of start-ups; community spaces; and urban amenities, such as housing, retail shops, dining, and entertainment. These districts activate a magnetic, interconnected environment that is the creative, productive, and economic engine of the municipal, if not regional, economy.
Even though job growth and economic recovery are a top priority, governments cannot focus solely on these goals. They must also make significant investments in research, development, and manufacturing – areas that will be more crucial than ever in solving some of our most vexing human and environmental challenges. Arguably, Covid-19 has exposed the fragility of our economic systems and the vulnerability of our global society. It is illuminating, in real time, the painful losses we are bearing as a consequence of being ill-prepared and under-resourced:
- Covid-19 has reinforced the imperative of scientific research and its application to improving the human condition – an area of vital government investment that has been in steady decline over the last 50 years.
- The global pandemic has helped highlight how most complex innovation processes no longer occur in isolation but, rather, are built on the ability to share knowledge and data locally and globally. Look no further than your own communities to see how relationships have proliferated between hospitals and start-ups, and life sciences researchers and established manufacturers.
- We have also learned what can happen when we rely on single supply sources and fail to invest in fundamental capabilities like manufacturing. Although moving manufacturing closer to home will likely mean higher unit prices, our current vulnerabilities underscore a renewed imperative for multiple supply sources. Furthermore, if designed well, regional manufacturing could breathe new life into our shrinking manufacturing clusters.
- Finally, this pandemic has illustrated the imperative for, and power of, challenge-based research to forge new alliances and a new wave of innovation charged to solve world-impacting challenges. Finding ways to eradicate this pandemic is only one example. Climate change and a myriad of intractable cancers and other diseases could become the platforms for funding teams that span organisations, institutions, and nations.
It is natural for these early government leaders to look to innovation districts as a driver of amplified activity. Yet, in the end, governments must also recognise their responsibility in fixing policies that have hampered the growth of local and regional clusters. And finally, it means they must align their economic imperatives with goals related to training, teaching, and including historically disadvantaged communities in this growth. Governments must also innovate and retain the agile and rapid decision-making – what many are demonstrating throughout this crisis.
In the end, we know we can respond to the challenge. We now challenge government to do the same.
Julie Wagner is president of the Global Institute on Innovation Districts; Tom Osha is board chair at the Global Institute
To send feedback, e-mail julia.cahill@egi.co.uk or tweet @EGJuliaC or @estatesgazette
This and much more will be featured in our upcoming issue of UK Cities, out 31 October
